Month: May 2014

Judge Rejects Most Trade Secret Theft Charges against Raytheon

A federal district court judge in Arizona has ruled that most of the trade secret theft claims made by Ordnance Technologies Inc. against Raytheon Co. are time-barred because Ordnance failed to sue within three years after first notifying Raytheon of the alleged theft.

Ordnance and Raytheon had entered into a technical assistance agreement in 2002, under which Raytheon was to provide services relating to integrating Ordnance’s Lancer Multiple Warhead System into Tomahawk cruise missiles.

This agreement included a provision under which Raytheon agreed not to disclose or use Ordnance’s proprietary information.  An amendment to the agreement gave Ordnance full rights to use and manufacture the warhead designs.

In January of 2009, Ordnance learned that Raytheon had made an agreement with the US government for a “Joint Multi-Effects Warhead System” to modify the Tomahawk.  Soon after, Ordnance accused Raytheon of infringing its intellectual property rights in the warhead designs.

In July of 2009, the US Navy awarded Raytheon a $12.8 million contract to develop the warhead.

After correspondence and meetings between the parties, Ordnance finally sued Raytheon in May of 2012.  Raytheon filed a motion for summary judgment on nine out of ten of Ordnance’s claims, including its claim for trade secret misappropriation, saying that they were barred by the three-year statute of limitation.

Raytheon also denied any theft of trade secrets, saying that no proprietary Ordnance information was used in its designs.

The court granted Raytheon’s motion, saying that Ordnance knew of the alleged trade secret misappropriation in January of 2009 and that the fact that Ordnance was not aware of the extent of the misappropriation until later was not relevant.

The judge also said that there was no evidence Raytheon caused Ordnance to delay taking action by failing to deliver documents showing that it had not misappropriated Ordnance’s trade secrets.

Only a single breach of contract claim now remains to be litigated in the case.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.


Judge Allows Headhunter to Delay Jail Time for Trade Secret Theft Charges

A federal judge in California has allowed a former executive headhunter to delay serving a prison sentence while appealing his conviction for theft of trade secrets, hacking, and conspiring to use proprietary information.  However, the judge also ordered the headhunter to pay a $60,000 fine immediately.

David Nosal, a former recruiter for Korn/Ferry, was sentenced to a year and a day in prison for violating the federal Computer Fraud and Abuse Act and the Economic Espionage Act.

Nosal was convicted by a federal jury of conspiring to gain unauthorized access to Korn/Ferry’s computer system to obtain the firm’s trade secrets.  Prosecutors said that he intended to use these materials to set up a new business.

According to the Assistant US Attorney, “At the end of the day, stealing is stealing, whether you use a crowbar or a computer.”

Nosal pleaded for probation, claiming that he had come from humble roots and worked three jobs to put himself through college.

The judge sentenced Nosal to less than the maximum prison term, but said sending him to prison would send a message to others and deter trade secret theft.

At his sentencing, Nosal said that he intended to appeal to the Ninth Circuit and that the sentence would not deter him from competing with Korn/Ferry.

Nosal was served with a federal 20-count indictment in 2008 after he convinced three of his former staff members to access Korn/Ferry’s database to obtain lists of executive candidates he wanted for his new company.   He was eventually found guilty of six of the charges.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

Music Companies Say Grooveshark Destroyed Records in Copyright Case

Music companies involved in litigation against Grooveshark have asked a federal judge to sanction the music streaming service’s owner for destroying records the plaintiffs say would have shown the extent to which Grooveshark engaged in copyright infringement.

Universal Music Group (UMG), Warner Bros. Records, and Sony Music say that Escape Media Group Inc., which owns Grooveshark, destroyed records even though copyright infringement litigation was pending.

Grooveshark’s on-demand music streaming service allows users to listen, for free, to songs from a playlist of more than 15 million tracks.  The company’s revenue model is based on advertising.

UMG initially sued Grooveshark in New YorkState court in 2011.  In April, 2013, a New York court of appeals ruled against Grooveshark for its posting of pre-1972 song recordings, including songs by Buddy Holly and Chuck Berry.  The New York court concluded that the music was not covered by the safe harbor provisions of the Digital Millennium Copyright Act (DMCA). The DMCA, under some circumstances, shields internet service providers from copyright infringement liability if they promptly remove copyrighted works from their websites when asked to do so by the copyright owners.

Grooveshark has agreements with owners of many sound recordings, but also allows its 35 million users to upload songs.  Thus, it cannot be certain that all of its content is non-infringing.

Some artists, including Robert Fripp of King Crimson, have complained that their music remained on Grooveshark despite several takedown notices.  Music label executives said that they had sent hundreds of thousands of takedown notices to Grooveshark only to see the songs reappear within seconds.

