Bloomberg News

Korn/Ferry, Shire, Google, Gagosian: Intellectual Property (1)

April 26, 2013

David Nosal, former regional managing director at Korn/Ferry International (KFY:US), was convicted of trade-secret theft and hacking for gaining access to the job- search firm’s proprietary database of executives.

Nosal, who worked for the Los Angeles-based executive recruitment firm (KFY:US) in Silicon Valley and other locations from 1996 to 2004, obtained reports and data from Korn/Ferry’s “Searcher” database after he left the firm to start his own executive search business, prosecutors said in court filings. Searcher is a highly confidential computer system about companies, executives, salaries and personal information.

Nosal, 55, of Danville, California, agreed to work with Korn/Ferry on some executive search assignments for about a year after his departure and was barred from competing with Korn/Ferry or using its business secrets under the terms of a separation agreement he signed. Two other Korn/Ferry executives who left the firm after Nosal did set up their own companies that could be used as vehicles for Nosal to conduct executive recruitment until the agreement expired, prosecutors said in court filings.

The two used Nosal’s ex-secretary’s log-in credentials to get “Searcher” reports for him. The secretary and the other two former executives pleaded guilty to conspiracy charges and cooperated with prosecutors, according to the filings.

A federal jury in San Francisco deliberated for two days after a two-week trial in which Nosal’s ex-secretary and a former coworker testified for prosecutors, court filings show.

Nosal was first indicted in 2008. The maximum penalty for the most serious charges is 10 years in prison and a $250,000 fine or twice the gain or loss caused by the conduct. Sentencing is scheduled for Sept. 4.

Steven Gruel, a lawyer for Nosal, and Michael Distefano, a Korn/Ferry spokesman, didn’t immediately respond to e-mail messages seeking comment on the verdict.

The case is U.S. v. Nosal, 08-cr-00237, U.S. District Court, Northern District of California (San Francisco).

California Plan to Regulate Fracking Stirs Trade Secrets Battle

A California proposal to regulate the chemicals used by oil companies in hydraulic fracturing is stirring a battle over industry assertions of trade secrets protection and environmentalist calls for disclosure to shield public health.

State officials developing rules for fracking say they have to walk a fine line to avoid lawsuits by both the public and the industry, circumscribing their proposal.

“What we’re doing with the regulation is limiting how often we would get sued,” said Jason Marshall, chief deputy director of California’s Conservation Department, which oversees oil and natural gas production.

California, the fourth-largest oil-producing state, is wrestling with the potential hazards of fracking to unlock an estimated 15.4 billion barrels of oil in a deposit known as the Monterey shale. The state is the latest attempting to regulate the fluids used in fracking, which shoots a mixture of water, sand and chemicals underground to access dense rock formations.

Texas, Louisiana, Montana, New Mexico and North Dakota are among those requiring the chemicals to be disclosed, while leaving it to energy companies to decide what they label secret.

The industry “is attempting to exempt itself from the basic regulation of its activities by virtue of arguing that its commercial interests will be damaged if secrets are revealed,” said David Levine, a law professor at Elon University in Greensboro, North Carolina, who specializes in intellectual property.

Dealing with trade secrets is nothing new for states, Levine said, citing regulations that require voting-system vendors to reveal the source code in their machines to election officials, even if it’s privileged information, to assure the integrity of balloting.

California’s initial proposal on fracking, released in December, would call for companies to disclose a trade secret to a public agency if it’s needed to investigate or respond to a spill. It would also require disclosure to a physician to diagnose or treat a patient or respond to a medical emergency.

“We would be having it available when we need it,” Marshall said. “The operators are required to maintain that information, they just don’t have to tell it to us until we need it as regulators.”

California’s constitution requires public access to government records unless exempted by law. The agency could face a lawsuit from the public if it withheld requested data, or a lawsuit from an oil company for violating trade-secret protections if it released the information.

Patents

Shire Settles Actavis Suit to Delay Intuniv Copy Until 2014

Shire Plc (SHP) agreed to a legal settlement preventing Actavis Inc. (ACT:US) from introducing a low-cost copy of Shire’s Intuniv drug for attention-deficit hyperactivity disorder until December 2014.

