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Attorneys

Downloading is Not Necessarily Misappropriating

March 26 2014

By James Kachmar

One of the key pieces of evidence a plaintiff in a trade secret case usually looks for is the downloading of company information from its computers prior to a former employee departing and joining a competitor.  Generally, this “smoking gun” type of evidence shows that the employee on his or her last day accesses and downloads a bunch of proprietary company information that is then used at his or her new place of business to compete with the former employer.  This key evidence can be used to support an application for a TRO/preliminary injunction early in the case to give the employer a litigation advantage.  However, merely finding evidence of the downloading may not be sufficient to establish trade secret misappropriation should the case go forward.  This was one of the issues that faced the Court in in Integral Development Corp. v Tolat, a recent decision rendered by the U.S. District Court for the Northern District of California.

Dr. Viral Tolat was one of the co-founders of Integral, a software development company and service provider in the area of online trading on foreign exchange markets.  From 1993 to December 2012, Dr. Tolat served as Integral’s Chief Technology Officer and Head of Integral Products and Services.  In December 2012, Dr. Tolat left Integral and joined one of its competitors.

Integral sued Dr. Tolat for trade secret misappropriation, among other claims.  Dr. Tolat moved for summary judgment and the Court granted it as to Integral’s trade secret misappropriation claim against him.

In addition to finding that Integral failed to identify the information it claimed to be trade secret with sufficient particularity, as well as a failure to establish damages, the Court concluded that Integral had not established that Dr. Tolat had misappropriated its alleged trade secrets.  Integral offered evidence that Dr. Tolat had downloaded a copy of Integral’s source code while still employed there and while he was engaging in negotiations to join the competitor.  Integral also argued that there was the short period of time for the competitor to bring its product to market, which showed that Dr. Tolat must have misappropriated Integral’s trade secrets.  The Court found that this “evidence” was insufficient to show that Dr. Tolat misappropriated the information, i.e., used the information he downloaded improperly.

Dr. Tolat was able to offer evidence that he deleted the information he downloaded prior to beginning his work at the competitor.  Further, there was no evidence that he had accessed or used the information after leaving Integral.

The Integral decision reminds plaintiff employers that their burden of establishing trade secret misappropriation is not met simply by showing that a former employee has downloaded or copied company information.  Rather, to prevail on a claim of trade secret misappropriation, the plaintiff employer must obtain evidence that the former employee has in fact used that information for improper purposes.  Otherwise, a plaintiff employer is at risk of losing its trade secret misappropriation claim.