Posted on April 16, 2013 by Jillian A. Centanni

Trade Secrets Litigation: DuPont Wins Property from U.S. Subsidiary as Part of its $920M Damages Award Against the Parent

Kolon USA, Inc., the U.S. subsidiary of South Korea-based Kolon Industries Inc. (“Kolon”), recently was ordered by New Jersey District Court Judge Esther Salas to turn over its property to DuPont as part of DuPont’s efforts to enforce the $920 million damages award that DuPont won against Kolon during a 2011 trade secrets litigation in the Eastern District of Virginia.

This case, E.I. du Pont De Nemours & Co. v. Kolon Indus., Inc. a/ka/ Kolon Corp., has an interesting history: in 2009, DuPont sued Kolon in EDVA, including five of its executives, for allegedly stealing confidential information related to making Kevlar, an anti-ballistic fiber commonly used in body armor, military helmets, ropes, cables and tires. DuPont has been selling this fiber since 1965 and has spent more than $500 million in its marketing and production. Kevlar and Nomex, a fiber used in firefighting gear, together accounted for $1.5 billion of DuPont’s $38 billion in sales for 2011. Kolon began making the Heracrone line of fibers, its own version of DuPont’s Kevlar, in 2005.

In 2006, Kolon hired Michael Mitchell as a consultant to improve Kolon’s Heracrone products. Mitchell previously worked at DuPont for twenty-five (25) years as an engineer and as a marketing executive for DuPont’s Kevlar. Mitchell later was charged and pled guilty to trade secrets theft and obstruction of justice relating to his work while at Kolon, and stemming from his DuPont background. In March of 2010, he was sentenced to eighteen (18) months in prison. Although Mitchell pled guilty to stealing DuPont’s trade secrets, that did not release Kolon from liability. In September 2011, a federal jury in Virginia found Kolon and its U.S. subsidiary guilty for wrongfully obtaining DuPont’s proprietary information about Kevlar and granted a $920 million judgment against Kolon. The five individual executives at Kolon who were originally sued in 2009 still worked for Kolon in South Korea. Unfortunately for DuPont, the ruling from the Court in Virginia cannot itself prevent Kolon from selling its Heracrone fibers.

After DuPont obtained the $920 million judgment against Kolon in EDVA, DuPont obtained leave to execute the judgment outside of that district. Enter the District of New Jersey. DuPont registered the judgment in the DNJ under 28 U.S.C. § 1963, the statutory procedure for registering and enforcing judgments in other districts. During August of 2013, DuPont obtained a levy on the $920 million judgment by serving a Writ of Execution on Kolon USA, which currently owes Kolon $3.6 million.

In determining whether Kolon USA would be required to turn over its property, the New Jersey Court determined that DuPont satisfied the three requirements as set forth in N.J.S.A. 2A:17-63 regarding garnishment : 1) Kolon and Kolon USA have been noticed; 2) DuPont has obtained a valid levy upon the property and 3) Kolon USA has admitted the debt. Thus, DuPont’s application for a turnover order was granted.

Among the takeaways from this case is that if a subsidiary corporation owes its parent corporation money, the subsidiary may be required to turn over its property in order to satisfy a judgment against the parent.


Jillian A. Centanni is an Associate in the Gibbons Intellectual Property Department.
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Posted on February 15, 2013 by Gibbons P.C.

Trade Secrets -- What You Don't Safeguard Might Hurt You!

Is your company’s hard-earned, valuable, confidential data at risk? Are you taking all the steps you should to safeguard this information?

In a recent global report by Symantec, 50% of employees who lost or left their jobs in the past 12 months indicated they kept confidential company data. Of these, 40% indicated they planned to use the proprietary information in their new jobs. Exacerbating the situation is the perception on the part of employees that it is acceptable to take confidential corporate information, and that their companies do not care.

Obviously, companies should care. Trade secrets, which broadly comprise valuable information that is kept secret to afford an economic advantage, take on many forms: a formula, a recipe, a customer list, patterns, projections, etc. Companies need to strictly enforce policies relating to these data and proactively secure them -- they cannot rely upon government enforcement actions to protect them, as we recently reported.

