E.D. Cal.: Employees Taking Trade Secrets Must Cover Forensic Analysis of Their Electronic Devices

This week, Chief Judge Kimberly J. Mueller issued a decision ExamWorks v. Baldini, No. 2:20-CV-00920-KJM-DB, 2020 U.S. Dist. LEXIS 103366 (E.D. Cal. June 11, 2020) granting the Plaintiff's preliminary injunction motion barring the Defendants' continued misappropriation of trade secrets. The Court also ruled that the Defendants should presumptively bear the costs of forensic analysis that the Plaintiff needs to complete its electronic discovery. Judge Mueller will allow the Defendants to file a motion to rebut this presumption.

ExamWorks used KLDiscovery for electronic discovery, and K2 Intelligence for forensic work. K2's analysis determined that shortly before their departure former ExamWorks employees emailed confidential client information to their personal accounts.

The Defendants argued that they could not afford to pay K2's $550 per hour rate, and insisted that they only pay for data collection from their devices; the imaging of those devices; and the removal of ExamWorks' data. The Court has the discretion under Fed. R. Civ. P. 26(c) to protect a party from undue burden or expense in complying with discovery requests, despite the presumption that the responding party should cover its own costs. Judge Mueller cited a Supreme Court decision which found that, "the test in this respect normally should be whether the cost is substantial . . . in relation to ability to pay." Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 361-62 (1978).

The Court noted that the facts showed that the Defendants realized that ExamWorks would react to their move to form a new business, and set aside money to invest in their new project. Two defendants were also shown not to be covering their own litigation costs. "Given that defendants have conceded improperly taking ExamWorks' trade secrets and the court has found they did so intentionally, they have not overcome the presumption that as the responding party they must bear the expense of discovery, including the costs of the forensic expert. This determination, however, does not preclude defendants' seeking to overcome the presumption through discovery motion practice before the assigned magistrate judge." ExamWorks, 2020 U.S. Dist. LEXIS 103366, at *44.

The Court's order requires the Defendants to preserve evidence on all electronic devices; make devices with relevant evidence available to the forensic expert; return all trade secrets and confidential information in their possession, custody, or control; and work with the forensic expert to "permanently and forensically remove" this information from these devices. Id. at *47.

D. Colo. Applies Alice Test for Hierarchical Data Storage System

This past week, Magistrate Judge N. Reid Neureiter issued a decision in a patent infringement case, Securenet Solutions Group v. Senstar Corp., No. 19-cv-02, 913-NRN, 2020 U.S. Dist. LEXIS 88637 (D. Colo. May 20, 2020), denying the Defendant's motion to dismiss. The case concerns patents on a hierarchical data storage system used for security and surveillance. The system is used for facilities with 100 or more security cameras that generate terabytes of data on a regular basis. The system assigns weighted averages to the collected data based on its quality and reliability. The Defendant sought to dismiss on the basis of the decision of the Supreme Court of the United States in Alice Corp. c. CLS Bank International, 573 U.S. 208 (2014). The Supreme Court held that implementing an abstract idea on generic computer equipment does not make that idea patentable. The Defendant also relied on Electric PowerGroup, LLC v. Alston S.A., 830 F.3d 1350 (Fed. Cir.2016) in which the Federal Circuit held that systems for monitoring an electric grid that collected data from multiple sources could not be patented.

Judge Neureiter reviewed the patent infringement claims under the two-step analysis of Alice. First, he considered whether the claims at issue were directed to a patent ineligible concept, such as an abstract idea. Note that algorithms and methods of computation are considered to be abstract ideas under Alice. SecureNet argued that its technique for the use of hierarchical storage management systems for surveillance that expedite the processing of more important data does not quality as an abstract idea. Judge Neuereiter disagreed finding that, "the hierarchical storage management system and the weighting of attribute data from the sensors to reduce errors rates should be considered at step two of the Alice analysis." Securenet, 2020 U.S. Dist. LEXIS 88637, at *32.

Step 2 of the Alice test, requires an analysis of whether or not the patent adds something extra to an abstract idea which constitutes an 'inventive concept'. The Court declined to dismiss the case because the question of whether the "limitations of the hierarchy of storage devices, the weighing of attribute data, and the correlating of that data provide the requisite inventive concepts necessary to make Plaintiff's claims patent-eligible" depends on whether or not these methods are well-understood, routine, and conventional activities in the industry. Id. at *36. This is a question of fact, not of law.

While this case doesn't directly concern electronic discovery, it's good to have a general idea of how federal courts are using the Alice test to review patent claims on software and in particular data storage systems. Alice is without question one of the most important SCOTUS decisions related to technology in decades, and some take it as a sign that software patents may eventually be abolished.

E.D. Cal.: Throwing Out Figures for Cost of Data Decryption Conclusory

This week, Judge Sheila K. Oberto, issued a decision Son Gon Kang v. Credit Bureau Connection, Inc., No. 1:18-cv-01359-AWI-SKO, 2020 U.S. Dist. LEXIS 61229 (E.D. Cal. Apr. 7, 2020) denying the Defendant's motion for a protective order.

The Defendant contended that responding to a discovery request would require it to develop two new programs costing $45,000 in order to search databases that store encrypted data, and involve additional manual review costing more than $3 million. It submitted two declarations to support these contentions, which were prepared by its Chief Technology Officer and Chief Operating Officer, and which contained conflicting information. The Plaintiff submitted a declaration from the owner of an electronic discovery consulting firm (Jonathan Jaffe of Its-Your-Internet), which asserted that the data can be searched without decryption, and that automated review can be performed without extensive participation by a human reviewer.

Judge Oberto found that the data was not inaccessible due to undue burden or cost under Fed. R. Civ. P. 26(b)(2)(B). The Court observed that the Defendant's assertions were unsupported by factual evidence, noting that decryption and filtering are common discovery practices. "[C]ontrary to Defendant's assertion, the fact that the database is currently encrypted and not 'searchable' does not make it 'inaccessible'", Id. at *12 . The Defendant failed to refute the possibility of an automated review raised in the Plaintiff's declaration, and it was shown that a specific search in the database with the encrypted data could locate a file pertaining to the Plaintiff.

"]A]lthough Defendant repeatedly throws out figures exceeding three million dollars to create the appearance that the review process will be costly, it is unable to provide any supportable estimate of the number of files that will need to be reviewed or the cost of reviewing a file--which comprise the bases for the exorbitant cost estimate." Id. at *14-15. Credit Bureau Connection failed to show the ESI was inaccessible because of undue burden or cost.

The Court further found that the Plaintiff's need for the ESI in question outweighed any burden or cost, because there was a specific request; the information could only be found in the database, and not any other source; and because the information was essential to a class certification motion. The parties were ordered to meet and confer, and agree upon a schedule for production.