However, reading this Business Insider article about the case (http://www.businessinsider.com/smule-ceo-shred-video-lawsuit...) really underscores the apparent sleaze on Smule's side:
> You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
> Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win.
Pretty much no matter how you slice it, saying "even if we're wrong, we'll win" because of money in the bank sounds pretty awful.
Loser pays legal fees, but if i can get you to spend an order of magnitude or two more than my dying company is worth, well, that's the kind of flameout i could take some satisfaction in.
edit
Now that i think about it a bit, contacting the oppositions' customers and asking about their record retention policies seems like a great way to go. not a subpoena, just several repeated enquiries, an email, a letter, follow up with a phone call or two about about how do you store records, how many records might you have about opposition company, who are the employees who interact with the opposition company. Hit the VP's of HR, Accounting and whoever does legal.
You could probably get some really nice targeted facebook advertising for that set of people, "been scammed by x? call us"
Social engineering is scary.
The first or second episode sets up a legal battle, and the main character basically points out his company's staff lawyer to the opposition and says something to the effect of "We pay him $X, you can put hundreds of lawyers on this suit, we'll just have him."
In the code comparison, the 3rd party will also be able to look at methods (in addition to code copied directly). We're more than happy to include proprietary methods in the review.
On stealing "ideas," do you have some advice here? Smule has never specified what ideas they think we stole. What do you think is our burden of responsibility in proving we did not steal ideas our opponents won't even specify?
In their initial complaint filing [1] they mention "Synch Technology" (automated video/audio synchronization) several times.
"[...] specifically including the development of Smule's proprietary artificial intelligence technology that analyzes audio and video files and through the use of algorithms, automatically synchronizes video footage to audio files in a manner that results in a pleasing and and appropriate matching of the action and the music"
"[Shred] which purports to have developed a product that detects and segments key points of unstructured video and algorithmically synchronizes these videos to music in the same or similar manner as Smule's Synch Technology."
Some of the quotes and actions by your former boss leave a bad taste in my mouth, but if the AV synchronization is indeed similar to their own or developed using their resources, they will have a strong case that you've breached your contract.
[1] Found here, thanks to codingdave: http://webaccess.sftc.org/Scripts/Magic94/mgrqispi94.dll?APP...
The law is on your side here. Vague claims aren't a part of a valid lawsuit. "Failure to state a claim actionable at law" may be the phrase you need.
But what you really need is lawyers, and IANAL.
(ps. Don't answer. This is the sort of thing to be discussed with an attorney behind a closed door.)
The distinction is who the right to the idea is enforceable against. A patent represents a government enforced monopoly that bars anyone from using the specific intellectual property, whereas a contractual right to an idea can only be enforced against the other party to the agreement.
In California, the seminal case is the Supreme Court's decision in Desny v. Wilder, which held that a screenwriter could enforce a studio's promise not to use one of his ideas without his consent. The Court's reasoning was that while a party is free to come up with its own ideas, the disclosure of someone else's idea confers a benefit. Federal courts have addressed this issue a lot in a line of cases holding that Desny claims are not preempted by the Copyright Act.
I haven't been involved in any cases where the alleged theft of an idea involved an employment contract, but I see no reason why the same principles would not apply. Logically, an employer should be able to disclose propriety ideas to its employees without fear that they will be stolen, regardless of whether the ideas are sufficiently novel to qualify for an exclusive federal monopoly.
The classic case in this area is Warner-Lambert v. Reynolds 178 F. Supp. 655 (1959). (It's about a contract covering the formula for Listerine)
http://law.justia.com/cases/federal/district-courts/FSupp/17...
