Possession is 9/10ths of Trade Secrets Law

    Beverly A. Berneman

    Kevin Huber worked for AFS as a full time sales engineer for Advanced Fluid Systems, a hydraulic systems manufacturer. The Virginia Commonwealth Space Authority awarded a contract to AFS to build, install and maintain a launch pad for a NASA facility. Under the contract, the Space Authority owned the plans created by AFS. The plans were marked as confidential and were considered trade secrets. Three years later, the Space Authority ran into financial difficulty and assigned the Agreement to Orbital Sciences Corporation. So now Orbital owned the trade secrets. But, AFS still had a right to possess them so that it could perform on the agreement.

    Here’s where the twisted tale of betrayal begins.

    Kevin reached out to a competitor of AFS, Livingston & Haven. He told them that Orbital was unhappy with AFS. Kevin then gave Livingston AFS’ confidential information and even arranged tours of the AFS facilities. Kevin helped Livingston win a bid for gripper arms. The problem was Kevin was also helping AFS bid for that contract. He inflated AFS’ contract price thereby assuring Orbital’s success.

    Kevin didn’t stop there. He started his own company intending to compete with both AFS and Livingston. He downloaded 98 gigabytes of AFS’ proprietary information. Then, he tendered his notice.

    Kevin continued to help Livingston by sharing more of AFS’ information for a cylinder contract. But, in the end, Orbital awarded a cylinder contract to Kevin’s company.

    AFS eventually figured out what was going on. It sued Kevin, Kevin’s company, Livingston and two of Livingston’s employees for trade secrets misappropriation under the Pennsylvania Trade Secrets Act.

    Kevin and his fellow defendants argued that the AFS didn’t own the trade secrets so it didn’t have standing to sue. The District Court rejected the argument holding that AFS had a right to possess the trade secrets and so it had a right to sue for misappropriation. Kevin and his fellow defendants appealed. The Third Circuit Court of Appeals affirmed the District Court. The Court of Appeals described the situation as a “sorry story of disloyalty and deception piled upon deception [that] resulted in verdicts against the wrongdoers. They’re not happy about that, but, when the tale is told, it’s clear that the result is entirely justified.” The Court of Appeals held that the Trade Secrets Act only requires a plaintiff to demonstrate lawful possession and not ownership in order to seek remedies for wrongful acquisition or improper use of a trade secret. The Court of Appeals cited other jurisdictions that came to the same conclusion.

    WHY YOU SHOULD KNOW THIS. We may never know if Kevin started on the road to “disloyalty and deception” under the misconception that AFS couldn’t sue him without owning the trade secrets. But, it makes sense that one who has the right to use a trade secret would be harmed by its unauthorized disclosure. And so, of course, AFS, would have a right to sue. No matter how you look at it, the unauthorized use of someone else’s trade secrets can lead to dire consequences.


    The Sky Has Its Limits

    Beverly A. Berneman

    Retired attorney, Richard Bell, had a cottage industry suing people for copyright infringement of a picture of the Indianapolis skyline. Richard alleged that he took the photo in March 2000 for his law firm’s website. He registered the copyright in 2011, after his former law firm stopped using the photo on its website.

    The skyline photo (see picture) became a popular download. Bell sent out cease and desist letters demanding license fees and even filed about 100 lawsuits for copyright infringement.

    Then Bell came up against Carmen Commercial Real Estate Services. Carmen used the photo in a 2004 blog post. In 2016, Bell contacted Carmen alleging copyright infringement. Carmen refused to pay Bell the $5,000.00 he demanded to settle the matter. So, litigation ensued.

    Carmen had two primary defenses. First, Carmen asserted that Bell didn’t take the photo. Bell said he took the photo in March 2000. But the photo shows green grass, a working fountain and the trees full of leaves. Bell said that he also took a night time photo the same day. Apparently, Indianapolis doesn’t green up until after March; so the daytime photo couldn’t have been taken in March. And the daytime photo was contradicted by the night time photo which showed bare trees. Oops.

    The second defense was that Bell created the photo as part of his duties with this former law firm. So, his photo was a work made for hire and belonged to his employer and not him.
    The jury sided with Carmen and determined that Bell hadn’t proved that he took the photo and owned the copyright. Bell is asking for a new trial. Carmen is seeking reimbursement of its attorney’s fees in the amount of $160,000.00.

    WHY YOU SHOULD KNOW THIS. You’ll notice that Bell asked Carmen to pay $5,000.00 to settle the case. Asking for a small amount for settlement is not unusual. The idea is to make it cheaper for the case to go away than to defend it. But, Carmen didn’t look at the cost benefit analysis that way. By investigating the matter and realizing that it had some good defenses, Carmen decided not to back down. This case also demonstrates that if you’re going to say you own a copyrighted work, you had better make sure you really do. This lesson was also discussed in my blog post “Happy Birthday to All of Us” (10/20/2015).


