Sometimes a defendant accused of trade secret misappropriation can defend on the basis that it has “reversed engineered” the alleged trade secret information and therefore did not misappropriate it.  For instance, a defendant may be able to establish that it examined plaintiff’s product and then using its own know-how, time, energy and independent resources was able to recreate, i.e., reverse engineer, the trade secret information at issue such as a manufacturing process, software code, recipe or other trade secret.  It will then be up to the jury to determine whether a plaintiff has in fact proven that the defendant misappropriated its trade secret information or whether the defendant lawfully engaged in reverse engineering.   But what about a trade secret defense on the basis the alleged trade secret information is susceptible to reverse engineering?

In PQ Labs, Inc. v. Yang Qui, et al. (N.D. Cal.), the Court was recently faced with this issue on defendants’ motion for summary judgment to a trade secret misappropriation claim.  PQ Labs manufactures and develops hardware/software for computer touch screen products.  The individual defendants either worked with its sales force or with its manufacturing facility.  The individual defendants later formed a competing touch screen technology company in China and were alleged to have used confidential and trade secret information from PQ Labs to unlawfully compete with it.

The defendants moved for summary judgment as to the trade secret misappropriation claim arguing that the plaintiff had not taken reasonable efforts to maintain the secrecy of its trade secret information.  The plaintiff submitted evidence that it had: (1) instructed the individual defendants not to disclose the subject information; (2) had all of its employees enter into confidentiality agreements; and (3) taken steps to restrict access to the subject information as well as to their facilities.  The defendants argued, however, that plaintiff had not taken steps to prevent the possibility of having its trade secret information “reversed engineered.”  Essentially, the defendants argued that plaintiff’s trade secrets were “susceptible to reverse engineering” and therefore the trade secret claim failed as a matter of law.

Defendants did not offer any evidence that they had in fact “reversed engineered” the information at issue.  Rather, they offered deposition testimony during which one of the defendants opined that: “if you have billions of dollars, you can reverse engineer possibly everything.”

The Court found that this “belief” was insufficient to warrant summary judgment in the defendants’ favor, especially in light of the evidence plaintiff offered as to the steps it had taken to protect the information at issue.  Thus, a defendant in a trade secret case cannot avoid liability merely by arguing that the trade secret information at issue is “susceptible” to reverse engineering.  Rather, a defendant should try to establish that he or she in fact did reverse engineer the trade secret at issue if possible, including being able to demonstrate the steps he or she took, the independent source of information he or she used or referred to, as well as any knowledge unrelated to the claimed trade secret information that may have been utilized.  This could help persuade the finder of fact that no trade secrets were misappropriated.

The San Francisco’s Board of Supervisors has now prohibited the widely used criminal history check box for employment applications. Unless the Mayor vetoes it, the “ban the box” ordinance will become law no later than Thursday, February 13, 2014. In addition to banning the box, the new San Francisco legislation imposes a host of additional new restrictions on the use of criminal history for employment purposes. These restrictions are in addition to those already imposed by the federal Fair Credit Reporting Act (FCRA).

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Summary of Program

Most employers know that it is crucial to have well trained supervisors to help ensure that rank and file employees perform their jobs effectively and efficiently. However, many employers don’t realize how important it is that supervisors be trained to understand the many employment laws that govern the workplace. Untrained supervisors can take actions (or fail to take actions) that result in significant legal consequences for an employer. Come join the employment lawyers at Weintraub Tobin for a discussion of best practices for training supervisors and reducing the potential for liability.

Date:     February 20, 2014

Time:    9:00 a.m. – 12:00 p.m.

Location:  400 Capitol Mall, 11th Floor, Sacramento, CA

For more information and to register for this seminar, please click here.

Readers of this blog know that we frequently discuss the doctrine of preemption under the California Uniform Trade Secrets Information Act.  That is, a claim for trade secret misappropriation will preempt any other common law claims based on the “same nucleus of facts.”  However, a recent decision in Jobscience, Inc. v CVPartners, Inc., N.D. Cal. January 9, 2014, reminds us that the doctrine of preemption may also be used to defeat a trade secret claim.

Jobscience developed and licensed a recruiting software application that it claimed had been misappropriated by defendants.  Jobscience sued the defendants for both federal copyright infringement and trade secret misappropriation.  The defendants moved to dismiss the trade secret claim on the ground that it was preempted by the Copyright Infringement Act.

The Court noted that section 301(a) of the Copyright Act provides the exclusive rights and remedies within the general scope of copyright law and that “no person is entitled to any such right or equivalent right in any such work under the common law or statutes of any state.”  A common law or state-based claim will be preempted by the Copyright Act if the content of the protected right falls within the subject matter of the Copyright Act and the rights asserted under state law are equivalent to those protected by Copyright Act.

Thus, a Court will look to see whether a claim for trade secret misappropriation is “based on the same nucleus of facts as the copyright infringement claim.”  The Jobscience court found that the plaintiff’s copyright infringement claim, i.e., which consisted of its software code, was based on the “same nucleus of facts” as plaintiff’s alleged trade secret misappropriation claim.  Essentially, Jobscience accused defendants of both infringing on the copyright protecting its software as well as “misappropriating” the software.  Given this fact, the Court granted the defendants’ motion to dismiss plaintiff’s trade secret misappropriation claim because it was preempted by the Copyright Act.

The Jobscience decision is a reminder to litigants that there are several important defenses, including preemption, in a trade secret case.  Defense counsel are reminded to examine the interplay between various theories of IP liability and whether the statutes they are premised on offer any basis for arguing preemption in a trade secret misappropriation case.

By:   Duyen T. Nguyen

In George Vranish, Jr. et al. v. Exxon Mobil Corporation, 2014 DJDAR 761, January 23, 2014, the Court upheld the terms of a collective bargaining agreement (“CBA”) which set forth overtime pay for Exxon Mobil’s employees. Pursuant to the CBA, Plaintiffs were paid at the overtime premium rate of 1.5 times their regular rate of pay for hours worked over 40 hours in a workweek or over 12 hours in a workday but were not paid overtime for hours worked between the eighth and twelfth hour in a workday. Thus, Plaintiffs argued that they were not paid premium compensation for all “overtime hours worked” as required under Labor Code section 510. That section provides that any work in excess of eight hours in one workday is compensated at 1.5 times the regular rate of pay for an employee and any work in excess of 12 hours in one day is compensated at 2 times the regular rate of pay for an employee.

Continue Reading A Collective Bargaining Agreement That Provides For Premium Rates For Overtime Hours Worked Is Not Subject To The Same Overtime Pay Obligations Defined By California Labor Code Section 510