Rather, employers should develop, implement and police a trade secrets protection plan. At minimum, this should involve: 1) auditing their policies, non-disclosure and restrictive covenant agreements (particularly in light of recent legislative changes at the federal and state levels); 2) analyzing their physical security of files, information, computer equipment and assets, as well as security access for employees, particularly off-site or remote access; and 3) scrutinizing departing employees. We have previously reported on recent federal developments, a District Court case in New Jersey, and a New Jersey State Court decision in this critical area of any business.

Attorneys in the Gibbons Intellectual Property and Employment & Labor Law Departments have extensive experience in trade secrets counseling and best practices.
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Posted on January 4, 2013 by Thomas J. Bean

AIA Technical Corrections Bill and Trade Secret Penalties Bill Await President's Signature

As most Americans focused on the Congressional efforts to avoid the “fiscal cliff,” IP practitioners noted that Congress passed Senate-amended versions of a bill to amend the Smith-Leahy America Invents Act (AIA) (H.R. 6621) and a bill to increase penalties under the Economic Espionage Act (EEA)(H.R. 6029) on to the White House on January 1, 2013, for signature by President Obama. It is expected that President Obama will sign both bills into law shortly.

H.R. 6621 - amendments to the AIA

As we earlier reported, Representative Lamar Smith introduced H.R. 6621 to Congress on November 30, 2012, proposing a number of technical corrections to the America Invents Act as enacted on January 5, 2011, including:

  • eliminating a 9 month “dead zone” for inter partes review of patents granted for applications having an effective filing date before March 16, 2013; 
  • extending the time for filing the inventor’s oath or declaration until the payment of the issue fee;
  • eliminating a prohibition on post grant review for reissue patents with narrowing amendments;
  • clarifying the standards for initiating derivation proceedings;
  • clarifying the calculation for patent term adjustment; and
  • repealing 35 U.S.C. § 373, which restricted the types of inventors or applicants that could file PCT applications at the U.S. Patent Office.

Another proposed correction that generated substantial controversy was a proposal to eliminate 35 U.S.C. § 154(c)(1). For applications filed prior to June 8, 1995, this section provides that the patent term will be determined as the greater of 20 years from the effective U.S. filing date or 17 years from grant. By eliminating the section, the proposed correction removes the option of obtaining a 17 year term from grant or applications filed prior to June 8, 1995 in order to eliminate the possibility of substantially extended terms for so-called “submarine patents.” In amended H.R. 6621, this correction is withdrawn. Representative Smith indicated in a speech to the House of Representatives on December 30, 2012, that the correction would be replaced by a provision requiring the PTO to prepare a report providing “relevant information” about currently pending applications filed prior to June 8, 1995 in order to understand whether any additional actions should be taken.

H.R. 6029 - increasing EEA penalties

Representative Smith introduced H.R. 6029 to Congress on June 27, 2012, as a measure to increase penalties for violations of the Economic Espionage Act of 1996, codified as 18 U.S.C. §§ 1831. As amended by the Senate, H.R. 6029 maintains a maximum prison term penalty for individual offenses at Section 1831(a) at 15 years, but increases the present limit for individual fines from $500,000 to $5,000,000. In addition, amended H.R. 6029 increases the upper limit for corporate offenses of Section 1831(b) from $10,000,000 to the greater of $10,000,000 or 3 times the value of the stolen trade secret to the organization, including “expenses for research and design and other costs of reproducing the trade secret that the organization has thereby avoided.”

H.R. 6029 follows the Theft of Trade Secrets Clarification Act of 2012 (S. 3642), which became law on December 28, 2012. As we previously reported, the legislation was prompted by a district court decision in United States v. Aleynikov, which overturned a jury verdict finding that the defendant violated 18 U.S.C. § 1832(a) by stealing computer code from his employer. In that decision, the Federal Circuit Court narrowly construed trade secrets as defined in § 1832(a) as “related to or included in a product that is produced for or placed in interstate commerce” to mean an actual product that was either placed in interstate commerce or intended ultimately to be placed in interstate commerce.” Amended S. 3642 revised § 1832(a) to broaden the definition of trade secrets as being “related to a product or service used in or intended for use in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof.” With this revision, there is no longer any requirement for the trade secret to be embodied in a commercial product.

Gibbons will continue to monitor developments and to provide counsel regarding H.R. 6621 and H.R. 6029.


Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on December 14, 2012 by Owen J. McKeon

New Jersey Superior Court Finds the Recently-Enacted New Jersey Trade Secrets Act Does Not Preempt Common Law Claims

In an opinion dated December 7, 2012, a New Jersey Superior Court judge in Bergen County considered an issue of first impression relating to the recently-enacted New Jersey Trade Secrets Act (“NJTSA”). In SCS Healthcare Marketing LLC v. Allergan USA Inc. et al., defendant Allergan sought to dismiss numerous common law claims brought by plaintiff SCS, arguing that SCS’s statutory claim for misappropriation of trade secrets under the NJTSA preempted its common law claims. SCS filed suit alleging that Allergan misappropriated marketing contractors’ trade secrets relating to a proprietary technology portal. Specifically, SCS alleges that Allergan revealed its proprietary and confidential information to a rival health care marketing company, thereby violating state laws relating to unfair competition, disclosure and trade secrets.

In addition to its NJTSA claim, SCS’s suit involves common law claims for, inter alia, misappropriation of confidential information, trespass to chattels, tortious interference, unfair competition and civil conspiracy. Allergan argued that these claims should be dismissed as they are based on the same common set of facts and occurrences on which SCS bases its claim for misappropriation under the NJTSA, and therefore specifically preempted by N.J.S.A. 56:15-9(b), which provides that, “This act shall supersede conflicting tort, restitutionary, and other law of this State providing civil remedies for misappropriation of a trade secret."

Judge Harry G. Carroll considered and rejected Allergan’s preemption argument, ruling that the New Jersey State Legislature had specifically modified the language of the Uniform Trade Secrets Act relating to preemption when it adopted the NJTSA. More specifically, the judge determined that the legislature altered the proposed statutory language to ensure that preemption would not occur. In particular, subsection (a) of N.J.S.A. 56:15-9 which expressly provides that the rights, remedies and prohibitions of the NJTSA are “in addition to and cumulative of” any other right, remedy or prohibition provided under the common law or statutory law of this state and that “nothing within its provisions shall be construed to deny, abrogate or impair such a right, remedy or prohibition…” While the judge noted that subsections (a) and (b) were not the “model of clarity,” he rejected the defendant’s attempt to read subsection (b) in isolation, and concluded the statutory scheme reflects the New Jersey legislature’s intent that the rights and remedies afforded under the Trade Secrets Act be cumulative, rather than restrictive, of the rights and remedies provided under the common law. Accordingly, the Court denied the Allergan’s motion to dismiss SCS’s common law claims, rejecting the argument that the claims are preempted by the NJTSA.

The Court’s thorough analysis of the statutory language and legislative intent is noteworthy as there is little jurisprudence relating to the newly-enacted NJTSA. The Court’s decision to permit SCS to pursue its common law and statutory claims will undoubtedly be well received by plaintiffs seeking to protect various types of confidential information as it permits them to assert a statutory claim of misappropriation of trade secrets while simultaneously asserting common law claims to protect confidential information which may not meet the definition of a trade secret.

Gibbons P.C. will continue to monitor this decision and those of other New Jersey courts as the body of law relating to the New Jersey Trade Secrets Act continues to develop.


Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. Todd M. Nosher, an Associate in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on December 6, 2012 by Owen J. McKeon

U.S. v. Aleynikov Redux: Senate Closes Loophole in EEA

This past spring, we reported the Second Circuit’s reversal in U.S. v. Aleynikov, where the Court considered violations of the Economic Espionage Act of 1996 (“EEA”), 18 U.S.C. § 1832, and the National Stolen Property Act (“NSPA”), 18 U.S.C. § 2314. In short, the Second Circuit ruled that the EEA pertains to trade secrets “placed in” commerce, and that Aleynikov’s alleged misappropriation of the source code of Goldman Sachs & Co.’s trading system, which was for internal use, therefore was not violative of the EEA or the NSPA.

In response, enter the Theft of Trade Secrets Clarification Act of 2012, S. 3642, a bill introduced last week by Senator Patrick Leahy (D, VT). Specifically, the bill broadens the statute's scope to cover trade secrets that are "related to a product or service used in or intended for use in interstate or foreign commerce." The previous language limited application of the EEA to trade secrets "related to or included in a product that is produced for or placed in interstate commerce," language which the Court in Aleynikov had narrowly construed to mean an actual product that was either placed in interstate commerce or intended ultimately to be placed in interstate commerce. As such, there would be no distinction between a trade secret used internally, versus something sold commercially.

