Intellectual Property Law Archives - Page 3 of 14

When a company is sued for trade secret misappropriation, will an insurance company cover it? As made evident in Sentinel Insurance Company, LTD v. Yorktown Industries, Inc., 2017 U.S. Dist. LEXIS 14439, 2017 WL 446044 (N.D. Ill. Feb. 2, 2017), it very much depends upon the insurance carrier and the terms of its policy.

In that case, Yorktown was accused of stealing and misusing a client list and sales information. When the company was sued for violating the Uniform Trade Secrets Act, it demanded indemnification under its insurance policy, which provided coverage for claims for “personal and advertising injury.” Yorktown argued that the trade secret misappropriation claim was essentially an accusation of stealing another’s “advertising idea.”Judge Robert Dow held that the alleged misconduct in no way resembled the copying of an “advertising idea” or copied trade secrets in an advertisement. He also noted that the policy expressly excluded claims regarding the misappropriation of trade secrets.

Though the insurance carrier in Yorktown did not have to pay out, many insurance policies will cover actions related to the misappropriation of trade secrets. A company should always inquire to see whether trade secrets claims are indemnified by its insurance policy.

To learn about how Castaybert PLLC can assist with trade secret matters, please click here.

In 2017, courts grappled with various issues with respect to the Defend Trade Secrets Act. First, there are nuances regarding the timing of the conduct to which the Act applies. In Cave Consulting Grp., Inc. v. Truven Health Analytics Inc., 2017 U.S. Dist. LEXIS 62109 (N.D. Cal. Apr. 24, 2017), the court stated that the plaintiff failed to state a claim under the DTSA because it did not adequately specify whether the misappropriation occurred before or after the Act became effective (May 11, 2016). But the court allowed the plaintiff to amend its claim, suggesting that even though the alleged misappropriator may have acquired or disclosed the confidential information prior to May 11, 2016, the Act also contemplates a theory of liability for improper use of information. The court stated “[n]othing suggests that the DTSA forecloses a use-based theory simply because the trade secret being used was misappropriated before DTSA’s enactment.” Therefore, plaintiffs in DTSA actions should be sure maintain usage of trade secret information after May 11, 2016, even if they cannot prove that the information was taken after this date.

Second, specific requirements were identified regarding proper pleadings under the DTSA. Plaintiffs must adequately allege that they took reasonable steps to maintain the secrecy of confidential information. In an action where the plaintiff did not allege that employees were required to sign confidentiality agreements or any other indicia of reasonable precautions to protect secret information, the court dismissed with prejudice. Raben Tire Co. v. Dennis McFarland, 2017 U.S. Dist. LEXIS 26051 (W.D. Ky. Feb. 24, 2017). But where a plaintiff alleged that it required employees to sign a confidentiality agreement and that information was not disseminated outside the workplace, the court found this sufficient to withstand a motion to dismiss. Aggreko, LLC v. Barreto, 2017 U.S. Dist. LEXIS 35573 (D. N. Dak. Mar. 13, 2017).

Finally, enforcement rights under the DTSA have been narrowed. Ex parte seizures of property in trade secret misappropriation cases were limited in California and Indiana, where courts held that statutory seizure orders are be available in extreme circumstances, when injunctions or temporary restraining orders would be inadequate. See OOO Brunswick Rail Mgmt. V. Sultanov, 2017 U.S. Dist. LEXIS 2343 (N.D. Cal. Jan. 6, 2017). Standards for seizures of property under the DTSA have therefore been held to be higher than for seizures under Rule 65 of the Civil Rules of Federal Procedure, for which courts have indicated strong preference.

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In a decision that could drastically change the internet as we know it, Judge Katherine Forrest held that a news site’s embedded tweet could be considered an infringing “display” of material under the Copyright Act. Embedding, the process by which a website features—but does not host on its own server—images, videos or tweets originally posted to social media applications and sites, has become ubiquitous and is especially easy through advanced interface applications (“APIs”) created and marketed by companies such as Instagram, Youtube and Twitter.

For over a decade, media and other companies who use embedded material have comfortably relied on precedent established in the Ninth Circuit decision Perfect 10 v. Amazon, in which Google and other defendants were not held liable for displaying images users accessed through links. In that case, the Court determined that sites could only be directly liable if they stored infringing materials on their servers, thereby establishing the “server test.”

In Goldman v. Breitbart, Breitbart was sued for embedding on its site a tweet that featured an allegedly infringing photo of the football player Tom Brady. The news organization moved for summary judgement, claiming that even if the image were infringing, it did not host the photo on its server. The Southern District Judge denied the motion, holding that the server test did not apply. In her opinion, Judge Forrest maintained that the server test should not be extended to news sites, which function differently from search engines, such as Google, in that they do not aid users in “navigat[ing] from wepage to webpage,” but instead merely display embedded content regardless of whether the user “asked for it, looked for it, clicked on it, or not.” In addition to distinguishing the facts of Perfect 10, Judge Forrest asserted a general disfavor of the server test, stating that “mere technical distinctions invisible to the user should not be the linchpin on which copyright liability lies.” That is, even though a site may not technically house infringing material, it still appears to the user and is therefore “displayed” for the purposes of the Copyright Act.