IANAL, and esp. I am not from the US so I don't really have a good grasp of the spirit of the law there (except that from the outside it is constantly surprising and scary!)
however, here in the UK i have some experience, esp because i want to ship software which directly competes with my previous employers in the future...
one thing to remember is that working somewhere enables you to gain knowledge about their workings and that the employer allows this at the time for its own benefit and not for yours.
its very difficult to prove/disprove if this happened though, and the contract signed when working there might turn out to be critical. whilst non-compete clauses are frequently so poorly written that they can never be enforced, the precedent here (in the UK) is that if you want to be safe and be able to point at past cases in defense then you do not compete for two years, poach employees, nor compete on your former employer's doorstep geographically. afaik there have been zero successful claims by employers if these criteria have been met...
remember this can be anything, from having beers on friday, to using a particular software for time-keeping - all the way through the the source code that you are so willing to allow to be searched. if you want better luck with this approach of being open - open every thing up, not just the code, but the working practices, software used, internal hierarchy, which cleaning company you use... everything.
on the other hand i know plenty of companies started by (naive) people who left and started immediately with their buddies from an old job and directly competed with their former employer within a year, using knowledge and skills that they improved on the job. they meant no harm and felt that what they were doing was fair, but imo they took an incredible risk by not researching what has happened in the past with such cases, and are lucky to have gotten away with it.
i hope this goes well for you. be ready for the media and naive readers to not read the detail of what has been written, and instead to slam you for nicking code to start up a company.
Relevantly, Shred Video doesn't even compete directly with Smule for customers. Smule is building a network of karaoke singers and aspiring music enthusiasts to create music together. Shred Video is building technology to help athletes and adventure travelers make movies.
For example, it's unimaginable that a user would consider Smule apps and Shred Video to be competing substitutes that solve a similar need. She'd literally be choosing between "do I want to use this Smule app to sing karaoke songs or play guitar with, or do I want to use this Shred Video app to make a movie from my snowboarding footage?"
If I made a competitor, it would obviously share some of the same ideas as the current project. I mean, every social network has an "add friend" function, for example. Some things are just the right way to do things, or inherently part of the business domain.
If they started patenting all of my ideas, I would expect to actually be paid a decent salary.
Say there is another case with all the facts are exactly as stated: goliath vs. little guy, and you are the little guy. What would you have the little guy do differently?
Copyright - Source code that has been copied. Patent - Monopoly on an idea. Trade Secret Law - N/A. They are former employees. Non Compete Agreement - Agreements in restraint of competititon are void in California.
Shred's story sounds credible to me. The fact that Smule offered to make this lawsuit go away in exchange for equity sounds a lot like extortion to me. Why would they settle for a % of a company when they already own 100% of the secret sauce that was stolen? If their claim is as baseless as this article [1] suggests, RICO or anti-SLAPP laws should definitely apply.
I would respectfully disagree with these assertions. Trade Secret is not void just because someone is a former employee. You don't get to walk out the door with the secret recipes. And there are many exceptions to california's ban on non-compete agreements. Non-compete agreements are also very different than non-disclosure agreements.
And on non-compete, Mark and I were just employees, not officers of any sort. Neither of us was a manager with direct reports.
Talk to lawyers. In offices. Not online. Sign a client agreement. Pay them money. Beyond that, you cannot get any reliable advice from anyone here.
Which appears to be exactly the worst case the plaintiff is imaging per the words he was rather unwise to utter in an all hands meeting (http://www.businessinsider.com/smule-ceo-shred-video-lawsuit...):
[...]
And here's the sad truth. You compare a 100-person company with 10, 30, 40 million dollars in the bank to a two-person startup. If it goes to litigation, if we're wrong, we'll win.
Right? We'll win. We'll put a giant law firm on it and we'll do all of the discovery and we'll do all the depositions and we'll win. And if we're right, we'll still win....
(Note: discovery can be very expensive, and depositions tend to take a lot of time in preparation and the actual deposition.)
Which suggests the defendant isn't entirely insane to try to win this in the court of public opinion, a worst case apparently not imagined heretofore.
Indeed, but in general in the US you have to go to real efforts to create and keep secret such recipes. And I find it utterly amazing that California law, last time I checked, doesn't consider customer lists to be protectable trade secrets for salesmen (!!!).
More modern applications:
"Business Information Trade secrets in this category may include: ... Customer lists" http://www.fenwick.com/FenwickDocuments/Trade_Secrets_Protec...
