Companies Fight for IP Rights
TEXAS LAWYER, September 27, 1999
by JOHN COUNCIL
Samsung, DSC Wage Expensive Trade Secret War
A half-billion dollar trade secret battle between a French company and a Korean company is set to begin in a Dallas courtroom — a dispute complicated by the frenetic pace of changing technology and what it’s worth.
After three years, testimony in DSC Communications Corp. v. Samsung — in which DSC alleges that Samsung lured some of its employees away in order to steal digital switching technology now used in telephone systems worldwide — will begin Oct. 11 before 193rd District Judge David Evans in Dallas.
Jurors will hear translators explain Korean testimony and lawyers highlight selections from thousands of pages of documents. The case is supposed to last until the end of the year. But Samsung will likely boil down to a single question: Can an employee be prevented from taking information from one company — knowledge that’s not on computer disks or in files — to use at another company? And how is it possible to estimate damages when the technology allegedly taken is outdated by the time the case goes to trial?
Samsung says it didn’t do anything wrong when it hired DSC employees who had worked on the product known as the "next generation switch."
"What’s unique in this case is none of these people took any documents or any disks," says R. Laurence Macon, lead counsel for Korea-based Samsung and a partner in the San Antonio office of Akin, Gump, Strauss, Hauer & Feld. "When you get to a computer program, you’re talking about millions of lines of source code. Although the guys that came to work for us were smart, they couldn’t memorize millions of lines of source code."
But lawyers for DSC — a Plano-based company recently purchased by French-owned Alcatel — believe Samsung’s alleged actions in hiring away DSC employees after a failed attempt to buy the switching technology in 1995 speak volumes. DSC lawyers allege that Samsung hired away several of DSC’s employees expressly to steal the switching technology, which Samsung was two years behind in developing.
"The case really turns less on the employee that leaves rather than on the motivation of the company that hires them," says Michael P. Lynn, a partner in Dallas’ Lynn, Stodghill, Melsheimer & Tillotson who represents DSC.
Samsung lawyers counter that their company used technology that was already in the marketplace and that some of the employees they hired from DSC weren’t even employed for engineering or technical services jobs at Samsung.
Damages Dispute
DSC, a company known for being very protective of its trade secrets, is eager to get the case to trial. The company filed suit in 1996, shortly after its employees went to Samsung.
But DSC was dealt a blow in 1998, when then-193rd District Judge Michael J. O’Neill essentially scrapped its $1.5 billion damages theory. DSC argued it should be allowed to recover lost profits not only on the switching technology Samsung was alleged to have taken, but also on subsequent advances Samsung made based on DSC technology. O’Neill, who now sits on the 5th Court of Appeals in Dallas, granted Samsung’s summary judgment motion, squelching DSC’s damages structure.
That ruling was a big victory for Samsung and it sent DSC back to the drawing board with their expert witnesses to come up with a new damages theory.
At trial both sides will focus on what Samsung would have paid DSC had their deal gone through in 1996.
"Each side gets experts on what the price would have been back then," Lynn says. DSC believes it lost somewhere in the neighborhood of a half-billion dollars because of the failed deal.
But proving that will be tough, says Samsung lawyer Macon.
"What they’ll do is go to some pretty nonreliable Samsung projections and take those as fact," he says. "And that’s fairly unique and no appealed Texas case has allowed a damages theory like that."
Fights over damage theories have become the new battleground in intellectual property suits, experts say. Because technology advances so rapidly, it becomes difficult to prove how an idea alleged to be stolen is incorporated into a product that may have changed many times since the theft.
DSC lawyers concede that proving the extent of the damage done to the company will be difficult.
"A reality of this technology is that the particular architectures and software techniques used to implement a next generation switch are not revealed publicly. These elements remain buried deep within object code software and cannot be perceived from a simple inspection of the equipment," wrote DSC’s lawyers.
"Life has changed in the last five and 10 years. We’ve seen a real explosion in the way technology evolves — how we went from 286 to 386 [computers]," says Jerry R. Selinger, a partner and IP lawyer in Dallas’ Jenkens & Gilchrist who’s not involved in Samsung. "The early trade secret fights were established trade secrets."
But as recovery claims in high-tech suits become more hypothetical, it’s more difficult to apply damage theories. And arguments in the courtroom on those issues are worth watching, Selinger says.
"There’s not as much experience in this kind of situation," he says. "It’s going to be interesting."
On the Move
Samsung lawyers call DSC’s suit "a classic not-to-compete case — without the covenant."
And DSC lawyers, which include Baker & Botts partners Joe Chevens and Tim Durst, will probably not emphasize at trial the employment agreements signed by the DSC employees years before they left for Samsung.
The reason is that experts say some of those agreements aren’t worth the paper they’re printed on and Texas courts generally do not recognize them.
"Assuming it’s right that they didn’t take any documents with them and they did sign a nonsolicitation agreement, the question is whether hiring people you know to be good in the field can be a misuse of a trade secret. I’m a little skeptical of that claim," says Mark Lemley, a professor at the University of Texas School of Law who specializes in intellectual property.
"We’ve got to allow employees as a policy matter to quit jobs and go someplace else," Lemley says. "And the most likely place they are going to go is with jobs in the same field."
But DSC claims the "doctrine of inevitable disclosure" — which refers to an employee who could not do his job at another company but for the information he takes from a previous employer — strengthens its case and has prevented Samsung from hiring any more of DSC’s employees.
In February, the 5th Court of Appeals affirmed a temporary injunction against a former DSC employee in another case, Troy D. Conley v. DSC. According to the unpublished opinion, Conley was not permitted to use DSC telephone technology at another company.
"DSC has been involved in a lot of bare knuckles litigation. And I mean that as a compliment," says Michael Maslanka, an employment lawyer and partner in Dallas’ Clark, West, Keller, Butler & Ellis.
"Noncompete agreements are made for the buggy and whip industries. They don’t really meet the challenges of the new economy," Maslanka says. "Inevitable disclosure is the kind of doctrine that is made to meet the challenge of changing technology and employees who are moving constantly."
Add up all of the legal theories, litigation costs and months of testimony, and jurors are in for quite a challenge — not to mention lawyers who’ll have to present complex testimony all in digestible bites, says Samsung lawyer Macon.
"It’s going to be a barrel of laughs," says Macon. "This is different than what the jury does on a regular basis. This is a very large French company suing a very large Korean company. And we’re sitting right down at the courthouse in Dallas, Texas."
Copyright 1999, Texas Lawyer. All rights reserved.
view all news »