Though the ruling does not preclude Breitbart from establishing fair use or a defense under the Digital Mellenium Copyright Act, it has opened the door to serious uncertainty, especially amongst news and media companies, on whose sites embedded content is pervasive. Various organizations have already come forward to criticize the decision, including the Electronic Frontier Foundation, which called the server test “a foundation of the modern internet.” The question is now whether Judge Forrest’s perspective will be corroborated and adopted by other courts in the Second Circuit.

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In its recent decision, Crye Precision v. Duro Textiles, 689 Fed. Appx. 104 (2017), the Second Circuit scrutinized restrictions in an intellectual property licensing agreement under non-compete law, ultimately holding them to be overbroad. Traditionally, non-compete law has been applied only to employment agreements and agreements to sell a business. However, in Crye, the Court extended the law’s purview to an agreement in which the licensee of patented camouflage material, MULTICAM, was prohibited from making similar products after the term or expiration of the agreement.

The licensee, Duro, continued to sell a different kind of camouflage to the U.S. military after its agreement with the licensor, Crye, expired. Crye then sued because the licensing agreement prohibited Duro from making “any products that are similar to MULTICAM through color palette, pattern, arrangement or placement of any elements incorporated in MULTICAM.” The Second Circuit, applying non-compete law, evaluated the provision for reasonableness and undue hardship. It found that since most camouflage patterns share similar colors and arrangement of elements, the provision effectively restricted Duro from producing camouflage ever again. In doing so, the clause was unreasonable in scope and therefore unenforceable.

The Crye decision is especially noteworthy because it indicates that restrictions in intellectual property licensing agreements can and will be analyzed by New York courts under non-compete law. Accordingly, licensing restrictions should be drafted as narrowly as possible to avoid a determination of being overbroad.

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A recent article published by the International Consortium of International Journalists outlines five digital security tools journalists can and should use to protect their work, as well as their sources. This has become pressing as journalists face an increasingly hostile reporting environment where, according to the 2017 World Press Freedom Index, “media freedom is under threat.”

The article encourages reporters, news organizations, and their sources to enlist the following digital security tools to prevent hacks and communicate securely:

End-to-end encrypted apps
- Conventional methods of communication have long been subject to hacking. But there are now several chat applications that allow for encrypted messaging, which means that the content of the conversations cannot be accessed except on the physical devices through which they are sent and received. The article also discusses an app called Signal which, unlike similar apps that enable end-to-end encryption, does not even provide the app’s administrators with any metadata, such as location or time, about the conversations.
Secure file storage and encrypted sharing
- Several applications, including SpiderOak, the Keybase filesystem, tresorit, and Jungle Disk, to encrypt sensitive files before they are shared over the internet. Encryption prior to sharing is step that should not be overlooked, as the most used file-sharing programs, such as Google Drive and Dropbox, do not provide “client-side” encryption by default.
Password Managers
- There are also encrypted password managers that create and remember stronger passwords. Applications such as KeePassXC are free and open-source software that use standards-based encryption to protect passwords. They do not store data online or sync between devises, which helps keep information safe from hackers.
Two-factor authentication and its innovations
- Two-factor authentication provides added security against hackers by requiring a unique secondary identification, such as a texted passcode, each time the account is accessed. It is still possible that text messages containing the codes could be intercepted by hackers. In response to this threat, Google has created an initiative entitled the Advanced Protection Program, which requires that two physical authenticator keys are used to unlock accounts.
Secure chat applications for the office
- The popular office communication application Slack, which has the ability to archive conversations and the documents sent within them, does not feature full end-to-end encryption and was recently discovered to be particularly susceptible to hacking due to vulnerabilities in the app’s code. As an alternative, applications that feature end-to-end encryption, such as Semaphor and Mattermost, are recommended.

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The Cyberlaw Clinic at Harvard University, in conjunction with “a collection of lawyers and creative folks,” has authored “The Cyberlaw Guide to Protest Art.” Published on Medium.com, the guide aims to help creators of protest art navigate legal issues in the digital age. Social media platforms and other digital technologies have made it increasingly easy for protest art, “ posters, songs, poems, memes, and more,” to be misappropriated and otherwise exploited in contravention of established intellectual property law. The guide features plain English descriptions of legal concepts, often accompanied by cartoon illustrations, so that artists, writers, and musicians can use basic intellectual property law to their advantage.

Topics covered include:

Copyright (in three parts)
Trademark
Rights of privacy and publicity
Sharing and merchandising

To see the guide in full, please click here.

The guide aptly includes a disclaimer that it is only to be used for “background educational purposes” and not for individualized legal advice. To learn how Castaybert PLLC can assist with matters of intellectual property law, please click here.

