November 21, 2017

Release 18 of Intellectual Property and Computer Crimes Just Published

Law Journal Press just published Release 18 of my book, Intellectual Property and Computer Crimes, which features an analysis of two recent appellate court decisions that setback the government’s efforts to protect intellectual property in the United States. In United States v. Aleynikov, the Second Circuit ordered the acquittal of a former Goldman Sachs Group Inc. computer programmer who had been prosecuted under the Economic Espionage Act (“EEA”) and the National Stolen Property Act (“NSPA”) for stealing computer source code from Goldman. The court found a computer program to be intangible property that does not constitute “goods, wares or merchandise,” as required by the NSPA and that the government must prove under the EEA that a trade secret itself is “intended to, or actually move in interstate or foreign commerce.” Click here to purchase Intellectual Property and Computer Crimes.

The Ninth Circuit in United States v. Nosal rejected an expansive reading of the Computer Fraud and Abuse Act and held that the CFAA was intended to punish hacking, not misappropriation of trade secrets.

Other topics discussed in this Release include: Review of the approximate 120 prosecutions that the government has brought under the EEA; requirements for bringing a civil action under the CFAA; what it means to “exceed authorization” under the CFAA; whether the interception of computer keystrokes is a violation of 18 U.S.C. section 2511; definition of “knowingly” under Section 1832 of the EEA. [Read more…]

Trade Secret Fundamentals: What You Can and Can’t Do (D.C. Bar, Sept. 11, 2012)

I will be speaking on September 11, 2012, at continuing legal education program on Trade Secret Fundamentals: What You Can and Can’t Do, sponsored by the District of Columbia Bar: 6:00 p.m. – 9:15 p.m., D.C. Bar Conference Center, 1101 K Street, NW. Washington D.C. Enroll here.

The presentation will focus on a review of federal and state laws that protect trade secrets and steps that companies can take to protect their confidential business information. It will also draw on the first-ever analysis of the approximate 125 prosecutions that the government has brought under the Economic Espionage Act. Recent trade secret cases, such as Starwood v. Hilton, will also be used to illustrate the law and practical considerations, including the following:
• Key provisions in the Uniform Trade Secrets Act, Economic Espionage Act, and Computer Fraud and Abuse Act
• Best practices for an internal investigation
• The advantages and disadvantages of making a criminal referral in a trade secrets case.
• How companies can better protect their trade secrets
• How companies can avoid becoming unwitting criminal defendants in a trade secrets case

Why Apple Will Win!

The “patent trial of the century” between Apple and Samsung began on Monday in federal district court in San Jose, California. The press coverage has been extensive, probably far greater than any previous patent trial. The press has dutifully reported that Apple is seeking over $2 billion in damages, which can be trebled, and an injunction barring the sale of certain Samsung smart phones and tablets in the United States, which undeniably would increase Apple’s market share. However, very little has been written on how the case involves far more than Samsung’s alleged infringement of a number of highly technical patents. Apple’s litigation strategy reflects Steve Job’s core belief that Apple’s intellectual property was ripped off by its competitors. Indeed, from the beginning of this case, Apple has sought to turn what could otherwise have been a boring patent trial involving highly technical matters into an inquiry as to whether Samsung flagrantly copied the “look and feel” of the iPhone and iPad. In other words, Apple is likely to be successful if the trial comes down to simply a referendum on whether Samsung ripped off Apple’s intellectual property rights. Considering the similarity of the Apple and Samsung products, Samsung may have a difficult time convincing the jury that deciding the issue is not that easy and the similarity of the products can be explained away.

Apple’s claims against Samsung are far broader than simply a claim for infringement of highly technical computer software or hardware patent. Apple has also asserted claims of infringement of a number of design patents as well the trade dress of the iPad and iPhone. Apart from providing Apple with the basis for being able to tell the jury the “story” how Samsung allegedly ripped off Apple, it also involves claims that a jury can readily decide through a side-by-side comparison of the products in question without having to understand highly technical matters. That is not to say, that Samsung does not have a defense to Apple’s claims, but the design patents claims may give the jury a reason to avoid getting bogged down in complex technical details that they may or may not fully understand. As Judge Richard Posner recently wrote in an article about the shortfalls of the patent system, “judges have difficulty understanding modern technology and jurors have even greater difficulty.” It is one of the particularities of the U.S. patent system that, regardless of the complexity and technical nature of the patents, the jury ultimately determines the plaintiff has established that the defendant infringed its patents. It is commonly believed that the failure of a jury to fully understand the claims inures to the benefit of the defendant, in this case, Samsung. [Read more…]

