February 23, 2018

4th Circuit Upholds Client’s $26 Million Damage Award for Copyright Infringement

Prior to my joining Weisbrod, Matteis & Copley (WMC), the firm represented Alpha Mining Systems and its principal, Jordan Fishman, in a copyright infringement lawsuit against Shandong Linglong Rubber Company Ltd., et al. Linglong is a Chinese company. The jury Alpha $26 million in damages. On June 5, 2012, the Fourth Circuit Court of Appeals upheld the damages award. Even apart from the damage award the case is noteworthy in a number of respects.

Alpha is a domestic producer of highly specialized mining tires. As the 4th Circuit noted, “[p]rior to 2005 and the events giving rise to this suit, Alpha flourished in the mining-tire market with its unique and effective designs.” Alpha obtained copyrights for a number of its tire designs and “closely guarded its blueprints, as with these in hand any manufacturer could copy the company’s distinctive tires and jeopardize its market position.”

In May 2005, John Canning, a former employee of Alpha met with a then current Alpha employee, Sam Vance, and Surender Kandhari, the chairman of defendant Al Dobowi, (“AD”) to discuss AD’s entry into the mining tire business. Vance offered to supply AD with Alpha’s blueprints, customer lists, and cost information. They discussed using this information to produce and sell a line of mining tires that copied Alpha’s designs.

After the meeting, Vance developed a business plan which he forward to AD, which then also hired him. Vance, Canning and Kandhari then sought to find a tire manufacturer to produce the mining tires based on the designs stolen from Alpha. In the summer of 2005, Linglong agreed to produce the tires knowing that the designs had been stolen from Alpha. For example, in a September 2005 email, Vance and a Linglong representative discussed taking steps to slightly modify their tires to make it less obvious that they had copies Alpha’s designs. Linglong and AD produced a range of tires based on the stolen designs and started selling them in early 2006. [Read more…]

Should a Corporation Report the Risks of a “Cyber Incident”?

Recent high profile data breaches, corporate economic espionage cases and government reports detailing the threat posed by foreign economic espionage in cyberspace have generated more focus on the risks posed by cyber incidents and whether corporations are doing enough to protect their computer systems and intellectual property. Despite this, and prior to newly released guidance from the Division of Corporation Finance of the Securities and Exchange Commission, there were no guidelines as to when a corporation should publicly disclose the loss of confidential information or disruption to a system caused by a cyber incident even when the incident caused financial losses.

Indeed, it was widely assumed that many companies did not report such incidents for fear of damaging their reputation with investors, customers, and their employees, and highlighting their vulnerabilities. Now, however, corporations and their managers should seriously consider whether to follow the recently released guidance from the SEC on the disclosure of cyber incidents.

Corporations should also use this opportunity to review their insurance coverage of losses due to cyber incidents, especially since the SEC has identified the extent and amount of insurance coverage as a risk factor.

Cyber incidents can be intentional or unintentional. Intentional attacks can consist of attempts to bring down the computer system for malicious reasons or to gain access to steal confidential and proprietary information, such as customers’ credit card information or invaluable trade secret information. As to the latter, a recent government report highlighted the risk of economic espionage committed by foreign governments, agents and companies against U.S. corporations using the opportunities provided by cyberspace. (Click here to view report).

The report noted that foreign collectors of sensitive economic information are able to operate in cyberspace with relatively little risk of detection by their private sector targets. The proliferation of malicious software, prevalence of cyber tool sharing, use of hackers as proxies, and routing of operations through third countries make it difficult to identify the responsible party.

The report concluded that because the United States is a leader in the development of new technologies and is a central player in global finance and trade networks, foreign attempts to collect technological and economic information from U.S. corporation will continue at a high level and will represent to the financial being to U.S. companies and to the economy of the United States as a whole. [Read more…]

Four Lessons Every Company Needs to Know About Protecting Its Trade Secrets

I have completed my in-depth analysis of the approximate 115 prosecutions that the government has brought so far under the EEA. The number is sufficient to allow me to draw a number of meaningful conclusions from a review and analysis of them. Indeed, such an examination reveals a number of expected and unexpected results that corporations should strongly consider in implementing or improving upon a trade secret protection program.

Lesson #1: It’s usually an inside job – In more than 90 percent of the EEA prosecutions, the defendant was an “insider” and had access to the trade secrets because he or she was either an employee of the victim or worked for a vendor or contractor of the vendor. Companies should be aware that defendants almost always misappropriate the trade secrets shortly before resigning from the victim company.

