• Companies should be ensuring that their employees are spending their time at work doing what the companies are paying them to do – work
• Employee activity on the internet can introduce viruses, spambots and other malware into the company, which spread rapidly and can cause substantial losses
• What employees are doing on company computers has numerous legal ramifications, including trade secrets issues, civil lawsuits and criminal charges

Companies should take care to craft acceptable use policies that specifically prohibit the conduct outlined above. Other important parts of acceptable use policies include the following:

• Detail as many specific, prohibited acts as possible; if there are certain types of websites (for example, gambling or sexually explicit ones), list those specifically
• Prohibit the distribution of confidential company information (this past summer, the federal appeals court for California ruled that employees who exceed the limits of their access could be held criminally liable under the Computer Fraud and Abuse Act for trade secrets theft)
• Real-life examples and hypotheticals where an employee would be in violation of the policy so that employees develop a better understanding of what they cannot do
• Blanket statements that prohibit certain activity in general (for example, employees should not engage in any activity that violates the law)

There are many other items that companies may wish to include in their acceptable use computer and internet policies. What other prohibitions did you include for your company’s employees?

Klein Trial Lawyers – Los Angeles business litigation lawyers

The Institute fired Mikovits in September, and Mikovits left with notebooks, e-mails and data regarding her research. Some of it was her work, and some of it involved the work of others at the Institute.

A Reno judge recently found for the Institute in its lawsuit against Mikovits for breach of contract and the misappropriation of trade secrets. After the Institute brought the lawsuit, Mikovits did turn over some of the materials she had taken, but not all of it. The Institute said that she kept most of her own research and that, for one laptop that she turned back in, she had wiped its hard drive clear of data. Mikovits faces criminal charges in the matter in a January for possession of stolen property and theft.

Clearly the charges that Mikovits is facing are severe, but even those are not usually enough to discourage employees from leaving a company and taking trade secrets. Companies should take additional measures to both discourage employees from taking trade secrets and to make it easier for the companies to prosecute those it suspects of theft. Additional measures include crafting detailed computer use policies, reviewing their policies to ensure compliance with new law, and using non-disclosure agreements.

What steps do you take to prevent trade secrets theft when an employee leaves your company?

Klein Trial Lawyers – Los Angeles business litigation attorneys

Trade secrets law in California strikes a balance between the two extremes of prosecuting trade secrets cases. On the one hand, it would be unreasonable for companies to have to prove physical theft in every trade secrets case. This would tend to favor wrongdoers, as former employees could simply memorize or study valuable trade secrets without the existence of any tangible theft. On the other hand, California courts did not want to hold a former employee liable every time he or she left a company and went to work at a competitor. This concept is known as the “inevitable disclosure” doctrine, as it assumed that every employee who did this would inevitably disclose trade secrets to their new employer.

To prove trade secrets misappropriation, there must be evidence that a former employee actually used or disclosed a trade secret. A plaintiff cannot always show that a former employee stole hard drives or documents, but it must show that the former employee did something with a trade secret like steal a former employer’s clients, for example. Additionally, the more specific the information allegedly stolen, the better the plaintiff’s chances of prevailing are. General business knowledge, for instance, is not something California courts will be likely to protect. Particular software code or client lists are.

Nevertheless, trade secrets cases remain difficult to prosecute. Have you had success against a former employee in a trade secrets case? What lessons did you learn from the experience?

Klein Trial Lawyers – Los Angeles business litigation attorneys

A trade secret has to meet three conditions:

• It has to be information of some sort (a formula, a business practice, a design or something along those lines)
• A company has to take reasonable measures to protect the secret (it must make some effort, in other words, to keep the secret a secret otherwise a court may find that it was too widely known)
• A company must get an economic benefit from the fact that it is a secret (if there is no economic benefit in keeping something a secret, it probably is not a trade secret then)

The theft of trade secrets is known as misappropriation. Misappropriation requires that someone acquired the trade secrets by improper means and that he or she used or disclosed the trade secrets. A former employee using confidential information to win new customer accounts for another company is an example of the illegal use of trade secrets.

Have you had use the law to protect your company’s trade secrets?

Klein Trial Lawyers – Los Angeles business litigation attorneys

The case pitted DuPont against a South Korean company, Kolon, the defendant. Like many trade secrets theft cases, this one started with an ex-employee going to a competitor. Michael Mitchell worked in sales and marketing for Kevlar, a DuPont product. DuPont terminated him 2006, and Mitchell went to Kolon shortly thereafter. DuPont contacted the Commerce Department and the FBI, which investigated and eventually charged Mitchell with the theft of trade secrets. Mitchell pled guilty last year, and a judge sentenced him to 18 months in federal prison.

Certainly the guilty plea of an ex-employee for trade secrets bolstered DuPont’s civil case against Kolon. The jury found that Kolon “maliciously and willfully misappropriated” 149 DuPont trade secrets related to the Kevlar body armor technology.

The case reinforces two themes we often see in trade secrets theft cases. First, trade secrets are vital to companies. The nearly $1 billion verdict demonstrates that. Second, companies need to be vigilant about their trade secrets. A common red flag we see is when former employees go to competitors who suddenly become more competitive. Companies need to aggressively protect their intellectual property.