UMG and the other plaintiffs also sued Grooveshark in federal court, saying that the service engaged in copyright infringement on a large scale.  The suit cited emails from Grooveshark executives that appeared to boast of “achieving all this growth without paying a dime to any of the [music] labels.”

If Grooveshark and its executives are found guilty of willful copyright infringement, the maximum penalty could be $150,000 for each work infringed.

The plaintiffs claim that missing information includes evidence of Grooveshark’s Chief Technology Officer’s uploads, even though the plaintiffs demanded that these records be maintained.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

US Supreme Court to Determine Whether Federal Circuit’s “Exceptional” Test is Improper in Patent Cases

In the case of Octane Fitness, LLC v. Icon Health and Fitness, Inc., the US Supreme Court is scheduled to determine whether the Federal Circuit’s two-part standard for finding an “exceptional case” for awarding attorneys’ fees improperly appropriates a district court’s discretion.

The case involves Icon, a manufacturer and seller of exercise equipment which owns US Patent No. 6,019,710 for an “Exercise Device with Elliptical Movement.”

Icon sued Octane, a start-up exercise equipment company that made elliptical exercise equipment.  Octane claimed that its machines were based on licensed patents that pre-dated the ‘710 patent and that its linkage system was nothing like the one described in the ‘710 patent.

In its petition for certiorari to the Supreme Court, Octane claimed that Icon “recognized Octane’s success and hatched a plan to extort royalties out of Octane with a weak patent case,” using an “old patent…that was sitting on the shelf.”

Octane spent $1.3 million defending itself against Icon’s patent infringement lawsuit and prevailed at summary judgment.  However, the district court did not award Octane attorneys’ fees, finding that under the Federal Circuit’s two-part test the case was not “objectively baseless” or brought in “subjective bad faith.”

Although in US courts the parties generally bear their own legal fees, the Patent Act provides for the award of attorneys’ fees to the prevailing party in “exceptional cases.”  This provision is intended as a deterrent to “improper bringing of clearly unwarranted suits” for patent infringement.

The Federal Circuit affirmed the summary judgment for Octane and also affirmed the district court’s decision on fees.

Octane argued in its petition that the “exceptional-case” standard applied by the Federal Circuit was “inexplicably and unfairly” high and almost impossible for a defendant in a patent infringement case to meet.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

Supreme Court Hears Arguments in Raging Bull Copyright Case

The US Supreme Court has heard oral arguments in a copyright case involving movie studio Metro-Goldwyn-Mayer Inc. (MGM) and the daughter of Frank Petrella.  Mr. Petrella was the author of a 1963 movie script called “The Raging Bull.”

At issue is the doctrine of “laches” – an “unreasonable delay pursuing a right or claim…in a way that prejudices the [opposing] party.”  The doctrine bars a plaintiff from suing if he or she “sleeps” on his or her rights.

Paula Petrella has asked the Supreme Court to overturn a ruling by the Ninth Circuit that she was barred by laches from suing MGM for infringing the copyright in her father’s script, upon which the 1980 United Artists movie Raging Bull was allegedly based.

Frank Petrella had also collaborated with Jake LaMotta, the boxer who is the subject of the film and who wrote the 1970 memoir Raging Bull: My Story.

Frank Petrella died in 1981, a year after the movie was released.  Under a 1990 Supreme Court case involving the Alfred Hitchcock movie Rear Window, when an author dies before the copyright renewal term ends, the author’s heirs can claim the author’s copyright renewal rights.  Ms. Petrella did this for her father’s work.

Ms. Petrella became aware of a potential copyright claim for her father’s work in 1991, but did not sue until 2009.

The US Copyright Act has a three-year statute of limitations, which means that Ms. Petrella would have a theoretical claim to damages going back to only 2006.  However, a lower court didn’t allow her to even make that claim, due to her delay in bringing suit.

MGM and other studios are concerned that without the doctrine of laches plaintiffs could file copyright claims any time a movie or TV show is released in a new format.

MGM made a major investment in promoting Raging Bull for the movie’s 25th anniversary re-release in 2005.  The studio claims that the movie does not have a “substantial similarity” to Frank Petrella’s screenplay and thus does not infringe his copyright.

MGM’s attorney told the Supreme Court that the film “still has never made a profit” for the period at issue.

If you believe you may have a claim for copyright infringement, it’s important to bring a claim promptly in order to avoid losing your rights or minimizing your damages.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

Prince Drops $22 Million Copyright Suit against Bloggers

Pop music star Prince, known for hits such as “1999” and “When Doves Cry,” has dropped a copyright infringement lawsuit against 22 bloggers and Facebook users only weeks after he filed it.

