Trade Secret Theft on the Cloud: Concerns For Both Employers and Employees

Max Taves authored an article posted by Law Technology News  entitled "Trade Secret Spats Center on Cloud."  The article highlights the increasing difficulty employers face when trying to avoid theft of confidential information when employees have access to third party storage providers such as DropBox, Googe Docs, SugarSync, and SkyDrive.  Third party data storage providers enable users to either locally sync or upload documents at work which can be accessed from another computer.  I have posted on tips for employers to reduce the risk of this kind of theft. Essentially, to mitigate risks and have evidence of theft, businesses need a robust and frequently updated fraud management plan.  

What I also found blogworthy in this article was how use of cloud based document storage posses a risk for employees as well.  One attorney in a high profile case pointed out that an employee’s use of DropBox, or similar provider, could generate the appearance that the employee may have stolen data even if they did not intend to do so.  I have seen this happen several times and it can be a big problem.

An employee may use DropBox to store personal information (family photos, resume, etc) but also mix in company documents to work from home.  The employee may leave for another job and forget that he or she still has documents from the former employer.  The employee could end up in a lawsuit because the employer may believe documents were stolen by use of DropBox.  Having already used DropBox at work, it may be even more problematic to show evidence of returning such documents or deleting them.  

The take away here is that use of cloud storage creates a risk for both employers and employees when it comes to confidential information.  While employers should develop a fraud management plan, employees would be well advised to have clear permission to use cloud storage providers. To avoid or reduce the risk of a lawsuit, employees should also seek to address cloud storage as part of an exit strategy.  Even if an employee has no desire to use confidential information after leaving, ignoring the issue is a big risk that may create the wrong impression. 

Laticrete Responds To 50 Million Dollar Verdict

Following my post about the Dur-A-Flex v. Laticrete jury verdict, I received a statement from Laticrete’s CEO, David Rothberg.  You can read the full statement here.   Mr. Rothberg stated that he is "extremely disappointed in the verdict." He added that the jury finding against Laticrete was "absolutely baseless."  He left no secret as to Laticrete’s post trial plans as he says the company intends a vigorous defense on appeal.

Trial counsel for Laticrete, Elizabeth Stewart, confirmed to me today that Laticrete does expect to appeal.  She commented that no decisions have been made yet on which issues Laticrete will raise on appeal.  Attorney Stewart had no further comments on the case.   

One of the most intriguing aspects to the appeal in this case is that Judge Eveleigh presided over the trial.  Judge Eveleigh has a very good reputation as a trial court judge.  In addition, he is now set to take a seat on the Connecticut Supreme Court.  I do not know yet what potential grounds might exist for the appeal, but I can say it seems very likely Judge Eveleigh considered the potential appellate issues in this case very closely.   

Stay tuned.  I expect there will be additional posts on this case.

Largest Jury Verdict In Connecticut History For Trade Secret Case

After an eight week jury trial in Waterbury Superior Court, an East Hartford based flooring solutions company,Dur-A-Flex, has been awarded 50.5 million dollars in damages for the misuse of its trade secrets by Laticrete International, a Bethany based multinational corporation.  Laticrete was a former purchaser of Dur-A-Flex’s colored sand products.  The jury found that the Laticrete misappropriated Dur-A-Flex’s trade secrets for the colored sand and awarded 43.7  million dollars in damages.  After the jury verdict, Judge Dennis Eveleigh awarded Dur-A-Flex more than 5 million dollars for attorney’s fees in a written decision (download here).   He also conditioned Laticrete’s future use of Dur-A-Flex’s technology on payment of royalty fees.

The case was brought back in 2006 on the Complex Litigation Docket in Waterbury  (Access court docket here). Dur-A-Flex was represented by Lawrence Rosenthal and Fletcher Thomson from Rogin Nassau’s Hartford office.  Laticrete was represented by Elizabeth Stewart from Murtha Cullina’s New Haven office.  

Dur-A-Flex supplied color sand to Laticrete for use in Laticrete’s grout products.  Laticrete was the only customer of Dur-A-Flex for the sand product.  Laticrete at some point stopped buying the colored sand from Dur-A-Flex and started making an identical sand product.  Dur-A-Flex claimed that Laticrete was, if fact, using Dur-A-Flex’s manufacturing process to make the sand.    The jury agreed with Dur-A-Flex and found that Laticrete violated Connecticut’s Uniform Trade Secrets Act. 

Attorney Rosenthal commented on the verdict and stated he was "certain that Dur-A-Flex had been significantly damaged by Laticrete’s improper and unauthorized use of its technology."  He believed the verdict was the largest ever for a trade secret case in Connecticut. 

I also believe this is the largest jury verdict in Connecticut history for a trade secret case.  Additionally, Connecticut case law is fairly sparse when it comes to significant trade secret cases.  I expect that the Dur-A-Flex case will impact trade secret law in Connecticut for years to come.  In particular, not only the amount of the award, but Judge Eveleigh’s written decision on awarding future royalties and attorney’s fees, which included a 10% contingency success fee.   Judge Eveleigh also issued a post-judgment order permitting Dur-A-Flex to attach the assets of Laticrete. It should be noted that Judge Eveleigh will become a justice of the Connecticut Supreme Court on June 1, 2010.   As such, I expect that his decision will carry more weight on these issues.