"California court affirms that customer lists can qualify as trade secrets" http://www.lexology.com/library/detail.aspx?g=ea22e316-7210-...
Perhaps you're remembering a recent case about whether LinkedIn contacts could qualify as trade secrets, which tested where to draw the line:
http://blogs.orrick.com/trade-secrets-watch/2014/10/27/new-s...
Again, here are the current California trade secrets statutes:
http://leginfo.legislature.ca.gov/faces/codes_displayText.xh...
"3426.8.This title shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this title among states enacting it."
That's the law. It overturns everything prior. All commonlaw interpretations (the closest legal thing to tradition) before it are void in the face of this new law.
Fyi. California's law is actual a cut-and-past of the Uniform Trade Secrets Act as adopted by basically every other state in the union. See https://en.wikipedia.org/wiki/Uniform_Trade_Secrets_Act.
Here you go:
Yes, the UTSA statute is "the law". But it's not the ONLY law. Where there are gaps, courts look to case law, just like in any other area of law. And the UTSA was drafted with the old common law in mind, continuing much of it, but codifying it. That's why courts DO look at the older common law to inform their interpretations of the UTSA.
This is from page 1 of the Prefatory Note in the 1985 final draft of the UTSA:
"The Uniform Act codifies the basic principles of common law trade secret protection, preserving its essential distinctions from patent law."
With that, I'm done with this thread. We are way off-topic since the lawsuit in the original post doesn't even have a trade secret claim. I'm also done dispensing free legal advice for the night.
I totally dismiss the linked Fenwick PFD. According to my pdf reader that document was last updated on "Tue 05 Apr 2005 04:49:08 PM PDT". It's totally out of date and therefore untrustworthy as to specifics of current CA law. I'm a little shocked that it is still on their server.
You're correct that there's more to it than just keeping something secret:
- It has to also be valuable because of the secrecy, so the number I'm thinking in my head doesn't count. But customer lists typically do have value because of secrecy.
- Trade secrecy can be destroyed if the secret gets out.
There's no reason to argue in the abstract. Here's how California law actually defines "trade secret" -- Civil Code 3426.1(d):
(d) “Trade secret” means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
http://leginfo.legislature.ca.gov/faces/codes_displayText.xh...
Just imagine for a moment the slippery slope this would create if companies were able to criminalize knowledge on the basis of prior employment. Literally any work process you performed could be considered protected IP. You could work one job and never be employable again.
Imagine the slippery slope if former employees of Coke were allowed to take the recipe over to Pepsi. We wouldn't have any long-lived product lines. (That actually happened. Pepsi called the FBI)
For below: 18 U.S. Code § 1832 - Theft of trade secrets (the really really short version)
"Whoever ... knowingly ... steals, or without authorization appropriates ... or by fraud, artifice, or deception obtains such information ... shall ... be fined under this title or imprisoned not more than 10 years, or both."
On the other hand, I can't believe it'd be against the law for some employees from Coke to quit and start a company that manufactures soda (assuming they didn't actually use Coke's recipe).
OT: Regarding the Coke/Pepsi thing, personally I think food manufacturers (I use the term loosely) should be forced to disclose what's in their products. Though I would strongly agree that this comment has nothing to do with the rest of our previous discussion.
As for free markets, while IP law does create monopolies, the theory is that many protected innovations would never be brought to market without some promise they won't be replicated.
For below: Independent creation is not theft and so the laws do not apply. Copyright and patent bar independent creation, but not tradesecret. No doubt countless production secrets have been independently developed by competitors. When one trys to patent something, these come out of the woodwork as "prior art". But independence is a very hard burden to prove. Any communication from one firm to another, especially the movie a knowledgeable employee from one firm to the other, destroys any notion of independence.
If there is some nuance here that I'm missing, I'd like to know what it is. A finer understanding of this point is probably really important for anyone who works in science.
Russia and China will be more than happy to take your IP :)
http://www.nolo.com/legal-encyclopedia/california-trade-secr...