He had sought $1 million in damages from each defendant.  He claimed the defendants had directed others to sites where they could find bootleg recordings of his performances.

Most of the defendants were identified only by online names such as “World of Bootleg.”  Causes of action included both copyright infringement and contributory copyright infringement.

According to the complaint, the defendants

…typically publish posts that list all the songs performed at a certain Prince live show and then provide a link to a file-sharing service where unauthorized copies of the performance can be downloaded.

Some of the sites were general-purpose bootleg sites, offering a wide range of intellectual property for illegal downloads.  Some of the sites were fan pages.

The suit was dropped “without prejudice,” meaning that Prince could revive the claims at a later date.

Online piracy is continuing to grow, despite the availability of legal downloads and streaming from sources like iTunes, Pandora, and Netflix.

Bandwidth used for copyright infringement grew 160% from 2010 to 2012, according to a study from NetNames, a British brand protection firm, which says 24% of all Internet bandwidth is used for piracy.

According to the same report, 327 million unique users sought pirated content in January of 2013.

Serious law enforcement activity against pirate sites and their users is rare.  However, in June of 2013 three brothers from Fremont, California were arrested on grand theft charges and face up to five years in prison for running a site that allowed users to watch pirated movies and television shows.

Most anti-piracy cases are civil copyright lawsuits brought by artists like Prince, entertainment and software companies, and trade groups like the Motion Picture Association of America.

An effective anti-piracy program can both deter infringers and potentially recover significant damages for a copyright owner.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

Expert Says DuPont Titanium Process Was Trade Secret

In a criminal case involving the alleged theft of trade secrets by individuals linked to companies funded by the Chinese government, an expert witness has testified that DuPont’s process for making titanium dioxide by chlorination was a closely guarded trade secret.

Two men are on trial in federal court in California for trade secret theft.  Robert Maegerle is a former DuPont engineer, and Walter Liew is the founder of a company called USA Performance Technology Inc.

Prosecutors claim that Maegerle shared DuPont’s trade secrets with Liew, and that Liew then used that information to help companies funded by the Chinese government open new titanium dioxide plants.

According to the government, Liew and Magerle earned $28 million from the trade secret theft.

In a pending civil action that is related to the criminal matter, DuPont is suing Liew for theft of trade secrets, but this lawsuit is on hold pending a ruling in the criminal trial.

The defendants claim that the DuPont process has been public knowledge for decades, and that they designed the Chinese plants using information from textbooks and other legal sources.

But expert witness Robert Gibney denied that was possible.  Gibney is a former senior vice president for Tronox Ltd., which is also in the titanium business.

Gibney testified that DuPont was able to command premium prices for its titanium dioxide pigment, and that competitors knew that the DuPont process was more efficient than the alternatives — but not how it worked.

Gibney said that DuPont made special efforts to protect its process, requiring employees to sign codes of conduct and swearing them to secrecy each year.  It also prohibited cellphones and cameras in its plants, and used on-site guards in its titanium dioxide factories.

The Uniform Trade Secrets Act (“UTSA”) defines a trade secret as:

  • information, including a formula, pattern, compilation, program, device, method, technique, or process,
  • that derives independent economic value, actual or potential, from not being generally known to or readily ascertainable through appropriate means by other persons who might obtain economic value from its disclosure or use; and
  • is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

UPDATE in DuPont Trade Secret case: Ex-DuPont Engineer Convicted Of Trade Secret Conspiracy.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

California “Green Chemistry” Law May Force Companies to Re-Think Trade Secret Strategy

Under California’s “Green Chemistry Initiative” (GCI) the state has listed 1,200 chemicals as “chemicals of concern.”  Makers of consumer products that contain these chemicals will have to disclose these components if the products are made or sold in California.

Companies that use the chemicals are required to submit detailed regulatory filings, which will be posted online for public review and comment.  The information would also be available to a company’s competitors.

The state may eventually limit or ban the listed chemicals.

The California Department of Toxic Substances Control (DTSC) approved the GCI’s regulations in July of 2013 and the regulations took effect in October.

However, one important aspect of the final regulations has not yet been resolved.  In August, the California Office of Administrative Law disapproved two provisions of the regulations that were intended to protect trade secrets.

The Office disapproved Section 69509.1(c) due to impermissible vagueness in the “substantive criteria” that the DTSC would apply to determine whether submitted materials should be designated as trade secrets.

The Office also disapproved Section 69509.1(a) due to uncertainty over when the trade secret designation would be made, and whether DTSC could decline to designate something a trade secret.

With trade secret protection for chemical formulas regulated by the GCI thus in limbo, the time is ripe for companies to re-evaluate their strategies for protecting proprietary information.

The two primary ways for a company to protect proprietary information (such as a chemical formula) are via patent law and trade secret law.

