Startups Should Note the Recent Trade Secrets Case on Social Media

Photo Credit: HowToStartABlogOnline.net

If you’re an entrepreneur, you probably realize the impact that social media can have on a new business.

In the past few years, Facebook, LinkedIn, Twitter, and other platforms have become essential components of startups’ brand awareness, content distribution, lead generation, and customer acquisition strategies. This is especially the case for startups with thin budgets and grassroots campaigns. Even though many business owners acknowledge social media’s importance, few startups understand how to leverage the potential of social media and to do so in a way that is secure and doesn’t put the company’s intellectual property at risk.

Trade Secrets for Startups

Startups need to be secure with any confidential business information which provides their company with a competitive edge. Trade secrets can be manufacturing, industrial secrets, or commercial secrets that are vital to the success of a startup. These can be computer codes, engineering methods, manufacturing processes, sales methods, distribution methods, consumer profiles, advertising strategies, along with supplier and customer lists.

The unauthorized use of this information is an unfair business practice and a violation of California and federal law.

A Recent California Federal Court Decision on Trade Secrets

Telesocial, a defunct social media calling startup was hit with a major setback in its federal court lawsuit against Orange SA. The startup claims that the mammoth French telecommunications company hacked into its network and stole its trade secrets.

A jury in the U.S. District Court for the Northern District of California unanimous found that Orange didn’t breach computer hacking laws and didn’t steal the startup’s trade secrets for its “Call Friends” service. However, the jury did find that Orange had breached Telesocial’s terms of service. It awarded the company nominal damages of $1.

In the lawsuit filed in September of 2014, Telesocial claimed damages of more than $60 million based on claims that, after discussing a potential partnership in 2012, Orange hacked its servers and stole its technology to integrate voice calling with social media platforms like Facebook.

The startup hit some roadblocks with the litigation, as District Court Judge James Donato excluded both of its damages experts. The judge said that under California trade secrets law, Telesocial would be limited to its actual damages and called into doubt the expert’s claim that Telesocial’s damages were $60 million. Instead, Judge Donato felt the damages were just a few million, at the most.

The startup hit another snag when its litigation funder backed out. Telesocial had to find new investors and asked for a three-month continuance. It found new investors, and the trial began in early July.

Claims of Stealing the Startup’s Designs

Telesocial continued to claim that its damages were $60 million at trial based on testimony from its company executives. One company exec told the jury that to steal the startup’s designs, Orange engineers tapped into Telesocial’s servers more than 100 times after their negotiations failed.

Orange claims that rather than hacking, its engineers were only testing Telesocial’s app to analyze publicly available information about the website. To support this notion, Orange’s attorney said that its engineers even went so far as to enter their email addresses. The attorney compared the testing to that of a developer of a new cola who samples cans of Coke and Pepsi for research—not stealing the actual formulas for the soft drinks. In closing arguments, Orange’s counsel also remarked that Telesocial promised to show how Orange stole the formula for Coke in the lawsuit… but all the only evidence they brought to court was the can.

Summary

Your startup needs to be aware of the importance of protecting your sales and distribution methods, proprietary market research, and client lists. Discuss your trade secret protection with an experienced intellectual property legal professional.

Attorney Michael Ahmadshahi focuses on patents, intellectual property, copyright, and trade secrets in Irvine, California. The Michael Ahmadshahi, PhD, Law Offices
are also located in Beverly Hills and Sherman Oaks. Call us toll free at (800) 747-6081 or direct at (949) 556-8800 or email info@mmaiplaw.com and let us help you with your trade secret questions and the IP strategy for your startup.

Michael Ahmadshahi

Mr. Ahmadshahi’s area of practice is Intellectual Property Laws including Patent Prosecution and Litigation, Trademarks, Copyrights, Unfair Business Practices, and Business Litigation. He is also an entrepreneur and an inventor.