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Trade-secret plaintiff can’t audit all of rival’s computers

Requested relief ‘a bridge too far,’ trial judge decides

Beckwith_Paul_F

Paul F. Beckwith

A biotech company that claimed an employee stole trade secrets from it and then took them to a competitor was not entitled to a forensic search of all the computer devices used by the new employer’s personnel, a Superior Court judge in Massachusetts has ruled.

The judge, Dennis J. Curran, had previously issued a preliminary injunction ordering the employee in question to turn over all the computer and storage devices she had used since she started working for her former employer, the plaintiff, and to provide all log-in and password information necessary to access any personal email accounts she had used. She apparently failed to comply with those measures and was found in contempt.

The plaintiff, InVivo Therapeutic Corp., argued that without the additional requested relief, it would suffer irreparable harm at the hands of defendant PixarBio Corp.

However, Curran was not persuaded, even though he said he “suspected” the employee turned over sensitive information to PixarBio.

“InVivo wants forensic access to all of PixarBio’s computers of all its employees,” Curran wrote. “This is, to borrow a phrase, ‘a bridge too far.’”

Instead, he said, “a reasonable middle ground” was his suggestion that InVivo select the PixarBio employee most likely to have been sent the stolen data and for there to be an inspection of that employee’s devices. He went on to note that InVivo had identified the employee and that PixarBio “does not dispute that designation.”

The five-page decision is InVivo Therapeutic Corporation v. PixarBio Corporation, et al.

Equitable principles

Paul F. Beckwith, a lawyer at Goulston & Storrs in Boston, represented defendant PixarBio. He said he thought Curran tried to apply equitable principles as best he could in the matter before him.

“Don’t forget, this [order] came after we had two hearings in court,” Beckwith said. “The remedy was agreed upon in court and discussed by both parties and the judge. He allowed us to come to this resolution ourselves and drafted the memo and order after the fact.”

Beckwith further emphasized that a search of one laptop of the employee who was designated for inspection turned up no sensitive information. He said he was confident a search of the employee’s other laptop also would turn up nothing.

More broadly, Beckwith said, the case sends a message to hiring employers to use caution when there is a pre-existing non-compete in place.

“What our client did here was insist in [its] offer letter of employment that no confidential information from [the] previous employer come to the new company,” he said.

InVivo’s attorney, Timothy E. Maguire of Greenberg Traurig in Boston, declined to comment. However, C. Max Perlman, a Boston attorney who handles trade-secret issues, said the order shows that, even in the most problematic cases, when there is strong evidence of theft and even obstruction, there are limits as to the types of inspections a court will permit.

“This means you may need to think of other ways to get at the information,” he said. “One workaround might be to serve a Rule 30(b)(6) notice, which would require the company to designate and prepare a witness to testify with respect to the state of its electronic affairs.”

Perlman also said the decision indicates that, in some cases, it might be a good idea to ask for less than what one wants.

“The plaintiff asked for a veritable audit of all the company’s servers and systems,” said Perlman, a lawyer at Hirsch, Roberts, Weinstein. “Since it appears that everybody understands what files are at issue, perhaps if the plaintiff had said, ‘We want to search all computers for the following documents,’ that might have been a little more palatable to the judge.”

Michael L. Rosen of Foley Hoag in Boston, who also handles trade-secret matters, said he could sympathize with the plaintiff desiring more access than Curran would provide, but that judges in cases like InVivo are confronted with very difficult questions about how extensive a search — which could turn up a significant amount of irrelevant and highly confidential information — is appropriate.

Rosen also noted that forensic consultants are becoming increasingly important to attorneys in all types of litigation.

“They’re really becoming partners with the attorneys in pursuing discovery,” he said. “This case illustrates that.”

Boston attorney Russell Beck, another trade-secret expert, said the decision serves as a reminder that “the sins of the father cannot be visited on the children.”

In other words, Beck said, the mere fact that a departing employee has indisputably stolen trade secrets does not automatically mean that the new employer is equally, or even partially, culpable. Accordingly, a court is going to analyze the employer’s blameworthiness before ordering it to submit to a wholesale forensic investigation by the plaintiff’s expert.

“All too often, we forget that having a smoking gun as to one defendant does not necessarily justify tarnishing the other defendants with the same brush,” the Beck, Reed Riden partner said.

Data breach?

Defendant Yajing Hernandez worked as a research associate for InVivo, a company with offices in Cambridge that researches and develops technologies to treat spinal cord injuries. Much of InVivo’s research is highly confidential.

In November 2013, InVivo CEO Frank Reynolds left to form PixarBio. According to the plaintiff, PixarBio initially billed itself as a developer of Parkinson’s disease therapies. But eventually its mission apparently shifted to researching spinal cord treatment technologies, making it a direct competitor of InVivo.

Hernandez, who allegedly had access to InVivo’s trade secrets and had signed a non-competition and confidentiality agreement, resigned effective Sept. 18, 2014. According to the plaintiff, she refused to disclose her employment plans at that time.

Following Hernandez’s last day of work, InVivo’s IT department examined her laptop and allegedly discovered that she had transferred a significant volume of proprietary research materials on InVivo’s advances in neurological research to her personal Yahoo! webmail account.

InVivo later learned that PixarBio allegedly lured Hernandez away with a $10,000 pay raise and stock options. InVivo filed a complaint against her, PixarBio and Reynolds, alleging breach of Hernandez’s non-competition agreement and misappropriation of trade secrets. The plaintiff also accused Hernandez of disclosing the proprietary information to PixarBio.

On Sept. 20, 2014, Curran issued a preliminary injunction and ordered Hernandez to preserve any proprietary information she had, to turn over all electronic and storage devices, to provide access to all personal email accounts for forensic examination, and to testify at an Oct. 7 deposition.

According to the plaintiff, Hernandez failed to comply. Specifically, the plaintiff alleged, she deleted incriminating emails in her Yahoo! account, tampered with a flash drive believed to contain proprietary information, failed to turn over a personal laptop (she claimed she threw it out), and failed to turn over a number of other devices. She further provided fake passwords for her InVivo iPhone, the plaintiff said in its complaint.

After Hernandez provided no substantive responses in her deposition and failed to appear for trial, she was found in contempt. She currently is believed to have left the jurisdiction.

In November, InVivo filed an amended complaint requesting that its forensic expert be permitted to inspect all PixarBio laptops, computers, servers and devices for purloined information.

‘Reasonable middle ground’

Addressing the plaintiff’s request, Curran called Hernandez’s conduct “deeply troubling” and stated that if, “as the court suspects,” Hernandez did turn over trade secrets to PixarBio, the plaintiff undoubtedly would suffer irreparable harm.

Nonetheless, Curran said, “there is no reason at this time to permit a wholesale intrusion into PixarBio’s computer and memory processes.”

Instead, he ordered the computers and devices of a particular PixarBio employee to whom Hernandez most likely provided stolen data to be searched by a forensic investigator for each party.

Curran also issued a stern warning that should InVivo discover that Hernandez did, indeed, transfer the material in question to the designated employee, “the entire landscape of equitable relief would change immediately and dramatically.”

At that point, the judge said, he might — following an evidentiary hearing — grant the very relief requested by the plaintiff.

Meanwhile, Curran noted that attorneys for PixarBio had repeatedly denied in open court that their client possesses any of the plaintiff’s proprietary information.

“If this representation proves untrue, a hearing on sanctions against all offending parties should be scheduled forthwith,” he warned.

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