Intellectual Property Theft: How to Stay Out of the Penalty Box

An acrimonious court case between two athletic gear companies provides strategies for discouraging intellectual property theft

What at first seemed like humdrum career advancement and corporate competition has since morphed into a cautionary tale. Easton v. Warrior Lacrosse remains unresolved, but already it has become a textbook case for CSOs to learn how to handle employees coming from and going to competitors, the vicissitudes of maintaining trade secrets in an age of hyperportable technology and public e-mail, and the ramifications of not preparing for the eventuality of a trade secret dispute.

The day after Easton sued, as Easton asked a judge for permission to inspect Warrior computers, Ghassemi canceled his Yahoo account, effectively destroying it. Twice more in the next six months, Ghassemi would deny wrongdoing, once under oath during his deposition. But Easton forensics investigations produced two startling discoveries: Ghassemi's computer at his new company had "experienced" a CD that contained six Easton file names and "appeared" to have been created on the Saturday before Ghassemi resigned from Easton. Also, two more Easton file names, traceable to the extinct Yahoo account, were found on his Warrior hard drive.

Easton filed a motion requesting sanctions when it discovered that Ghassemi had scotched the Yahoo account. In his ruling on the motion, from which all of the above findings of fact are taken, Judge Donald A. Scheer calls Ghassemi's denials of leaving Easton with confidential information "false." He calls Ghassemi's inability to recall certain events "to say the least, incredible." And finally, he writes:

"No innocent explanation for Ghassemi's destruction of his Yahoo account has been presented. Nor has he explained the fact that data from a CD he admitted making but denied taking from Easton was found on his Warrior computer. There is definite evidence that Easton information was transmitted to a Warrior computer both from that CD and from Ghassemi's Yahoo account. Ghassemi unquestionably knew that, and a case can be made that Warrior should have done more to detect and preserve the relevant data under Ghassemi's control."

It was, the judge ruled, spoliation of evidence. He stopped just short of entering a default judgment Easton had sought (which would amount to a ruling in favor of the plaintiff without a trial) but still imposed a serious sanction, an adverse inference instruction. That means that when the case goes to trial, Easton can tell the jury that evidence was destroyed, and the jury will be instructed that it may presume that the destroyed evidence would have helped Easton's case.

"It's like the gap in the Watergate tapes," says Philip Gordon, an attorney who specializes in workplace privacy and trade secrets litigation with the firm Littler Mendelson. "Ask 99.9 percent of people and they assume that what was destroyed was bad for Nixon. This is the same thing. It's almost a silver bullet for the plaintiff. It's a very significant sanction."