Actavis will get a license from Shire to sell the copy beginning Dec. 1, 2014, or earlier in certain circumstances, Dublin-based Shire said in a statement yesterday. In return, Actavis will pay a royalty of 25 percent of gross profit for the first 180 days that the generic is on the market, London-based Shire said. Shire is the largest maker of drugs for attention- deficit hyperactivity disorder.

Actavis, based in Parsippany, New Jersey, in October won U.S. approval for a generic version of the pill, which generated revenue of $287.8 million last year for Shire. Shire sued, saying it has valid patents on the drug. As part of their agreement, Actavis conceded that its products infringed two valid Shire patents that expire in 2020 and 2022.

The agreement “removes some near-term forecast risk” for Shire, said Savvas Neophytou, an analyst at Panmure Gordon in London.

The agreement must be submitted to the U.S. Justice Department and Federal Trade Commission for review.

Nestle Loses U.K. Bid to Block Nespresso Rival Capsule Sales

A Nestle SA (NESN) unit lost a patent infringement lawsuit that sought to block a U.K. company from making capsules for the Nespresso coffee-making machines.

Dualit Ltd.’s products don’t infringe Nestle patents for the refill packs, Judge Richard Arnold said in a ruling on April 22. Nespresso customers “would assume that they were entitled to obtain capsules to use with the machine from whatever source they pleased,” he said.

While Nestle sold about 4 billion Swiss francs ($4.2 billion) worth of Nespresso products last year, that revenue is under threat from companies making cheaper versions of the coffee pods used in its machines. Nestle, the maker of Kit Kat chocolate bars and Shredded Wheat cereal, lost legal bids in Germany and Switzerland to restrict the sale of rival capsules.

The U.K. judgment “is inconsistent with the ruling by the European Patent Office in April 2012, confirming the validity of a key patent for the Nespresso system,” Nestle spokeswoman Diane Duperret said in an e-mail.

Dualit said in a statement its capsules could now be sold

Nestle, based in Vevey, Switzerland, stopped reporting sales details for Nespresso midway through last year due to “the competitive environment,” Chief Financial Officer Wan Ling Martello said at the time.

In 2010, Sara Lee Corp. and Ethical Coffee Co. both introduced refills compatible with Nespresso machines. Swiss retailer Migros sells five flavors of capsules from 556 stores in the country.

Nestle is also involved in a legal dispute with Ethical Coffee in Paris over alleged unfair competition practices.

throughout the U.K.

For more patent news, click here.

Trademark

Google Plans to Overhaul Search to Settle EU Antitrust Probe

Google Inc. (GOOG:US) offered to change the way it operates its search page by “clearly” distinguishing its own search services from those of rivals for five years in a bid to settle an antitrust investigation by the European Union.

The owner of the world’s largest search engine offered to label Google-branded search services and show links “to three rival specialized search services close to its own” ones as part of a series of commitments to end the almost three-year-old probe, the EU said in a statement.

EU Competition Commissioner Joaquin Almunia has sought a deal with Google to end the antitrust case without imposing fines, while competitors such as Microsoft Corp. (MSFT:US) and TripAdvisor Inc. (TRIP:US) have urged regulators to force Google to change its practices. The European Commission has said Google is dominant in Web search and search advertising in Europe and that the Mountain View, California-based company may harm competition.

“Google’s proposed commitments appear to fall short of ending the preferential treatment at the heart of the commission’s case based on formal complaints from 17 companies,” said Thomas Vinje, a Brussels lawyer for the FairSearch Coalition, which represents technology companies including Microsoft, Expedia Inc. (EXPE:US) and Nokia Oyj. (NOK1V) “Google’s own screen shots” in its proposal show “it seeks approval to continue preferential treatment for its own products.”

Rivals, users and companies in the same market will have a month to give feedback to the Brussels-based antitrust regulator on Google’s planned changes. Almunia has said a settlement may be clinched “after the summer vacations” if the company’s offer is deemed acceptable.

“We continue to work cooperatively with the European Commission,” Al Verney, a Brussels based spokesman for Google, said in an e-mail.

Google offered to “clearly separate” promoted links from other Web search results by “clear graphical features,” the commission said. The remedies would also allow specialized search websites “to mark certain categories of information in such a way that such information is not indexed or used by Google.”

Google said nothing in its plans, dated April 3 and published today, “should be construed as establishing a violation of EU competition.”

The commission said it will study the feedback to assess “whether the commitments may need to be improved to adequately” address competition concerns.

