Did Apple steal the trade secrets of a startup?

The liquid flows from higher concentration to lower. Is it the same for the flow of information [trade secrets] from higher concentration companies to startups? Not necessarily! HOOKED MEDIA GROUP, INC. (hereinafter referred to as ‘Hooked”) claimed contradictory against Apple Inc.!(hereinafter referred to as “Apple”).

Hooked, a startup company, was in the business of developing recommendations apps based on usage patterns of the users. The startup was interested in selling their business while Apple showed its interest as a potential buyer. However, the startup was later informed that the tech giant is not interested in their technical information rather the interest is in buying their engineers and professionals. Pursuant to this, Apple hired the engineers and Chief Technical Officer of Hooked and the negotiations to buy the startup ended thereof.

Upset from this step, Hooked asked their ex-employees to return all the confidential information. Apple replied on behalf of his new employees that they have no desire to use the confidential information and it will be returned. Nevertheless, Hooked sued the former Chief Technical Officer and Apple for participating in misappropriation of trade secrets, unfair competition, and other wrongs. Apple was allowed a plea of summary judgment.

Appealing to the judgment, Hooked claimed that Apple has violated trade secrets by misappropriation under the United States Uniform Trade Secrets Act (UTSA; Civil Code, § 3426 et seq.). To prove misappropriation under the UTSA, a plaintiff must establish that the defendant improperly acquired or used trade secret information. It is also an obligation on a plaintiff to show that reasonable steps were taken to maintain the confidentiality of the trade secret.

Hooked alleged that Apple has misappropriated the trade secrets using the technical information, such as algorithms and app recommendation strategies and information about the makeup and skills of Hooked’s core engineering team.

India does not have a codified law on the Trade Secrets.

Trade secrets protection is recognised by Indian courts under following heads, but not limited to contract law, copyright law, common law on confidentiality, Information technology act.

The interesting point of acquiring the trade secret was discussed when Hooked claimed that one of the recommendation apps released by Apple is based on the knowledge acquired by its ex-employers during their tenure with Hooked. The experts also confirmed that the source code of Apple’s app is similar to Hooked’s apps. However, the trade secret law does not find the use of knowledge by the employee – gained with the former employer – for the new employer as misappropriation.

The Court said, “Allowing an action for trade secret misappropriation against a former employee for using his or her own knowledge to benefit a new employer is impermissible because it would be equivalent to retroactively imposing on the employee a covenant not to compete.

Another allegation that Apple has misappropriated the makeup and skills of its engineering team was trashed by the Court as Hooked itself disclosed most of the information during negotiations with Apple without any confidentiality agreement. Hence, the plaintiff did not maintain the confidentiality of the trade secret. Accordingly, the court of appeal of the State of California decided in favour of Apple on May 28, 2020.

This dispute commenced back in 2013. [To access the opinion click here]

Points to remember:
1. Any stipulations in the employment agreement preventing the employee from using his skills and knowledge gained during his term of employment are unlawful.
2. Negotiations should take place under the trust of confidentiality.
3. Reasonable steps should be taken to protect the confidentiality of trade secrets.
4. Employees using the trade secrets of the company should be under the obligation not to disclose it. But the skills and knowledge gained during the tenure do not form part of the trade secrets.

About Krishnam Goyal 12 Articles
Krishnam is an LL.M. student at Munich Intellectual Property Law Center (MIPLC), Germany. He is an engineer, advocate and a patent agent in India. He holds around three years of working experience in the field of patent drafting and prosecution in the fields of ICT, electronics, computer-implemented inventions, mechanical engineering and green technology. The area of research that interests him is patenting of AI, SEPs, Green technology and climate change issues

4 Comments

  1. This is something interesting, I think most of us from non-IP background ain’t even aware of any such controversy! Good one.

  2. A good article to read and various things to catch in it !!!! The topic of patent is wide and complex but like a many tied knots we can untie it one by one.

  3. Interesting. Do you mean to say, for example, employees who were involved in a patented design are free to leave my company and with the knowledge gained at my organisation, can reproduce the same design for another company?

    How do I protect my IP in such a scenario?

    • Thank you for your comment and question.
      There are certain scenarios to see in this:
      1. Assuming that your technology is patented then you can prevent your competitors from using it. However, all the patented information is available publicly for further innovation. Accordingly, you cannot prevent anyone from doing further research on that technology and patenting an improved or enhanced technology over your technology. Of course, if your technology is infringed by the commercialisation of the improved technology, then you have to undergo some kind of a licensing arrangement;
      2. If the technology is not patented and your employee was working on it, it is required that you have a confidential agreement with your employee that he cannot disclose such information to anyone. if he does, then it is the breach of the confidential agreement and you will be the rightful owner of that technology. Establishing that there is a breach of confidential agreement is a matter of circumstantial evidence as well.

      Accordingly, it is required that the employment agreement should have a confidentiality clause in it.
      I hope it answers your question.

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