FALL 2008

Trade Secrets


Course No. 9200-704 (and 804)-801

ID No. 16545

MW 3:00 - 4:30 p.m.
Room L-134
Professor Jay Dratler, Jr.
Room 231D (IP Alcove)
(330) 972-7972
Copyright © 2000, 2002, 2003, 2006, 2008   Jay Dratler, Jr.   For permission, see CMI.

Questions and Notes on Forro Precision, Inc. v. IBM

1.  This lawsuit was essentially a counterattack by Forro against IBM, based upon IBM's initiating a criminal investigation of Forro.  Insofar as Forro was concerned, that criminal investigation had failed.  As the court notes at the end of its summary of facts, the criminal investigation produced ten indictments (presumably including some against IBM insiders) but none against Forro or its personnel.

The main cause of action that Forro asserted against IBM was intentional interference with contract.  Might it have brought any other(s)?

2.  The tort of intentional interference with contract generally involves four elements: (1) a valid contract between the plaintiff and a third party; (2) the defendant's actual or constructive knowledge of that contract; (3) the defendant's intentional and improper inducement of breach of that contract by the third party; and (4) resulting damages.  See: Restatement (Second) of Torts §§ 766, 766A (1979); 1 Jay Dratler, Jr., Licensing of Intellectual Property § 2.05[3] (Law Journal Press 1994 & Supps.) (discussing licensing cases).

Based on the facts as reported by the Ninth Circuit, state Forro's claim against IBM for intentional interference as specifically as possible.  Who were the third parties?  What contracts did they have with Forro?  How did IBM know about them?  How did IBM induce their breach?  Finally, was there any evidence of damage to Forro?

What element of the tort of intentional interference was most at issue in this case?  How does IBM's claim of "privilege" fit into the elements of the tort?

3.  The Ninth Circuit ultimately agrees with IBM that its initiating and assisting in the criminal investigation were privileged.  Do you agree?  What is the policy basis of the privilege?  Is it a good policy?  Should it apply in this case?

In this regard, two activities of IBM require separate analysis.  First, IBM "initiated" the criminal investigation by filing a criminal complaint with local law-enforcement authorities.  Is there any question that that sort of activity is privileged?  that it ought to be?  What would be the consequences of making resort to the state's criminal investigative apparatus an independent tort?

The question of IBM's participation and assistance in the criminal investigation—and especially in the search—is more serious. What is the legal standard by which the court assesses whether that conduct on IBM's part is privileged?  Does the standard depend on IBM's motivation?  Should it?  Should it make a difference that this particular search required expertise and secret know-how?

Was the Ninth Circuit right to hold that IBM's help in obtaining a search warrant was absolutely privileged, despite arguments that "IBM failed to inform the police that a protective order shielded the depositions on which the affidavit in support of the search warrant was based, failed to disclose that IBM's counsel had returned without restriction the Merlin drawings produced at the depositions, and misled the authorities into thinking the designs were trade secrets"?  Was the court right to reject challenges to obtaining the search warrant on grounds of absolute privilege?   Was its doing so good policy?  What are the arguments pro and con?

4.  If IBM's conduct had not been privileged, would IBM necessarily have been liable for intentional interference with contract?  Were IBM's acts the "cause in fact" of harm to Forro and its actual damages?  Were they the proximate cause?

5.  Whether a prosecutor works for a state or the federal government, time is always scarce.  Many cases of apparent criminal activity cry out for action, but time, money, and resources are limited.  There exercise of so-called "prosecutorial discretion"—deciding what cases to pursue, against whom and when—is therefore an important part of any prosecutor's job.  By law and custom, prosecutors have the discretion to pick and choose which criminal investigations to pursue and which to avoid or drop.  Does/should this fact affect the analysis of an intentional interference claim like that against IBM here?  Does it make such claims easier or harder to prove?

If you had been the chief prosecutor in San Jose at the time IBM made its complaint, would you have pursued this case vigorously?  What are the reasons for your answer?  Are they legal, practical, or political?  When should the people's tax dollars be spent investigating and prosecuting intellectual-property infringers or misappropriators under criminal statutes, and when should such cases be left to the civil courts?

6.  In this case IBM initiated the investigation and assisted in the search, but did nothing more.  How does/should the analysis change if a private party, acting partly in its own private pecuniary interest, virtually takes over the prosecution of a criminal complaint?  Is that result consistent with constitutional norms?  Cf. Young v. United States, 481 U.S. 787, 814, 107 S.Ct. 2124, 95 L.Ed.2d 740, 2 U.S.P.Q.2d (BNA) 1809 (1987) (reversing criminal-contempt conviction for violating consent injunction in trademark-counterfeiting case, where conviction had been obtained by attorneys for private trademark owner acting as "special prosecutors").  Is it a good idea or a bad idea for a state or federal prosecutor to supplement scarce resources and personnel by having private attorneys, at their clients' expense, assist in criminal prosecutions?  Does/should it matter if their clients have a direct financial interest in the outcome of the case?

7.  Like the antitrust counterclaim discussed in CVD, Inc., Forro's claim here is a common claim asserted by defendants in intellectual property cases when they believe that the alleged owners of IP have "thrown their weight around."  Yet doesn't the availability of claims like this have the potential to "chill" the exercise of intellectual property rights, just as might the antitrust claims in CVD, Inc.?  What influence should the First-Amendment right to petition the government for a redress of grievances (and therefore the right to bring suit for harm allegedly done by private parties) limit the scope of interference claims like this one?  Should the high standard for bringing antitrust claims against intellectual-property owners under Professional Real Estate Investors apply to interference claims as well?

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