Testimony Over in Macy’s, Martha Stewart, J.C. Penney Suits

Testimony in the trial of Macy’s Inc.’s (M:US) lawsuits against J.C. Penney (JCP:US) Co. and Martha Stewart Living Omnimedia Inc. (MSO:US) has concluded, according to a clerk in New York state court.

J.C. Penney in December 2011 acquired a 17 percent stake in Martha Stewart Living for $38.5 million. Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company the following month, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued J.C. Penney about three months later.

The two suits were combined for a non-jury trial before state Supreme Court Justice Jeffrey K. Oing that began Feb. 20 and featured testimony from Martha Stewart, Macy’s Chairman Terry Lundgren and former J.C. Penney Chief Executive Officer Ron Johnson, who was ousted April 8.

The parties returned to court on April 8 to resume the trial after a monthlong break during which mediation efforts ordered by Oing failed to produce a settlement. Macy’s rested its case on April 10, and J.C. Penney called its last witnesses on April 23.

Macy’s is awaiting a ruling in its appeal of Oing’s ruling from last week denying a preliminary injunction preventing J.C. Penney from selling Martha Stewart Living-designed goods under the label “JCP Everyday.”

Oing said Macy’s hadn’t shown that it would suffer irreparable harm if J.C. Penney was allowed to sell the “JCP Everyday” goods. The judge said an earlier injunction he issued in July against Martha Stewart Living applied only to goods sold at J.C. Penney branded with Martha Stewart’s name in the categories exclusive to Macy’s.

The next step in the case will be for the judge to set a schedule for submission of post-trial briefs and closing arguments, Jim Sluzewski, a spokesman for Macy’s, said in an e- mail. A clerk for Oing said a schedule hadn’t been set yet and that closing arguments may come in June or July.

Joey Thomas, a spokesman for Plano, Texas-based J.C. Penney, declined to comment on the end of testimony in the case in an e-mail. Martha Stewart Living didn’t immediately respond to an e-mail seeking comment.

The cases are Macy’s Inc. v. Martha Stewart Living Omnimedia Inc., 650197/2012; Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

For more trademark news, click here.

Copyright

Gagosian, Richard Prince Win Challenge to Infringement Ruling

A federal appeals court overturned a copyright-infringement finding against New York’s Gagosian Gallery Inc. and artist Richard Prince.

Patrick Cariou, a Paris-based photographer, sued the gallery, its owner Larry Gagosian, Prince and Rizzoli Publishing Italia Srl for copyright infringement in December 2008. The photographer accused the defendants of unauthorized use of the photos in his book “Yes Rasta,” which contains a series of photos of Rastafarians.

Prince used the photos from the book in a variety of ways, including scanning them into a computer and incorporating them into his paintings, Cariou said in his pleadings.

“Canal Zone,” a show of the Prince paintings, was held at the gallery, and Rizzoli published a book of the same name and based on the show.

According to court papers, the show of the infringing art was so successful that eight of the paintings were sold for a total of $10.48 million, with 60 percent of the proceeds going to the artist and the other 40 percent to the gallery.

In March 2011 a federal judge in Manhattan found that the gallery and the artist did infringe, saying “it has been a matter of settled law for well over 100 years that creative photographs are worthy of copyright protection even when they depict real people and natural environments.”

She gave the artist, the gallery and the book publisher 10 days to deliver of all infringing art and unsold copies of the catalog for destruction. She also required them to notify any present or future owners of the Price paintings that the work infringes the photographer’s copyright and because of this they “cannot be lawfully displayed.”

Gagosian and Prince then appealed. The federal appeals court yesterday said that the lower court ruling reached too far to find infringement, and that most of the accused works fell into copyright law’s area of “fair use” because they were sufficiently transformative.

Five of the paintings were less altered from the originals, the appeals court said, and those must be reconsidered by the lower court.

The lower court case is Patrick Cariou v. Richard Price, 1:08-cv-11327-DAB, U.S. District Court, Southern District of New York (Manhattan). The appeal is Patrick Cariou v. Richard Price, 11-1197, U.S. Court of Appeals for the Second Circuit.

For more copyright news, click here.

To contact the reporter on this story: Victoria Slind-Flor in San Francisco at vslindflor@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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    (Korn/Ferry International)
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    (Actavis plc)
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