The long-running battle between two of the app industry’s biggest players has settled: Zynga v Playdom (acquired in the summer by Disney). This lawsuit, in many ways, illustrates the battle for dominance in a highly competitive industry like app development, and included allegations against former employees of misappropriation of trade secrets, breach of contract, and breach of the duty of loyalty… even a threat of a jail time for one of the employees. For a more staid Canadian equivalent, see: RBC v. Merrill Lynch. That case dealt with bank employees, so it lacks the flair of social gaming, but is a good Canadian example of the duties of departing employees.

Related reading: Departing Employees & Trade Secrets

Calgary – 09:00 MST

 

My article on the Legal Implications of App Development [Download Copy of Article (2MB PDF)] is published in the November 19th edition of The Lawyers Weekly. It discusses “app law“ issues such as end-user licensing, copyright disputes, app-related trade-mark issues, trade-secrets, privacy and app development agreements.  [Link here for a preview of the digital edition]

Calgary – 09:00 MST 

 

You may have seen our recent post on the subject of Apple’s robust trade-secret protection program. Apple grabbed headlines again when a prototype iPhone made its way into the hands of a blogger at Gizmodo, who promptly posted a review of it. It didn’t take long for Apple to flex its trade-secret enforcement tools.  The “Rapid Enforcement Allied Computer Team” (a uniquely Californian computer-crime task force) descended on the blogger and reportedly seized a number of items including a laptop, hard-drive and other personal effects.  The message is unmistakeable: technology companies will go to extraordinary lengths to protect trade-secrets.

Could this happen in Canada?  Search warrants are typically used where a criminal investigation is under way.  In civil cases, a technology company could use an “Anton Piller Order”, which is a form of civil search warrant enabling representatives of a plaintiff to search the defendant’s premises and seize relevant documents and other evidence pertinent to the lawsuit.  It comes from a trade-secret lawsuit from the 1970’s, where a technology company convinced the court to permit a search-and-seizure at the defendant’s premises.  Such an order can only be granted where:

• there is a strong case for the plaintiff and the potential for “very serious” damage to the plaintiff;
• there is convincing evidence that the defendant has “incriminating documents or things”; and
• there is a real possibility that the defendant might destroy the incriminating evidence.

These orders can be set aside, as in this recent Federal Court case involving a copyright infringement claim: Vinod Chopra Films Private Limited v. John Doe, 2010 FC 387 (CanLII).

Calgary – 08:00 MST

 

 

The Apple rumour mill – which usually spins at an alarming rate even on a slow day – has been at risk of popping a gasket over the past few months with speculation over Apple’s latest product release: a tablet-like device which is expected to do to the handheld tablet category what the iPod did for MP3s.  The iPad product was released today.

The new product was described in great detail by those who had no idea what it looked like, what it was called or what functionality or interface it might have. This attests to two things: the marketing power of consumer expectations, and the strength of Apple’s trade secret and intellectual-property protection program.  Several years ago Apple sued a journalist who posted information about one of Apple’s forthcoming software products (in O’Grady v. Superior Court, 139 Cal.App.4th 1423 (Cal.App. 2006)). Apple sought an order forcing the journalist to disclose his sources. In the most recent round of speculation, the company’s lawyers fired a letter at a Silicon Valley gossip site when the site offered a $100,000 bounty for any photos of the tablet. Ultimately Apple lost its legal battle with the journalist, but the practical message was clear: that it takes its confidential information very seriously.

Calgary – 07:00 MST 

 

Earlier this year, iPhone app developer Zynga Game Network Inc. sued rival game-maker Playdom Inc. and a number of ex-employees in California state court. Among the causes of action were: misappropriation of trade secrets, breach of contract, breach of the duty of loyalty, tortious interference with contracts and unfair competition. Zynga alleges that Playdom hired away four key employees who allegedly took with them key information and planning documents when they left Zynga, including “The Zynga Playbook”, a document which would contain valuable trade secret information in the fiercely competitive app industry. The court granted an initial request for a temporary restraining order against Playdom and the other defendants. Those defendants are prohibited from destroying any of the files allegedly misappropriated. (To see the court documents, link here.)

Under Canadian law, the misappropriation of trade secrets has been scrutinized in several high-profile cases, including the RBC v. Merrill Lynch case, where virtually all of the investment advisors at an RBC branch joined competitor Merrill Lynch.  The law is clear that departing employees owe a duty of “good faith” to their employer, and can also owe a  “fiduciary” duty – a special category which applies to employees such as senior managers, executives, directors and officers.  In the RBC case, the departing employees were not fiduciaries, and had the legal right to leave RBC and to compete with their former employer. But note that employees owing a fiduciary duty will be held to a higher standard.

The lessons for business? Ensure your standard employment agreements contain appropriate non-competition and confidentiality clauses to prevent unfair competition and improper use of confidential information.
Calgary – 14:00 MST

 

Four key employees of a software company resign and start up a competing venture.  The former employer stumbles. The new company aggressively targets the customers of the former employer, and develops into a successful and profitable business, twice the size of the former employer.

On the surface, that’s the story of GasTOPS Ltd. and MxI, a story spanning 13 years, leading to an epic lawsuit (295 days of trial… that’s like going to trial 5 days a week every day for over a year). Last month, when the Ontario court handed down its 675-page decision, the former employees who left GasTOPS and started MxI were hit with an $11 million damage award, for usurping corporate opportunities, and misappropriating trade secrets, confidential information and intellectual property of the former employer.  The decision [3.7 MB PDF] covers the issues in great detail and if you can wade through the analysis, it’s a great survey of current case-law in this area.

The take-home message: departing executives owe a continuing fiduciary duty to their former employer, not to use confidential information or poach business opportunities. In this case, the judge said that duty should continue for 10 years after employment ends.

Related Reading: Departing Employees & Trade Secrets

Calgary – 11:45 MST

 

A recent survey shows that departing employees are leaving the office with more than the photos of their kids – they’re walking off with trade secrets and confidential company information. A majority of the survey respondents said they burned confidential information onto a CD or DVD, around 40% dragged it to a USB drive or e-mailed documents to themselves. 

In Canada, the Supreme Court of Canada recently weighed in on this area of law. In RBC Dominion Securities Inc. v. Merrill Lynch Canada Inc., 2008 SCC 54 , virtually all of the investment advisors at an RBC branch walked out one day (without notice) and joined RBC’s competitor, Merrill Lynch.  RBC sued its departing employees and also sued Merrill Lynch and its manager.  The case went up through trial, to the BC Court of Appeal, and was appealed up to the Supreme Court of Canada.  The court decided that the departing employees owed a duty of “good faith” to RBC, but that none of them was a “fiduciary”  – a special category which applies to employees with a special relationship to the corporation, such as senior managers, executives, directors and officers.  In the absence of a non-competition clause or fiduciary relationship, the departing employees had the legal right to leave RBC and to compete with their former employer. However, the court was clear that a departing employee might be liable for specific wrongs, such as improper use of confidential information of the former employer. 

Watch for our seminar on this and other topics at our Events page.

 

Calgary 11:30 MST