    Data Links

    Beverly A. Berneman

    HiQ uses an automated application to look at publicly available data on social media and provide analytics to its customers. This is called “data scraping”. Businesses use the data for all sorts of things designed to increase revenue.

    HiQ scraped data from LinkedIn. LinkedIn’s Terms of Sale (TOS) prohibits use of automated scraping tools like the ones used by HiQ. LinkedIn will block any IP addresses that engage in scraping. Technically, most of the data on LinkedIn isn’t really LinkedIn’s data. Users post their own data and make it available to anyone who visits LinkedIn. So, HiQ determined that it could scrape publically available LinkedIn data.

    LinkedIn sent a cease and desist letter to HiQ based on HiQ’s violation of LinkedIn’s TOS and the Computer Fraud and Abuse Act (CFAA). The CFAA was enacted in the early history of the Internet to stop hacking. The key to the CFAA is the unauthorized use of permission to access a website. LinkedIn thought CFAA and its interpreting case law gave it a strong case.

    HiQ filed a declaratory judgment action seeing a ruling that its data scraping practices were ok. The district court granted LinkedIn’s motion for preliminary injunction. HiQ appealed. The Ninth Circuit Court of Appeals affirmed the preliminary injunction and remanded the case back to the district court for a final adjudication.

    While HiQ may have lost this battle, the Ninth Circuit’s opinion seems to open the door to HiQ ultimately winning the war.  The Ninth Circuit felt that HiQ raised some serious questions about the reference to access “without authorization” under the CFAA. The CFAA “contemplates the existence of three kinds of computer information: (1) information for which access is open to the general public and permission is not required, (2) information for which authorization is required and has been given, and (3) information for which authorization is required but has not been given (or, in the case of the prohibition on exceeding authorized access, has not been given for the part of the system accessed).” The Ninth Circuit believed that HiQ has an argument that public LinkedIn profiles, available to anyone with an Internet connection, fall into the first category. Therefore, using that public information would not violate the CFAA.

    WHY YOU SHOULD KNOW THIS.  The Ninth Circuit appears to be ok with data scraping in the context of freedom of competition and information. What might save HiQ is the fact that it is only scraping public data. There’s an open question as to whether HiQ is still violating LinkedIn’s TOS. So both HiQ and LinkedIn have some battles to fight before the war ends.


    Book Your .Com Now

    Beverly A. Berneman

    On June 30, 2020, the Supreme Court of the U.S. ended the long battle between Booking.com and the United States Patent and Trademark Office (USPTO).

    Booking.com is a popular website that allows customers to book anything travel related online. Booking.com’s Netherland based operator tried to register several different versions of the trademark in the U.S. The USPTO rejected the applications. The USPTO determined that the trademarks were generic. A generic name isn’t eligible for trademark registration because it’s the name of the class of goods and services rather than a source or product identifier.

    Booking.com appealed to the district court who reversed the USPTO. The district court held that the name isn’t generic. But, in a twist of fate, the district court also awarded attorneys’ fees to the USPTO. Both Booking.com and the USPTO appealed. The Appellate Court for the Fourth Circuit affirmed the district court’s ruling. The USPTO petitioned for a writ of certiorari to the Supreme Court which was granted.

    The Supreme Court held that Booking.com was not generic. Justice Ruth Bader Ginsburg wrote the opinion for the majority. Justice Ginsburg described the mark as a compound of two generic terms, “booking” and “.com”. Then Justice Ginsburg viewed the mark from the consumer’s point of view. If the consumer doesn’t see the compound word as generic, then it isn’t. Apparently, Booking.com’s owner was able to show that consumers didn’t think that Booking.com was a basic way to describe other travel related websites like Travelocity. The USPTO tried to argue that two generic words create a generic compound word. But the opinion pointed out that even the USPTO doesn’t follow that rule. 

    One of the USPTO’s most interesting arguments was that allowing protection for Booking.com would give the mark owner undue control over similar terms. Justice Ginsburg believed the danger of this was overblown because the usual limitations of a likelihood of confusion would still apply.

    WHY YOU SHOULD KNOW THIS. It all comes down to how to choose a trademark. Fanciful, arbitrary and suggestive marks are more protectable. Some descriptive terms are capable of being registered if they bring something more to the table like being used long enough for consumers to connect the descriptive mark with the owner’s goods and services. But merely descriptive terms are not capable of being registered. And generic terms aren’t protectable at all. They’re just what you call the goods or services, like “soap” for “soap”.  The wrinkle in this case was that two generic terms were “mashed up” to create a registerable trademark. But care should be taken when trying to duplicate Booking.com’s success.