Dave Walton is a labor and employment attorney with Cozen O'Connor and is based in West Conshohocken, Pennsylvania.
Last year Dave and Seattle lawyer Ed Taylor obtained a multi-million dollar jury trial verdict in a theft of trade secrets case. The case is instructive on how to employ and use electronic discovery to trace trade-secret theft and then present that evidence to a jury. I have changed the names of the parties and altered some of the facts to preserve some anonymity.
Eagle Distributor is a Richmond based distributor of Liquid X. Liquid X is used in all sorts of applications including tooth-paste, car lubricants, and even motor oil. It is produced on the outskirts of Shanghai, China by a company called Paper Tiger. Eagle has two divisions, sales and supply. Sales, as you might expect, handles customer accounts throughout the United States. Supply handles negotiations with Paper Tiger and ensures delivery of product to the U.S. for distribution.
Rick Jones and Susan Francis were at one time employees of Eagle. Rick worked in sales and handled the Texas market. Susan was in supply and primarily handled negotiations with Paper Tiger. In June 2006 Rick announced he was moving to Nova Scotia to take care of his sick mother. Around that same time, Susan announced she was leaving the company after 25 years so she could take time off and receive treatment for a health condition. She even accepted Eagle’s offer to remain on the payroll so she could secure health benefits and receive treatments for her condition. Eagle did not know at that point that, within a few days of their resignations from Eagle, Rick and Susan traveled overseas to secretly help Paper Tiger set up a competing company.
In September 2006, Paper Tiger and Eagle began negotiations over pricing for Liquid X for the first quarter of 2007. Generally the negotiations took place through phone calls and follow up emails. For the first time, Paper Tiger requested information regarding Eagle’s customers and two new individuals names appeared on the cc line of the various emails, Sydney and James. Rick and Susan were using these aliases at Paper Tiger so they could secretly review emails from Eagle and hide their involvement with Paper Tiger. Later, during a meeting with Paper Tiger, Eagle was told that Paper Tiger would no longer supply Liquid X to Eagle and that Paper Tiger was going to compete directly against Eagle. At the time, Paper Tiger denied that they had hired any former Eagle employee to help them with this new competing venture.
Later, Eagle discovered that Paper Tiger had secretly hired Rick and Susan. Management then began a review of former employees access to documents over the past few months. It turned out that Susan accessed and took company information several days before she left. Similarly, Rick refused to return a flash drive containing an extensive amount of Eagle’s confidential information. There was no need for them to have the information and of course the access took place at odd times during the day. Management called their lawyers.
(Part II will appear next week.)