The new legislation closes a loophole on the important front of protecting against theft or other misappropriation of proprietary information, and seemingly broaden the reach of the EEA.


Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. Jillian A. Centanni, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

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Posted on August 30, 2012 by Owen J. McKeon

Reckitt Benckiser v. Tris Pharma -- New Jersey Magistrate Finds No Trade Secret Misappropriation

In a recent “not for publication” Memorandum Opinion and Order relating to Reckitt Benckiser’s (“RB”) over-the-counter cough syrup, Delsym® (dextromethorphan polistirex), United States Magistrate Judge Douglas E. Arpert of the District of New Jersey found that RB failed to establish trade secret misappropriation, unfair competition, and tortious interference with business expectations claimed against Tris Pharma, following a four-day bench trial.

The case stemmed from RB’s allegations of patent infringement based on Tris’ Abbreviated New Drug Application with the FDA for a generic version of dextromethorphan polistirex. RB later amended its complaint to add counts relating to allegations that a former employee of a RB predecessor had access to and improperly used trade secrets relating to the Delsym® manufacturing process, formulations, and other private R&D information. Years after working for the RB predecessor, this employee was responsible for the development of Tris’ generic version of Delsym®. (In earlier rulings, the Court dismissed a breach of contract count and granted Tris’ motion for summary judgment of non-infringement.)

Regarding RB’s claim for trade secret misappropriation, the Court determined that RB failed to establish that it had an ownership interest in an alleged trade secret;  that the purported critical elements of the purported trade secret were not known to the public; and that the Tris employee disclosed any trade secret or confidential information in the course of his employment at Tris. (See slip op. at 70-73.) Regarding the former employee’s obligations, the Court noted that “absent a covenant not to compete, an employee may freely use the experience gained on one job for a subsequent company” (id. at 72), and that “an employee cannot be prohibited from using general knowledge and expertise for a future employer.” (Id.) The Court likewise ruled that RB’s unfair competition claim failed for similar reasons as the trade secret misappropriation count, and added that RB failed to establish that defendants acted in bad faith. (Id. at 73-74.) Finally, the Court determined that RB failed to establish the elements of their tortious interference claim, including any malicious intent by Tris. (Id. at 74-75.)

While this case is far from concluded, the Magistrate Judge’s decision raises key considerations for businesses, such as the need for internal policies and protections that both identify and safeguard the trade secrets and confidential/proprietary information a company provides to its employees. The ruling also highlights the convergence of trade secrets law with employment law and, in particular, the importance of confidentiality agreements and covenants not to compete. In these respects, companies not only need to have policies and protections in place, they need to ensure these policies and protections are being enforced consistently.

As practitioners are aware, early this year, the New Jersey Trade Secrets Act became law, which we reported here and here. The new trade secrets law may well have resulted in a different outcome for the parties in this case. But the important takeaway from the case is that businesses are well advised to consider their current practices and policies with respect to trade secrets and proprietary information, confidentiality agreements, and covenants not to compete. Stay tuned for an upcoming Gibbon program on these critical areas of law.


Owen J. McKeon is a Director in the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, and Mitchell Boyarsky, a Director in the Gibbons Employment & Labor Law Department, co-authored this post.
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Posted on July 24, 2012 by Thomas J. Bean

Trade Secrets Update

Just as trade secrets cases continue to proliferate in the news, the U.S. Senate introduced legislation last week aimed at streamlining the ability of American companies to combat trade secret theft.

Under the proposed legislation S.3389, “Protecting American Trade Secrets and Innovation Act of 2012”(“PATSIA”), a single federal statute would be created under which companies could sue in Federal Court, as an alternative to the existing structure of state or common law statutes. To be eligible, plaintiffs are required under a heightened pleading standard to: “(A) describe with specificity the reasonable measures taken to protect the secrecy of the alleged trade secrets in dispute; and (B) include a sworn representation by the party asserting the claim that the dispute involves either substantial need for nationwide service of process or misappropriation of trade secrets from the United States to another country.” Plaintiffs also are subject to a three-year statute of limitations.

