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Nanogen Wins Round One of Trade Secret Battle With CombiMatrix: Lesson for IP Holders

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A former employee walks out the door with your company’s trade secrets and then files patents on them with a new employer. Or, a former employer, with whom you thought you had a clear agreement, accuses you of stealing their trade secrets.

Both of these nightmare scenarios are now being played out in the microarray sector: Electronic hybridization microarray maker Nanogen has sued semiconductor biochip maker CombiMatrix, alleging that CombiMatrix CTO Donald Montgomery, a former Nanogen employee, took Nanogen’s trade secrets with him to CombiMatrix and filed patent applications on them.

The patent applications have turned into two granted patents – the only US patents that CombiMatrix has so far. Nanogen, which initially filed suit in November 2000, is seeking a reassignment of the inventorship on the patents and the rights to the IP underlying them, as well as money damages and an injunction barring Montgomery from using the trade secrets.

Nanogen won round one of this suit July 30, when Judge Jeffrey Miller of the US District Court for the Southern District of California denied CombiMatrix , a subsidiary of Newport Beach, Calif., company Acacia Research, its motion for partial summary judgment. This motion alleged that the trade secrets at issue were not delineated in a settlement agreement between Montgomery and Nanogen, and therefore were not subject to these misappropriation claims.

Now Nanogen can proceed with its claims against Montgomery and CombiMatrix. The trial is scheduled for November but the parties could settle before then, according to William Franzblau, Nanogen’s vice president of legal affairs. While CombiMatrix declined to comment on the case, Franzblau, waxed optimistic about its outcome. “All we need to prove to win our case is that Dr. Montgomery used or took some of Nanogen’s technology and brought it to CombiMatrix,” he said. “We brought out during depositions [testimony] that showed that the technology was originally developed and conceived at [Nanogen.],” he added.

Unlike CombiMatrix, Nanogen has little to lose in this suit except attorneys’ fees: The company already has 43 issued US patents on file. Additionally, Nanogen CFO Gerald Wills said that “it is hard to say” how the company is using the Combimatrix-related trade secrets in its current work. “But still it is very important for us to send a very clear message that technology does not walk out the door here,” he said.

How To Protect Your Trade Secrets

This suit, in fact, is part of Nanogen’s aggressive strategy to protect its trade secrets – the type of strategy that legal experts advise companies follow when important trade secrets are at stake.

First and foremost, a company should have an express written agreement with the employee, precluding the use of trade secrets, said Gary Weiss, managing partner at the Silicon Valley office of Orrick, Herrington & Sutcliffe. “The key is that the employee is on notice” about the trade secrets, he said.

When an employee decides to leave a company, this message should be reinforced in an exit interview, Weiss said. “You have an opportunity to say ‘Do you know that the following pieces of information are proprietary to us? And we expect you not to use them.’” If the employee has a new job that is similar to the old one, and does not agree to avoid using trade secrets, “it’s time to spring into action,” said Weiss.

Not only should the employee’s computer be searched for downloads near the time of departure, and requests to print information, but supervisors and co-workers should be interviewed on whether the employee showed up at meetings at which he or she was not invited, or requested copies of memos, according to Weiss.

An employer can then go to the new employer and, rather than sending a “nastygram” threatening the employer, inquire as to whether the employer is aware of certain trade secrets and is in agreement with the old employer that these secrets not be misappropriated.

With this trail of preventative steps, an employer is likely to have a solid case either in seeking legal action to prevent an unwilling former employee from misappropriating trade secrets, or in suing for damages once the trade secrets appear to have reappeared elsewhere.

But what if you are the employee, and you did nothing wrong? “The key is not only to be clean, but to make sure you can demonstrate to a court that you are clean,” said Weiss. “Don’t send e-mails to your home computer with your information on them, etc. “ Also, he said, the new employer should be “bending over backward” to make sure that you are not using any trade secret from the previous employer and assuring the old employer that this is the case.

If these steps are taken, said Weiss, “it will be easier to convince a judge you did everything you could to prevent misappropriation.”

– MMJ

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