Trade Secrets Lit Updates: Sinovel Challenges Summons Service and Philips Computer Fraud Claim Fails

There are updates on a couple of green tech trade secrets cases, each involving allegations of misappropriation by Chinese companies and their employees.

First, as discussed in a previous post, the ongoing litigation between American Superconductor (AMSC) and Sinovel includes a criminal indictment against the Chinese wind turbine maker, two of its employees, and a former AMSC employee.

The defendants are charged with conspiracy to commit trade secret theft and criminal copyright infringement.  The technology involved is AMSC’s source code, software, equipment designs and technical drawings that relate to regulating the flow of electricity from wind turbines to the electricity grid

In a recent oral argument, Sinovel asked the U.S. Court of Appeals for the Seventh Circuit to reverse a lower court ruling and quash a summons, arguing it was improperly served on its U.S. subsidiary.  An article about the oral argument can be found here.

The second is a lawsuit brought by Koninklijke Philips and Philips Lumileds against Chinese competitor Elec-Tech International (ETI), several ETI subsidiaries, two corporate directors, and a former Lumileds employee named Dr. Gangyi Chen.  Philips alleged theft of trade secrets relating to high-energy LED lighting technology.

Elec-Tech moved to dismiss the complaint for a number of reasons, including an inadequately pleaded claim under the Computer Fraud and Abuse Act (CFAA), the only federal cause of action in the case.

In a recent decision, a federal court in San Jose, California dismissed Philips’ case, holding that the federal law claim under the CFAA could not be sustained.

The CFAA prohibits various computer crimes related to accessing computers without authorization in order to obtain information or data.  The problem for Philips was that Dr. Chen, who was alleged to have stolen the trade secret information, was authorized to access the Philips Lumileds network and did not exceed his authorized access while downloading the information prior to his resignation.

Specifically, the complaint was deficient because it lacked any allegation that someone without authorization accessed the confidential information:

By the Complaint’s own allegations, none of the CFAA Defendants accessed Lumileds’ information – Dr. Chen did, at a time when he was authorized to download this information.

While Dr. Chen may have misappropriated the information (a state law claim) and given it to the CFAA Defendants, the court held there is no “claim against those Defendants under the CFAA because they themselves did not hack Lumileds’ system.”

The court rejected Philips’ argument that Dr. Chen was an “agent” of the CFAA Defendants and they should be held liable based on their indirect, unauthorized access through Dr. Chen’s access, holding that the CFAA Defendants lack of access was fatal to the claim:

None of the CFAA Defendants entered or used Lumileds’ network.  At most, they encouraged Dr. Chen to do so, and stood to benefit from alleged misappropriation.  This action may give rise to a number of claims, but it does not support a theory of liability under the CFAA.

Expect this case to start up again in state court.

Eric Lane Avatar

Eric Lane

Eric Lane, the founder and principal of Green Patent Law, is an intellectual property lawyer and registered U.S. patent attorney in New York and is a member of the bar in New York and California. Eric has more than two decades of experience working with wind, solar PV, CSP, biofuels, and geothermal, energy storage technologies, carbon capture and sequestration, medical devices, data communications, mechanical, chemical, internet and software.