PATSIA provides federal courts with jurisdiction, on ex parte application, to issue an order to seize property used in connection with the alleged misappropriation of trade secrets and/or to preserve evidence relating to the alleged theft. A defendant injured by such a seizure can in turn file a civil action for damages. In the event that a misappropriation of trade secrets is found by the Court, plaintiffs may obtain injunctive relief, damages (including exemplary damages and attorney’s fees), and/or a court order requiring defendant’s affirmative action to protect the trade secrets. If the Court determines that it would be unreasonable to prohibit further use of the trade secrets, it may alternatively award plaintiffs with a reasonable royalty.

The bill’s sponsors are Senators Herb Kohl (WI), Chris Coons (DE) and Sheldon Whitehouse (RI), and the matter has been referred to the Senate Judiciary Committee for consideration. Senator Kohl also sponsored the Economic Espionage Penalty Enhancement Act of 2011, which proposes increased criminal penalties for persons committing economic espionage. This Act passed the Senate Judiciary Committee with amendment, and is presently under consideration by the full Senate and House of Representatives.

Earlier this year, we reported that New Jersey passed legislation providing state law protection against trade secret misappropriation. Prior to enactment, New Jersey was one of only four states, including New York, Massachusetts and Texas, that had not adopted some form of the Uniform Trade Secrets Act.

Gibbons will continue to monitor developments in this important area and remains at the forefront of rendering counsel in all aspects of trade secrets law, from enforcement to prevention and best practices for employers to safeguard their trade secrets.


Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, and Owen J. McKeon, a Director in the Gibbons Intellectual Property Department, co-authored this post.
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Posted on April 20, 2012 by Jillian A. Centanni

U.S. v. Aleynikov: Second Circuit Reverses SDNY Due to Statutory Interpretation Errors

Following a jury trial in the United States District Court for the Southern District of New York, Sergey Aleynikov was convicted of stealing and transferring a proprietary computer source code used in his former employer’s high-frequency trading system, in violation of the Economic Espionage Act of 1996 (“EEA”), 18 U.S.C. § 1832, and the National Stolen Property Act (“NSPA”), 18 U.S.C. § 2314. On appeal, Aleynikov argued that his conduct did not constitute an offense under either statute because 1) the source code was not a “stolen” “good” within the meaning of the NSPA and 2) the source code was not “related to or included in a product that is produced for or placed in interstate or foreign commerce” within the meaning of the EEA. The United States Court of Appeals for the Second Circuit agreed with Aleynikov and reversed the District Court’s ruling.

Aleynikov worked at Goldman Sachs & Co. (“Goldman”) from 2007 to 2009 as a computer programmer, developing source code for Goldman’s proprietary high-frequency trading system. Goldman does not license this system to anyone, and closely guards its secrecy . The company’s confidentiality policies required Aleynikov to keep all of Goldman’s proprietary information confidential, including any intellectual property created by Aleynikov. These policies also forbid Aleynikov from taking Goldman’s proprietary information with him upon leaving the company.

In April of 2009, Aleynikov joined Teza Technologies LLC as an Executive Vice President to develop Teza’s high-frequency trading system. While it might normally be expected to take years to develop such a system, Teza’s founder conveyed to Aleynikov that he wanted the system completed within six months. On his last day at Goldman in June of 2009, Aleynikov encrypted and uploaded to a server in Germany more than 500,000 lines of source code from Goldman’s trading system, including code for the infrastructure, algorithms, and market data connectivity programs. After the uploading, Aleynikov deleted the encryption program and other artifacts of the uploading. At his home in New Jersey, Aleynikov downloaded the source code from the server in Germany to his home computer and copied some of the files to his other computers. Two months later, Aleynikov flew from New Jersey to Chicago to attend meetings at Teza. He brought a flash drive and a laptop, which contained some of Goldman’s source code. The next day, the FBI arrested Aleynikov upon his return to Newark Airport.