Klein Trial Lawyers – Los Angeles business litigation lawyers

The case pits financial firm Trust Company of the West (“TCW”) against a former, high-profile bond trader, Jeffrey Gundlach. What Gundlach allegedly stole is the difficulty of the case. Unlike a trade secret that is easy to understand – say, the secret and highly-guarded Coca-Cola formula – trade secrets for TCW and Gundlach are less obvious.

TCW attorneys told the jury that if it were to print a list of the trade secrets that Gundlach stole, the list would be two and a half times the height of the Empire State building. Gundlach, on the other hand, denies the theft. The problem with financial services is that the trade secrets involve programs or methods of valuation. Without clear evidence of Gundlach outright stealing the computer code, it is difficult to show his guilt. Should Gundlach be guilty of the theft of trade secrets if he just happens to be a smart guy with great ideas that he took to a different company?

From TCW’s perspective, it is going to have to focus on revealing the tangible to jurors. It will have to paint a picture of duplicitous activity on Gundlach’s part, like downloading of TCW software onto a USB drive, or other acts that show that Gundlach was actually stealing trade secrets. Without this sort of tangible evidence of theft, the case may be too uncertain for jurors to think that Gundlach took TCW’s version of the Coca-Cola recipe.

Klein Trial Lawyers – Los Angeles business litigation attorneys

Norit alleged that ADA and two former Norit employees stole trade secrets from Norit. Earlier this year in April, an arbitration panel found the defendants liable for misappropriating trade secrets and for not properly paying royalties to Norit on certain activated carbon sales. Two weeks ago, the companies reached a settlement in the aftermath of the arbitration decision. In addition to the $40.5 million that ADA has to pay Norit, the defendants will remain on the hook for royalties on certain activated carbon sales until 2018.

Here it paid off for Norit to aggressively protect it trade secrets, and most companies would feel the same way if they faced a similar situation. Norit’s CEO cited the near century of work that has gone into Norit’s investments, research and development and efforts to reach the level of success that the company has today. Trade secrets are what set companies apart. Aggressively protecting them is a must for companies to protect their investments and to hold people responsible for the theft of trade secrets liable.

Klein Trial Lawyers – Los Angeles business litigation lawyers

This type of situation is playing itself out in a Los Angeles court in the trial of TCW Group Inc. versus its former investment chief, Jeffrey Gundlach. TCW accuses Gundlach of plotting with several other workers to steal the company’s trade secrets and start a rival management firm. TCW’s lawyer described the case in his opening statement as, “They tried to seal an entire business from TCW worth hundreds of millions of dollars.”

What tipped TCW off to possible devious behavior was when, just after a month after firing Gundlach, half of TCW’s fixed-income professional advisors left the firm to join Gundlach’s new firm. Gundlach had been a longtime employee at TCW too, having worked there for 25 years. From his perspective, he alleges that TCW wanted to avoid paying him management and performance fees of over $1 billion.

It will be interesting to see how this case plays itself out in trial in the coming days. It appears that neither side comes to the case with clean hands, as Gundlach took a lot of expertise with him when he left TCW and TCW may have been involved in unscrupulous behavior in trying to force Gundlach out despite the success he brought TCW. A jury may not look fondly on TCW’s acts, even if the evidence suggests that Gundlach left with trade secrets.

Klein Trial Lawyers – Los Angeles business litigation attorneys

As the lawsuit continued, H-P learned that Jones had not transferred data to a Western Digital external hard drive at all. Who did transfer the data then?  It turns out that it was H-P itself. It made an image of Jones’s laptop hard drive back in December when it was investigating him for ethics violations.

Now Oracle is demanding that H-P withdraw its lawsuit against Jones. The investigation triggered by the suspicions, however, shows how important it is for employees to treat what they do at work as if it were public knowledge. Jones turned over to H-P his personal smartphone, his girlfriend’s iPad, the hard drive from his personal computer and two of his USB drives.

The allegations against Jones do not end with the external hard drive oversight. H-P still maintains that Jones obtained a raise for a personal friend and that he classified personal expenses as business ones. The treasure trove of personal information that Jones already turned over is certainly going to bolster H-P’s efforts to win its case.

Klein Trial Lawyers – Los Angeles business litigation attorneys

Multi-year prison sentences and fines in the hundreds of thousands up to the millions are not unusual for intellectual property theft cases in this country. In Europe, on the other hand, convicted defendants get a fraction of those penalties, if any at all. Most European countries have no criminal laws against trade secrets theft. European investigators lack experience investigating white collar crime, so they are likely to miss detecting it in the first place.

Here we have both criminal and civil laws protecting companies’ trade secrets and intellectual property. American regulators and investigators realized that, for many companies’, their most valuable assets are digital and easily transportable. As a result, our laws have strengthened and expanded to keep up with the times.

Governments owe it to businesses to provide the legal means to protect trade secrets and punish wrongdoers. The vital role that companies play in employing people, providing services and improving lives demands no less. Companies should not have to bear additional costs due to unpunished theft and criminal activity because a country refuses to act.

Klein Trial Lawyers – Los Angeles business litigation attorneys