- "California is unique in that its laws expressly establish that the employer owns trade secrets created by an employee (Cal. Labor Code Sec. 2860)."
- "Federal rules also apply in California. The Economic Espionage Act of 1996 makes the theft of trade secrets a federal crime."
I worked for a small ($30-$50m annual revenue) company sued by a giant ($47B annual revenue) company. The goal, which worked, was to drain my employer's bank accounts on $5+m of legal expenses per year to keep a superior but less expensive product out of market.
Which actually, is one of the more insidious outcomes of making absurd claims against someone, even if they're completely false. People naturally respond "well, no one would be crazy enough to make something like that up, so there must be some truth to it."
Pissing contests do not usually include one willing and one unwilling participant. Shred's note is not just an emotional appeal because if they did steal ideas, it is an open invitation for Smule to state what they are.
How can ideas be stolen? They're not property. Source code is. Patents are. Ideas are not.
If Smule had explicit plants to do exactly what Shred is doing and the Shred people left specifically to exploit that idea on their own, then maybe they might have a case appealing to trade secrets or something. But if Shred is doing something different that just happens to also be related to video and music, but does that in a different way, not using any of Smule's algorithms, I don't see how they can possibly have a case.
Unless, of course, you accept that employers own the work experience of their employees. I'm sure some would wish to.
To add to this, as a software engineer, while thinking through Smule's AutoRap app and the Shred Video app, I couldn't help but think that they could both probably benefit from a similar method for detecting (or synching with) beats, chorus, etc. Even though this sort of audio posterization (I'm not sure what it's really called) is not entirely novel, it's probably a reasonably tough problem to solve. If I had to guess, I'd guess that this aspect is what Smule's case is based on.
FTR: I hope Shred Video wins, because, based on the Business Insider article linked herein, Smith seems to be, IMHO, a huge bully.
In my understanding, refusing it is only the "right strategy" if your intent is to not have the case go to trial.
And...I saw the court filings...you have a lawyer...stop talking to randos on HN for advice. :)
technical information, methods, processes, formulae, compositions, systems, techniques, inventions, machines, computer programs, research, business information, customer lists, pricing data, sources of supply, financial data, and marketing, production, or merchandising systems or plans
If your employer is working with a concept or idea and can tangibly tie it to anything like these (or any of a similar list of "artifacts") that employees had access to, then it's very dangerous for employees to start their own firms based on those concepts or ideas.
(I have no idea what's going on with Smule/Shred! Shred sounds very credible right now.)
IANAL, but here's an example:
"It would be cool to make an app that does X" <-- not likely protected
"Our marketing research shows that there is a $3B market for an app that does X" <-- likely protected, but needs some requirements to be a trade secret.
[edit]
Also, many states allow enforcement of non-compete agreements, and in some cases that may include areas the company is planning on entering at the time of your employ.
I think you should talk to a lawyer before making assessments about how unlikely it is something is to be protected. Generally: safest course is to assume it is protectable.
I talked to a lawyer before starting this company and I was very surprised by how many pitfalls I hadn't even considered.
Enforcement could be another issue, depending on evidence.
The big if is in the relevant code: "(d) Trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy."
http://www.leginfo.ca.gov/cgi-bin/displaycode?file=3426-3426...
There are tools that will detect source code with similar but not identical structure.
But pick apart Shred's note, and really it's an emotional appeal based on two ideas:
1. That the sole test of stealing ideas is source code that has been copied verbatim.
2. That the only possible secrets of Smule are features implemented in released products.
These are pretty weak legs to stand on. They're actually preposterous.
Lawyers will tell you that it's really hard to prove theft in court without a smoking gun like "stolen source code", and the chances are, if they've stolen ideas in other ways, they will probably get away with it.
Almost certainly, Shred's lawyers are playing a key strategy role in this PR campaign.
So my advice is to be wary of emotional appeals from either side of litigation. We don't know what happened, and we learn less than we think from these notes.
ps. Yes I read the remarks in Business Insider too. I'm not advocating that Smule is the innocent party here. Most likely this is some bullshit pissing contest with 0 innocent parties.