An indictment by the U.S. Government charged Aleynikov with violating the EEA, the NSPA and the Computer Fraud and Abuse Act, (“CFAA”) 18 U.S.C. § 1030. Aleynikov moved to dismiss the indictment for failure to state an offense, and the District Court only dismissed the CFAA count. The jury convicted Aleynikov on the EEA Count and the NSPA counts. Specifically, with respect to the EEA count, the District Court found that the stolen code was a trade secret that the trading system constituted a “product” to which the source code related, and that the system was “produced for” interstate commerce. With regard to the NSPA , the District Court held that the source code for the trading system constituted “goods” that were “stolen” within the meaning of the NSPA. Aleynikov was sentenced to 97 months of imprisonment, a three-year term of supervised release, and a $12,500 fine.

On appeal, the Second Circuit Court of Appeals analyzed the scope of the NSPA and the EEA. First, the Second Circuit examined whether Aleynikov’s acts of uploading source code to a server in Germany, downloading the source code to his computer in New Jersey and later transferring the source code to Illinois qualified the source code to be considered stolen “goods” within the meaning of the NSPA. In determining that the source code did not constitute stolen “goods” within the statutory definition, the Second Circuit joined several other circuits in relying on Dowling v. United States for the proposition that theft and subsequent interstate transmission of purely intangible property is not within the scope of the NSPA. The Court further noted that storing an intangible property on a tangible medium does not transfer the intangible property into a stolen good under the NSPA. Because Aleynikov did not “assume physical control” over a stolen good when he copied the source code and did not “deprive [Goldman] of its use,” he did not violate the NSPA.

The Court next considered whether Aleynikov violated the EEA. In interpreting the EEA, the Second Circuit noted that products “placed in” commerce under the meaning of the EEA are products that have been introduced into the stream of commerce, and have reached the marketplace. Alternatively, products that have not yet been “placed in” commerce but are intended to reach the marketplace can be termed as being “produced for” commerce under the EEA. The Court found that Goldman’s system was neither “produced for” nor “placed in” commerce because Goldman had no intention of selling the system to anyone, and concluded that Aleynikov’s theft of source code relating to that system therefore was not an offense under the EEA. Thus, although Aleynikov should have known that his conduct was in breach of his confidential obligations to his former employer Goldman and dishonest, the Court found that it was not violative of either of the EEA or the NSPA.

For practitioners, the Aleynikov decision is a stark reminder to ensure proper safeguards are in place to prevent and detect the theft or other misappropriation of proprietary information, whether electronically stored or otherwise. At least one commentator has suggested that the U.S. Government might have prevailed in Aleynikov by including a criminal copyright claim in its charges. Aleynikov may of course still face a civil action for trade secret theft in state court.


Jillian A. Centanni is an Apprentice in the Gibbons Intellectual Property Department.

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Posted on January 4, 2012 by Ralph A. Dengler

IP Law 2012: A Look Ahead . . . .

Coming off a year that included the Smith-Leahy “America Invents Act,” 2012 portends to have some significant developments in IP law.

Decisions for IP practitioners and industry to watch for include:

  • the Supreme Court’s decision in Caraco Pharm. Labs. Ltd. v. Novo Nordisk A/S, regarding “use codes” and section viii carve-outs under the Hatch-Waxman Act;
  • the Supreme Court’s decision in Mayo v. Prometheus, regarding patentable subject matter, post-Bilski; and
  • the Federal Circuit’s upcoming en banc decisions in McKesson and Akamai, regarding joint infringement liability.

In the trademark realm, the 2d Circuit’s decision in Louboutin, regarding trademarking colors.

Locally, the New Jersey Trade Secrets Act is expected to be signed into law, which will codify the State’s common law practice regarding trade secrets. Also, implementation of the Southern District of New York’s 18-month pilot program on conducting complex litigations will be underway.

On the national level, the launch of the Intellectual Property Exchange International (“IPXI”), an exchange for commoditizing patents and other IP assets is expected in June.

And finally, just as on-going developments with and implementation of the Smith-Leahy America Invents Act progresses, Congress will continue to address the Stop Online Piracy Act.

Gibbons, with offices in Newark, Trenton, New York City, Wilmington and Philadelphia will continue to remain at the forefront of these, and all other IP law developments.


Ralph A. Dengler is Counsel to the Gibbons Intellectual Property Department. Jillian A. Centanni, an Apprentice in the Intellectual Property Department, co-authored this post.
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Posted on December 13, 2011 by Thomas J. Bean

Coming Soon to New Jersey . . . Trade Secrets Law!

