Recent Developments

Investment services asserting misappropriation of "hot news" fail to obtain order blocking news aggregator's online stock reports; federal copyright law trumps New York's "hot news" misappropriation law.

Barclays Bank, Merrill Lynch and Morgan Stanley send stock picks to their paying customers. Theflyonthewall.com learned of the investment services' stock picks and then published these recommendations on its own newswire distributed to its customers. The investment services, suing under New York state law claimed that Theflyonthewall.com had misappropriated "hot news." In 2010, a federal district court agreed with the investment services and issued an injunction ordering Theflyonthewall.com, to delay publishing the "hot news" for a half hour when the stock picks were first released before the market opened and for two hours when the recommendations were released when markets were open.

In June 2011, the federal appellate court ruled that copyright law trumped the New York law prohibiting distribution of "hot news." Under federal copyright law, news organizations can report "facts" that they learn; they just cannot copy and redistribute the news stories or cut-and-paste substantial portions of the stories and reprint them. The investment services, when they released their stock picks, essentially were creating news, i.e., facts that are not protected under copyright law. The appellate court stated that Flyonthewall.com was engaging in "what appears to be unexceptional and easily recognized behavior by members of traditional news media – to report on, say, winners of Tony Awards or, indeed, scores of NBA games."

Barclays Capital v. Theflyonthewall.com, Case No. 10-1372 (2d Circuit Court of Appeals June 20, 2011).

$1.3 Billion copyright infringement award won by Oracle; Court also awards interest and attorneys' fees of $120 million.

In November 2010, a jury in Northern California awarded Oracle the largest-ever damages for copyright infringement – $1.3 billion. The infringement was by a subsidiary of SAP, TomorrowNow, which provides support services for PeopleSoft, J.D. Edwards and Siebel, each now owned by Oracle. Oracle alleged that defendant TomorrowNow, using its customers' credentials, downloaded over 10,000 software and support material files – over 22 terabytes – between 2003 and 2007. Oracle also alleged that the downloads infringed 120 copyrights owned by Oracle. Before trial, SAP conceded TomorrowNow's direct copyright infringement and SAP's contributory infringement and vicarious liability for TomorrowNow's infringement. That left the determination of damages the sole issue for the jury.

The damage award is based on the fair market value of the license that SAP would have had to purchase for the software and support materials that it downloaded and used. The jury rejected SAP's damage calculation based on Oracle's lost profits. In late December 2010, the district court also ordered SAP to pay interest in an amount calculated to be about $16 million, as well $120 million for Oracle's attorneys' fees and expenses. SAP has filed post-trial motions, and is expected to appeal the jury verdict.

Oracle USA, Inc. v. SAP AG, Case No. 07-CV-1658 (Northern District of California Dec. 28, 2010).

IBM, claiming inevitable disclosure of trade secrets and breach of covenant not to compete, fails to obtain order preventing senior executive from working at Hewlett-Packard.

On January 19, 2011, Giovanni Visentin, a senior executive announced he was leaving IBM and accepting an employment offer at Hewlett-Packard. On January 20, 2011, IBM sued Mr. Visentin, alleging that in his new position Mr. Visentin would inevitably disclose IBM trade secrets and that Mr. Visentin was breaching his employment agreement, which stated that he could not "directly or indirectly . . . Engage in or Associate with . . . any competitor of the company."

The district court denied IBM's request for a preliminary injunction preventing Mr. Visentin from working for HP. Under the doctrine of inevitable disclosure, an injunction can issue where (i) the two employers are direct competitors providing the same or very similar products or services; (ii) the employee's new position is nearly identical to his old one, such that he could not reasonably be expected to fulfill his new job duties without utilizing the former employer's trade secrets, and (iii) the trade secrets are highly valuable to both employers. While the first prong was met, the two positions were not sufficiently similar and IBM could not identify with particularity the trade secrets that might be disclosed to HP. Accordingly, IBM could not rely on the doctrine of inevitable disclosure to justify the requested injunction.

IBM also argued that Mr. Visentin was breaching the non-compete provision of his employment agreement. The Court, however, ruled that the provision was overly broad and thus unenforceable because, even though IBM and HP competed in some lines of business, the non-compete clause prohibited Mr. Visentin from working in HP's retail laptop and printer sales business, a business in which IBM did not even participate.

The Court concluded that the IBM employment agreement was not focused on protecting the company's trade secrets, but was primarily an employment retention program. The "architect of IBM's noncompete program" testified that the agreements were intended "to keep the leadership talent of IBM from leaving" (an illegitimate purpose), instead of furthering the protection of IBM's trade secrets (a legitimate interest).

International Business Machines Corp. v. Visentin, Case No. 1:2011cv00399 (Southern District of New York Feb. 16, 2011).