Is the Time Finally Right? Congress Again Considers a Civil Federal Trade Secrets Law

On July 17, 2012, Senators Herb Kohl (D-WI), Chris Coons (D-DE) and Sheldon Whitehouse (D-RI) introduced the Protecting American Trade Secrets and Innovation Act of 2012. It is similar to a number of bill previously introduced by Sen. Kohl and would provide for a federal civil remedy for theft of trade secrets by amending the criminal Economic Espionage Act. According to Senator Kohl’s press release: “This legislation expands the legal options for victims of economic espionage and trade secret theft by allowing victims of trade secret theft to bring civil lawsuits against the offender in federal court. Today, companies that fall victim to economic espionage and trade secret theft often can only bring civil actions in state court, under a patchwork of state laws, to stop the harm or seek compensation for losses. While state courts may be a suitable venue in some cases, major trade secret cases will often require tools available more readily in Federal court, such as nationwide service of process for subpoenas, discovery and witness depositions. In addition for trade secret holders operating nationwide, a single federal statute can be more efficient than navigating 50 different state laws.”
Although the bill could be stronger and more clearly written, especially if it did not simply graft-warts and all-the civil remedies onto an existing federal criminal law, it is certainly a step in the right direction and, hopefully, Congress will consider this bill more seriously than it considered previous bills. There is no doubt that foreign economic espionage is increasing and that the federal government has neither the inclination, nor the resources to investigate and prosecute all cases that should be prosecuted. A federal law, especially one that provides for nationwide service of process may provide a better remedy to a victim of theft of trade secrets than the current patchwork of state laws.

Why You Should Care About Counterfeit Electronic Parts

What would you do if you found out, as you were getting on your next flight, that the airplane’s ice detector probe, which detects the buildup of ice on the aircraft’s exterior, contains a critical electronic part that was not new when installed, but instead may have been salvaged from an old plane. Many people would consider getting off and driving or taking a train instead. Sounds impossible or even farfetched – but it is more than possible, according to a recent report from the Senate Armed Services Committee that highlights the risk that counterfeit electronic components pose to military systems.
If you’re interested in learning more about this issue, click here to read my story in Forbes.

Don’t Wait for SOPA, You Can Act Now!

In an important and little noticed development, owners of brand products have successfully been able to take action against websites selling counterfeit items, even as the Stop Online Piracy Act (SOPA) is stuck in committee. A number of federal courts have recently issued remedies under existing trademark laws that are very similar to those remedies contained in SOPA. These cases may provide a good test of whether SOPA is truly needed or whether existing laws are sufficient to protect trademark owners. In any event, it is unlikely to result in the end of the Internet as some opponents of SOPA shrilly warned.

SOPA included provisions allowing courts to issue orders to bar advertising networks and payment facilities from conducting business with infringing websites and required Internet Service Providers to block access to such sites. Opponents of the bill claimed that it would end the Internet as we know it by closing popular Web sites. Wikipedia went dark for a day to protest SOPA. The bill has been dormant since a mid-December, 2011, Judiciary Committee markup.

A recent National Law Journal Article, “Counterfeit_battles_heat_up_on_Web,” reports that a number of courts have been regularly issuing orders as contemplated by SOPA. According to the article, so far this year, at least 18 orders affecting alleged infringers and domain-name registries, payment processors, search engines and ISPS have been issued by courts in the Northern District of Illinois, Southern District of Florida and Southern District of New York.

The orders issued by the courts go far beyond simply ordering domain registries to disable the domain names used to sell the counterfeits, but have required financial organizations, including PayPal, to stop the defendants from transferring or disposing of money and other assets. The orders further required a wide range of third parties to turn over records about the defendants.

For example, Adidas sued a number of individuals and partnerships, all believed to be based in China, in the Southern District of Florida. The complaint claimed the defendants were counterfeiting sports clothing and shoes, eyeglasses and sunglasses, watches, bags and a wide range of casual clothing and accessories. The court issued a TRO requiring unnamed domain-name registrars to transfer domain names to Adidas’s lawyer for the redistricting process. It also requires Western Union Financial Services, Inc. to hold money transfers to the named defendant and provide records of all past money transfers to the defendant.

Companies that have brought cases resulting in orders against third parties this year include Adidas, Gucci America, Inc., and Hermes International.

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.