For patent applications filed on or after June 8, 1995, US patent law protects an invention for 20 years from the filing date of the earliest US patent application.

Information can theoretically be protected as a trade secret “forever” as long as it is not disclosed.  For example, the formula for Coca Cola has been a trade secret since the drink was invented in 1886.  (“The Vault of the Secret Formula” is an exhibit at the World of Coca-Cola museum in Atlanta.)

If disclosure is mandated under the GCI, and adequate trade secret protections do not apply, companies may wish to seek patent protection for their chemical formulas.

However, under the “on-sale bar” doctrine, an inventor may not acquire a patent if

the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of application for patent in the United States.

Under a recent decision by the Federal Circuit, this “offer to sale” includes an offer by an authorized supplier to make the product at issue and sell it to the inventor – even if the product is not yet offered for sale to the general public.

Thus, patent protection won’t be a viable option to protect trade secrets associated with products that have been for sale for years.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.

Jury Finds that Google’s Patent License Protects Its Customers

A federal jury in Texas has found that Google’s license with a patent owner prohibits that patent owner from suing Google’s customers for infringement of the licensed patents.

Beneficial Innovations Inc., a Las Vegas-based non-practicing entity (NPE), had sued Google and other defendants in 2007 and 2009 alleging infringement of Beneficial’s patents for online advertising.

One of the patents, filed in 2000 and issued in 2009, is for

A networked system … for presenting advertising during on-line interactions between a user and a service of a network (e.g., the Internet…). Advertisements (ads) are presented to a networked user unrequestedly during user interactions with the service. The user can activate the ads (via hyperlinks) for receiving additional advertising. …

In 2010, Google and Beneficial entered into a license for the two patents at issue.  Google and its YouTube subsidiary were then dismissed from the patent infringement case.

The license agreement covered Google’s customers, but “only to the extent” that the customers’ activities would constitute direct or indirect infringement by Google but for the license.

However, less than a year after the settlement Beneficial sued a number of companies, including five Google customers, for infringement of the same patents.

The Google-Beneficial patent license had left open the issue of whether Google’s customers’ specific activities were covered by the license.

Google intervened in the suit against its customers, claiming that it violated the licensing agreement.  However, the Google-Beneficial patent license was unclear on whether it covered the specific activities challenged by Beneficial in the latest suit.  This was the question the jury decided in Google’s favor.

Google sought only nominal damages in the amount of one dollar, as it was primarily interested in relieving its customers of the burden of the lawsuit.

Although the case had a positive outcome for Google, it is possible that it could have been avoided with a more carefully drafted license agreement that spelled out the full range of potential uses by Google customers.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.


Ninth Circuit Revives Copyright and Trademark Claims by Heirs of Bill Graham

The Ninth Circuit has revived a case involving copyrights and trademarks associated with the late Bill Graham.

Graham, who was born in Berlin, escaped Germany and France during the Second World War and lived as a foster child in the Bronx.  He moved to San Francisco in the early 1960s and got his start as a promoter by organizing a benefit.

He presented concerts at the Fillmore Theater in San Francisco and worked with performers including Jefferson Airplane, the Rolling Stones, and the Grateful Dead.

He died in 1991 in a helicopter crash near Vallejo, California, on his way home from a Huey Lewis and the News concert.

His will created trusts for his sons, who were 14 and 23 at the time of his death.  The executor of the will and the trustee was Nicholas Clainos, Grahams’s friend and business partner.

In 2010, 15 years after the probate court had made the final disposition of Graham’s estate, Graham’s sons sued Clainos, his attorneys, and the Bill Graham Archives.  Graham’s sons claimed that they had been cheated out of hundreds of valuable rock concert posters and the copyrights associated with those posters.

Graham’s sons also claimed that Clainos and his attorney had “concealed and converted” the rights to “The Fillmore” trademark.

Graham’s sons claim Clainos and his attorney had assigned the poster rights to a new subsidiary of Bill Graham Presents in a document dated August 31, 1995, and then backdated that document to August 1, before the probate case closed.  Clainos became the subsidiary’s largest shareholder, according to the complaint.

A federal district court dismissed the claim against Clainos but the Ninth Circuit reversed and remanded, holding that the plaintiffs had pled facts sufficient to show that assignment was not effective and thus that they had a legitimate claim to the copyrights for the posters.

Some of the concert posters, including the one above, were published without copyright notices before 1977 and thus are now in the public domain.

For works created after January 1, 1978, copyright protection lasts for the life of the author plus 70 years.  Thus, an author or artist can bequeath copyrights (and the associated royalty streams) to his or her heirs after death.

Stay up-to-date on the latest Intellectual Property Law news from Sheldon Mak & Anderson.