Lesson #2: ‘The China connection’ – Companies should be aware that the threat posed by foreign economic espionage is real, and the risk is increasing. In particular, there is a “China Connection” in a strikingly high percentage of the prosecutions. In more than 20 percent of these cases, the defendant misappropriated trade secrets to benefit the Chinese government or an existing Chinese company or to start a company there.

Lesson #3: Just because you don’t live in Silicon Valley doesn’t mean you’re exempt – Although many of the prosecution involved sophisticated technology, there was no shortage of cases involving other types of trade secrets.

Lesson #4: Chances are your safeguards aren’t as safe as you think – A number of cases suggests that regardless of the steps undertaken by a company to protect trade secrets, the protection is only as strong as the weakest link.

If you would like more information about these findings, you should read my article, “Four Lessons Every Company Needs to Know About Protecting Its Trade Secrets,” which was published by Thomson Reuters, and is available on Westlaw (19 No. 1 WJINTPROP1).

I will also post more of my conclusions about the EEA prosecutions in the coming weeks.

“Big Cases, Big Verdicts and Big Challenges,” AIPLA Conference (May 10-12, 2012, Austin, Texas)

I will be on a panel at the 2012 Spring Meeting of the American Intellectual Property Law Association (AIPLA) entitled “The Internationalization of Trade Secret Disputes: Big Cases, Big Verdicts and Big Challenges.” AIPLA is the largest association of intellectual property professionals in the country. The conference will be held at the Hilton Austin, in Austin, Texas, May 10-12, 2012. If you’re attending please send an email to me at ptoren@wmclaw.com so we can say hello. I’ll be posting, next week, what I think are the five most important topics from the conference.

World Intellectual Property Day – Why It Matters

Last week, April 26, marked World Intellectual Property Day. The US Chamber’s Global Intellectual Property Center celebrated by releasing a new “IP 101” education tool-kit. The kit includes an educational white paper so even first-time readers can familiarize themselves with Intellectual Property issues, IP infographics and multiple third party voices of support for IP .

So often, Americans take for granted how IP touches nearly every aspect of our daily lives. I wanted to highlight World IP Day as an opportunity to articulate the importance of Intellectual Property to our overall economy.

It’s easy for consumers to think of IP in the abstract. Pirated software overseas or copyright infringement is only a problem for the biggest of mega corporations. Unfortunately, for small business owners in America – the largest engines of job creation – that’s not the case. If you or someone you know owns or operates a small business, take a minute and think about how their livelihoods are impacted by issues surrounding Intellectual Property.

In recognition ofGlobal IP Day, the Small Business & Entrepreneurship Council published the “Top 10 Reasons Intellectual Property Rights Matter to Small Business.”

10. Small Businesses Are Robust Innovators.

9. Small Business Tend To Be At the Cutting Edge of Innovation.

8. The Self-Employed Represent a Big Chunk of U.S. Copyright Businesses.

7. Key Copyright Industries Are Overwhelmingly About Small Businesses.

6. Strong Intellectual Property Rights Are Positive for Self-Employment Globally.

5. Patent Systems Are Particularly Important for Small Businesses.

4. IP Theft Is Economically and Individually Destructive.

3. The Evidence Overwhelmingly Shows That Innovation is a Key Driver of Economic Growth.

2. Economic History Confirms That Intellectual Property Protections Matter for Innovators and Development.

1. Ultimately, Intellectual Property Rights Incentivize Innovators to Innovate.

For example, on item #7, the analysis in part notes, “Based on Census Bureau data (2009 most recent), these core copyright industries are dominated by small firms: a) 83% of newspaper, periodical, book, and directory publishers had fewer than 20 employees; b) 70% of software publishers had less than 20 workers; c) 93% of firms in the motion picture and sound recording industries had less than 20employees; and d) 76% of firms in the radio and television broadcasting business had less than 20 workers.”

SBE Council chiefeconomist Raymond J. Keating noted, “Celebrating intellectual property means celebrating entrepreneurs and small businesses, who are the innovators in the economy. Make no mistake, intellectual property rights and protections matter most to the entrepreneurial sector, given the big role small firms play in innovation and IP industries, how IP rights spur self-employment, the importance of patent protections for smaller firms, and the overall importance of IP to economic growth.”

For more information on this post, please visit the Small Business & Entrepreneurship Council, and to find out more about the fight to protect Intellectual Property, please visit the US Chamber’s Global Intellectual Property Center.

Mr. Patent Meet Mr. Copyright

The American Institute of Physics and two publishers have sued four law firms for copyright infringement claiming that their scientific journal articles have been improperly used in patent applications and that the firms have earned profits from creating intellectual property rights for their clients while infringing the intellectual property rights of scientific journal publishers. The plaintiffs’ claim that they “publish, sell and distribute journals, and license the copyrighted content contained in them for precisely these types of uses . . . Nevertheless, defendants have not acquired any of the licenses necessary to make their copying and distribution of plaintiffs copyrighted articles lawful.”