New Jersey, along with New York, Massachusetts and Texas, are the only states that have not adopted some form of the Uniform Trade Secrets Act. Not for much longer.

Last week, the New Jersey Trade Secrets Act, A-921/S-2456 passed unanimously in the New Jersey Assembly, and is on its way to the Governor’s desk. Governor Christie will have 45 days to sign the measure into law. Once enacted, the law will be effective immediately, but will not apply retroactively.

To date, New Jersey has applied the common law to trade secrets. The pending law reflects much of this common law tradition. Basically, the Act defines a trade secret as information, regardless of form, that derives independent economic value from not being generally known to others who can gain economic value from its disclosure; and, is the subject of reasonable efforts to maintain its secrecy.

The Act protects a trade secret holder from misappropriation, which is defined as a trade secret acquired by improper means or improperly disclosed. Among the remedies available for misappropriation are: damages, both actual and for unjust enrichment; as well as a reasonable royalty for unauthorized use or disclosure; punitive damages; injunctive relief for actual or threatened misappropriation; and the possibility of attorney’s fees. Attorney’s fees are also available as a remedy for misappropriation claims made in bad faith, and with respect to a motion to terminate an existing injunction that is made or resisted in bad faith. The Act shortens the six-year statute of limitations previously available for bringing an action (under N.J.S.A. §2A:14-1) to a three-year term beginning with the time of actual discovery of a misappropriation or the time at which discovery would have occurred with reasonable diligence.

Trade secrets can be an important tool for protecting a company’s valuable know-how and proprietary information. Policies and practices to safeguard trade secrets should be put in place and periodically reviewed with employees. Companies should also continuously and actively monitor for evidence of possible trade secret misappropriation. Looking ahead, companies operating in New Jersey should factor New Jersey’s pending Trade Secrets Act into their trade secret calculus.


Thomas J. Bean is Counsel to the Gibbons Intellectual Property Department. Ralph A. Dengler, Counsel to the Gibbons Intellectual Property Department, co-authored this post.

 
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Posted on November 11, 2011 by Luis J. Diaz

Risky Business: Cybercrime in the New Economy

Cybercrime has increased tremendously in the digital economy. “According to the American Society for Industrial Security, American businesses [are] losing $250 billion a year from intellectual property theft since the mid-1990’s.”1 There is a clear and growing threat of Chinese industrial espionage targeted at American companies. In a recent case, a Michigan couple was accused of stealing $40 million worth of trade secrets from General Motors and selling them to a Chinese car maker. Aside from hackers, the threat also exists within organizations from insiders. A recent study commissioned by Cisco found that “[i]n the hands of uninformed, careless, or disgruntled employees, every device that accesses the network or stores data is a potential risk to intellectual property or sensitive customer data.”

According to the Ponemon Institute, a privacy and information management research firm, incidents of data breach costs U.S. companies $204 per compromised customer record. This can quickly escalate to the millions of dollars, not including penalties and other fees that may be imposed by federal and state regulatory authorities. The high cost of a security breach can have a profound effect on an organization’s profit and loss, market presence and competitive advantage. It can also result in damage to brand and reputation. In light of the above, American companies need to exercise increased vigilance to protect their trade secrets and other valuable intellectual property (IP) that are strategic to organizational success and competitive advantage.

President Obama, recognizing the increasing toll of cybercrime on U.S. commerce, on May 29, 2009 issued a very strong statement titled “On Securing Our Nation’s Cyber Infrastructure.” He warned: “every day we see waves of cyber thieves trolling for sensitive information—the disgruntled employee on the inside, the lone hacker a thousand miles away, organized crime, the industrial spy and, increasingly, foreign intelligence services… . It’s been estimated that last year alone cyber criminals stole intellectual property from businesses worldwide worth up to one trillion dollars. In short, America’s economic prosperity in the 21st century will depend on cybersecurity.”

Stay tuned for an upcoming post on the Fifth Annual Gibbons E-Discovery Conference, where privacy and legal practitioners tackled the subject of cybersecurity . . . .


1 Hazlewood, Sara. “Tech Firms Watching Trade Secret Trials,” Business Journal Serving San Jose & Silicon Valley, May 14, 1999, 17:2, p. 7.


