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Federal Courts Loaded With Disputes Over Intellectual Property

There are many paths to fame and fortune for Silicon Valley startups, and so too there are many paths to an intellectual property infringement lawsuit. The very diversity of ways that two companies can get into a dispute over IP is noteworthy in itself. The following cases can serve as fair warning to business owners who may come in contact with a competitor’s IP during merger discussions or via former employees of a competitor.

Merger Talks Can Lead to Patent Infringement

In one case, two makers of ambient light sensors (we will call them M1 and M2) exchanged confidential information while discussing a merger that ultimately did not take place. M1 subsequently released a new product that mimicked a design that M2 had shown them during the merger negotiations. M2 sued M1 for patent infringement, trade secret misappropriation, breach of contract, and tortious interference with prospective business relations. The case was tried before a jury in 2015, and plaintiff M2 was awarded damages on all four claims totaling over $88 million. A federal appeals court, however, reversed part of the lower court’s decision in May 2018, significantly reducing the damages awarded.

Attempting to Hire a Competitor’s Employees is not Proof of Attempt to Steal Trade Secrets

In another case, the plaintiff claimed that the defendant repeatedly tried to hire employees away from the plaintiff’s company in order to gain access to the plaintiff’s trade secrets. The defendant company replied that there was no evidence that it was seeking to acquire, or had acquired, any trade secrets belonging to the plaintiff. The trial court not only found in favor of the defendant, but decided that the plaintiff brought the suit in bad faith, and awarded attorney fees to the defendant. The court ruled that the defendant was perfectly within their rights, under California state law, to attempt to recruit the employees of a competitor. A California court of appeals upheld that decision.

Destruction of Evidence Leads to Judgment of IP Theft

An American manufacturer of paint additives petitioned the International Trade Commission to investigate whether a Turkish competitor had infringed on its patents. During the discovery process, the American company learned that the Turkish firm may have misappropriated trade secrets via some of the American company’s former employees and also found large-scale attempts to destroy evidence. The ITC determined that, without using the American firm’s trade secrets, it would have taken the Turkish firm 25 years to develop a product comparable to the American company’s. Therefore, the ITC issued an exclusion order prohibiting the Turkish company from selling their product in the U.S. for 25 years. The American subsidiary of the Turkish company attempted to appeal the exclusion order in US federal appeals court, but the ITC decision was upheld.

As these cases show, there are many ways to wind up in court accused of IP infringement. In particular, businesses must be careful not to use trade secrets learned during merger talks with a competitor or obtained from former employees of a competitor. And, if you are sued, do not get caught destroying evidence.

Get Technical With a San Jose Intellectual Property Attorney

Do you need assistance defending your business’s trademarks or patents? Have you become involved in intellectual property litigation? Our experienced Silicon Valley intellectual property lawyers can provide the legal help you need. Set up a free consultation with SAC Attorneys LLP by calling (408) 436-0789.


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