The four complaints are almost identical in content. Using the complaint against Chicago based McDonnell Boehnen Hulbert & Berghoff LLP as an example of plaintiffs claims, plaintiffs allege that, as part of its patent prosecution practice, the firm “made and/or distributed to the USPTO . . . unauthorized copies of copyrighted articles from plaintiffs’ journals ” and that the firm made copies of other works for internal use that “were cited” in the patent applications, or were considered but not cited in the patent applications. (Click here for a copy of the complaint). The complaint also charges that “McDonnell has charged its clients for the copies it has made of plaintiffs’ copyrighted works, and thereby made a direct profit as a result of its infringement.” Finally, according to the complaint, plaintiffs remain willing to offer licenses to defendants, but defendants have not taken plaintiffs up on their offers. [Read more…]

Chinese Espionage: The Risks Within U.S. Companies

My in-depth review and analysis of the 115 prosecutions brought by the government for theft of trade secrets under the EEA has revealed a disproportionate share with a link to China. In over 20% of the total prosecutions, the government alleged that the defendant intended to benefit the Chinese government or a company in China. If you are interested in reading more about this topic and my suggestions as to what the government needs to do, you should click here and read my article that appeared in Forbes on April 24, 2012.

Appellate Courts Deliver Two Major Setbacks to the Government’s Protection of Intellectual Property

The federal government recently suffered two very significant setbacks in its efforts to protect intellectual property in the United States. In the first, the Second Circuit explained its prior decision to order the acquittal of former Goldman Sachs Group Inc. computer programmer Sergey Aleynikov, who had been found guilty under the Economic Espionage Act (“EEA”) and the National Stolen Property Act (“NSPA”) of stealing computer source code from Goldman U.S. v. Aleynikov, No. 11-1126 (2d Cir., April 11, 2012).
In the second, the Ninth Circuit found that David Nosal, who left a well-known executive search firm to start his own business, did not violate the Computer Fraud and Abuse Act (“CFAA”) even though the convinced some of his former colleagues to use their login credentials to download source lists names and contact information from a confidential database, and then to provide that information to him. U.S. v. Nosal, No. 10-10028 (9th Cir. April 10, 2012).
If you’re interested in learning more about these important cases read my article published in Law360 on April 24, 2012. Article Aleynikov And Nosal — 2 Major Government Setbacks – Law360

Second Circuit Issues Opinion in Aleynikov: Limits Scope of the EEA, Urges Congress to Take Action

On February 27, 2012, Law360 published my article about the Second Circuit’s “stunning reversal” of the conviction of former Gold Sachs Group Inc.’s programmer Sergey Aleynikov for stealing proprietary source code from the bank’s high-frequency trading program in violation of the Economic Espionage Act (“EEA”) and the National Stolen Property Act (“NSPA”). The Second Circuit acted to reverse the conviction only hours after hearing oral argument, and ordered the trial court to enter a judgment of acquittal. The Court said that that time that an opinion would follow in “due course.”

The Second Circuit issued its opinion today finding that the HFT program is an intangible property that does not constitute a “goods, ware or merchandise” as required by the NSPA. The Court concluded that “[w]e join other circuits in [holding] . . . that the theft and subsequent interstate transmission of purely intangible property is beyond the scope of the NSPA.”

With regard to the EEA, the Court found that the language in section 1832 requiring that the trade secrets be related to products “produced for” or “placed in” instate or foreign commerce must be read as a term of limitation since this language is present in section 1832, and which does not appear in the otherwise parallel section 1831, foreign espionage statute. The Court held that because the HFT system was not intended “to enter or pass in commerce, or to make something that does, Aleynikov’s theft of source code relating to that system was not an offense under the EEA.”

I wrote in my article that, depending on the scope of the Second Circuit’s decision, the EEA may not apply to trade secrets relating to products still in the development stage because such products have not actually been placed in interstate commerce. Although not at issue in Aleynikov, the Second Circuit distinguished the Aleynikov circumstances from a product under development. The Court indicated that products that are under development and have not yet been “placed in” interstate commerce, are still protected by the EEA, because they “can properly be described as being ‘produced for’ . . . commerce.” The Court, thus, carefully avoided the concern I raised. [Read more…]

Chinese Corporate Spying Case is Just the Tip of the Iceberg

Bloomberg Law released on March 19, 2012 my interview regarding the Economic Espionage Act.