Luis J. Diaz is a Director in the Gibbons Intellectual Property Department. John J. Cahill, an Associate in the Gibbons Intellectual Property Department, co-authored this post.

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Posted on March 8, 2010 by Luis J. Diaz

Thunderstorms on the Horizon for Cloud Computing

With the U.S. economy still reeling from the aftershock of what is now known as the “Great Recession,” companies large and small are evaluating cloud computing as a means of reducing IT costs. The National Institute of Standards and Technologies (“NIST”) and the Cloud Security Alliance have defined cloud computing as a model for on-demand network access to a shared pool of computing resources over the internet, namely software applications, data servers, networks and other services. Just as businesses and consumers now pay for gas, electricity and other utilities, cloud enthusiasts predict that the cloud will be sold on demand as a pure IT service.

The Silver Lining

Industry groups like ISACA recognize the silver lining in the cloud. For example, there are potential cost savings in the economies of scale that are achievable in a shared computing environment. The cloud also allows companies to scale without any major software or hardware investment. Thus, cloud users are able to deploy new services more rapidly than they could in a traditional IT model. Cloud computing also can accommodate changing business requirements in a flexible and scalable format. By relocating IT services to the cloud, moreover, companies are freed to focus on their core businesses, improve processes, innovate and increase productivity. In short, the promise of cloud computing is compelling – convert IT private networks to an on-demand, pay-as-you-go IT utility service that produces substantial savings for users.

Storm Clouds Gathering

While the benefits of the cloud are clear, the recent security breaches reported by Google highlight just some of the attendant risks. Google notified users that it inadvertently shared private Document and Spreadsheet materials with contacts that were never granted access to them. In response to cloud computing risks, The Electronic Privacy Information Center, an industry watchdog, has filed an FTC complaint to investigate the privacy and security measures of Gmail, Google Docs and Google’s other “cloud computing” services. Even John Chambers, Cisco Systems’ Chairman and CEO, has conceded that the computing industry’s move to an on-demand IT service on the Internet was “a security nightmare.” And, Microsoft now has joined the bandwagon and called on U.S. legislators to enact a “Cloud Computing Advancement Act.”

A 2009 World Privacy Forum report concludes that cloud computing “has significant implications for the privacy of personal information as well as for the confidentiality of business and governmental information.” Some of these risks are that:

  1. a bankruptcy filing by a cloud provider can have a major impact on users, and the provider’s service agreement may not qualify as “intellectual property” under section 365(n) of the Bankruptcy Code;
  2. the legal status of personal and business information (e.g., trade secrets) may be compromised or commingled with third party data, including that of competitors;
  3. businesses may be legally barred from placing certain types of information on the cloud (e.g. legally privileged information, health records, financial records);
  4. cloud providers may impose unreasonable privacy policies or terms of service;
  5. the physical location of cloud provider servers around the world may result in trans-border information flow and subject information to the laws of multiple jurisdictions;
  6. the cloud makes it more difficult to develop and enforce enterprise-wide information security policies for risk mitigation;
  7. cyber attacks directed at cloud providers may impact a large population of unrelated users;
  8. compelled disclosure by governmental and regulatory authorities or by private parties in E-Discovery may thwart existing legal protections; and
  9. management would remain legally responsible for compliance with Sarbanes-Oxley requirements under Rule 404 even if internal controls on critical applications or data are delegated to a cloud provider.

It is interesting to note that United States v. Miller has held that an individual’s personal record held by a third party does not have the constitutional privacy protection as applies if the same record were held by the individual.

The Calm After the Storm

It is no surprise that cloud computing is an attractive potential service offering for any business looking to enhance IT resources while controlling costs. The cloud presents some compelling advantages over private networks. However, in light of the above legal uncertainties, we can expect continued cloud-related regulatory action and litigation in the coming years, which likely will result in the modification to existing laws and the enactment of new laws to deal with some of the unique aspects of this business model. Until these storms pass, prudent CTOs and executives considering migrating to cloud computing should seek guidance from competent counsel to ensure that any promised cost savings are in fact outweighed by the potential legal and business risks. While it is unclear today whether cloud computing will become a ubiquitous IT utility that makes private networks technologically obsolete, it is certain to continue expanding rapidly.


Luis J. Diaz is a Director in the Gibbons Intellectual Property Department.
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