In the digital age, employers must take various precautionary measures to ensure that trade secrets and other confidential information is not misappropriated by their current and former employees. Below is a list of steps employers can take to prevent improper access to valuable company information:

Constantly update the network credentials of current employees

Several recent cases have demonstrated that ex-employees can and do use their former colleagues’ account credentials to gain network access. To prevent this, current employees should change their passwords on a regular basis, and they should be instructed to never provide others with their passwords—this can in fact amount to aiding and abetting criminal conduct.

Ensure that current employees create unique passwords; use two-factor authentication

All too often, employees create simplistic passwords that can be easily guessed by others, especially those who know them well. Employees should be instructed to create unique passwords that differ from those used for other accounts. To assure a higher level of security, employers should implement a two-factor authentication process, which requires unique secondary identification (a passcode that has been texted to the employee, for example) each time the account is accessed.

Cut off ex-employees’ remote and cloud access capabilities

Immediately upon termination, employees should lose remote network access, as well as the ability to access companies’ cloud-based accounts such as Dropbox or Google Drive. Several cases have involved ex-employees who maintained remote access after they were fired and used this access in a way that damaged their former companies.

Collect all authentication and storage devices

Ex-employees often still maintain their access cards or digital storage that contains company information, such as USBs. These physical devices should be taken from employees at the time of termination.

Limit and monitor employee access to sensitive information

Current employees should only be able to access company material that is necessary to do their jobs. Employee access to privileged information should also be monitored, so it is readily apparent when a former employee’s access credentials are used, or when a current employee’s credentials are used in a suspicious or unlawful way.

Instruct employees about proper network behavior and the consequences of unlawful access

Employees should be trained that the fact that they can access a network or cloud-based account does not always mean that they should. The clearly applies when an employee has been terminated, but it also applies to current employees whose access to certain information should remain limited. Employees should be warned about what can happen to employees who unlawfully access confidential information: criminal convictions and prison sentences. Former employees have been sentenced for up to three years in prison for wrongfully using network access information.

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On January 18, an S.D.N.Y. judge sentenced software engineer Xu Jiaqiang to five years in prison. The crime? Stealing source code from IBM, his former employer. The Department of Justice successfully argued that as an employee, Xu had taken advantage of his unique access to IBM’s valuable source code. The company had taken significant measures to safeguard the code, including storing it behind a firewall and limiting access to specific employees, all of whom were made to sign confidentiality agreements. In spite of these precautions, Xu took the source code when he left the company in 2014 “for his own profit and intending to benefit the People’s Republic of China.” Xu attempted to sell software that was created with the code to undercover FBI agents.

This case demonstrates the need for a company to take precautions to prevent trade secret theft. Even though these measures may not ultimately be successful, they are necessary in order for the company to have full access to legal remedies (both civil and criminal) when the theft does occur.

To learn about how Castaybert PLLC can assist with trade secret matters, please click here.

With the help of advanced algorithms, machines are now capable of producing intricate, compelling works of art. As a result, new legal issues have begun to surface regarding the rights to these works. How should attorneys approach copyright issues, draft licenses, and manage disputes regarding robotic art?

Jessica Fjeld and Mason Kortz, of the Cyberlaw Clinic at Harvard University, authored a Comment entitled “A Legal Anatomy of AI-generated Art,” which seeks to help practitioners prevent and address conflict associated with this emerging field. The first part of a two-part series on the legal implications of robotic art, the Comment outlines key definitions related to the process by which the art is generated. Fjeld and Kortz maintain that “when the parties to an agreement or dispute share a common vocabulary and understanding of the nature of the work, many areas of potential conflict evaporate.”

In addition to explaining what exactly AI-generated art is, the “Legal Anatomy” defines the following terms:

Input – the existing artwork that is “fed” to the machine in order to train it
Learning Algorithm – the learning system that identifies and analyzes relevant characteristics of the Inputs, creating a data structure that forms the basis of the Trained Algorithm
Trained Algorithm – the component that uses the data structure produced by the Inputs and Learning Algorithm to create probabilities and operations that form the basis of the Outputs, or generated art
Output – the result of the operations of the Trained Algorithm, which takes a form recognizable to the human eye as art

Click here to read the Comment in full. The second Comment in the series, which provides practitioners with insights regarding copyright interests and AI-generated art, is yet to be published online.

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On December 17, 2017, the New York County Supreme Court dismissed claims asserted by financial analytics firm First Manhattan Consulting Group that its competitor, Novantas, Inc., poached its employees to steal trade secrets. The specific claims against Novantas were tortious interference with contract, unfair competition, and misappropriation of trade secrets. First Manhattan also filed suit against two individuals who were officers at the firm and who were subject to contractual confidentiality and employee non-solicitation obligations.

Ultimately, the jury did not find Novantas to have engaged in a “pattern and practice of poaching” First Manhattan’s employees, and the tortious interference or unfair competition claims against the firm were dismissed. Most notably, the Court refused to submit the misappropriation claim to the jury on the grounds that the information presented by First Manhattan did not constitute specific trade secrets, and there no testimony concerning the alleged misappropriation. The case thus affirmed the necessity of detailed, comprehensive information about trade secrets to be presented at trial, including a full account of the nature of the misappropriation, as well as how exactly the plaintiff was damaged.

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