Litigation for the technology industry has long been mistakenly thought of as synonymous with intellectual property litigation. High-profile patent and other intellectual property disputes between smartphone design companies and manufacturing companies continue to garner the most media attention. But today, litigation for the technology industry means a lot more than simple intellectual property disputes.
Increasingly, technology companies' litigation concerns involve governmental investigations and regulatory actions just as much as they involve commercial litigation. Disputes have grown increasingly international in scope and can involve actions in several jurisdictions around the world, raising a host of new concerns for general counsel and outside attorneys serving technology companies. Furthermore, technology companies are facing new legal challenges in new venues brought by different actors.
The trends to watch for in 2013 include high-profile issues such as data privacy and data security — two topics often on the minds of security-conscious consumers, regulators, and technology companies themselves. Other trends include litigation-specific legal issues that bear particular importance for the technology industry, such as the availability of lost-profit damages for smaller and newer companies.
We have placed a "spotlight" on these issues, but they are hardly the only trends facing technology companies in 2013. The overall technology trends to watch for in 2013 include the following:
- Data Security and Privacy
The rise in cloud computing means more and more personal data and commercially sensitive information is being stored remotely in aggregated data centers. And increasing computing power has made data encryption cracking and other forms of "hacking" more powerful.
Since 2005, an estimated 2,800 data breaches have occurred in the United States, with 4% of those breaches leading to federal litigation,1 although most of those suits were either settled early or dismissed due to the plaintiffs' inability to prove damages (plaintiffs generally must show that the security breach caused them actual harm and not just emotional distress). The risks do not stop at litigation, however. Security breaches threaten not only consumer information but also a technology company's crown jewel — its intellectual property.
Well-designed internal controls, security breach policies, and consumer agreements can help companies mitigate these risks. However, for those cases where the breach has caused serious harm to either the company or its consumers, litigation is often necessary.
- Governmental Investigations
The percentage of companies' litigation budgets spent on governmental investigations has been steadily increasing over the last several years, and technology companies are no different. In particular, laws aimed at penalizing alleged cases of bribery, such as the U.S. Foreign Corrupt Practices Act (FCPA) and the UK's new 2010 Anti-Bribery Law, have caused companies to spend tens to hundreds of millions of dollars investigating potential cases of corruption and paying fines of up to $800 million.
- Counterfeit Electronics
Consumer electronics are now the most pirated category of goods in the world (replacing shoes), according to the U.S. Department of Homeland Security. Pirated products include not only knockoffs but also recycled or refurbished originals or substandard parts, made by authorized manufacturers, that were supposed to have been destroyed but instead were sold into the marketplace.
Counterfeit goods not only harm a company's ability to protect its brand, but they can also erode sales and create potential liabilities if inadvertently incorporated into a company's final products. Companies can protect themselves by being vigilant about their marks, prosecuting infringers and suppliers who attempt to pass off counterfeit goods, and instituting internal controls to protect against the inadvertent incorporation of counterfeit components.
- Design Patents, Copyrights, and Trade Dress
Intellectual property remains the lifeblood of technology companies, and, as recent cases pursued by smartphone powerhouses confirm, companies are increasingly relying on design patents, copyrights, and trade dress claims to protect their intellectual property. The recent high-profile success of claims based on design patents and trade dress demonstrates that juries still do not like what they perceive as "copying," where such claims survive the Markman process and other pretrial proceedings. Consequently, intellectual property litigation is expected to continue to grow.
- Employment Contracts and Trade Secret
With a hot technology sector and an improving economy all around, workforce mobility has been on the rise in Silicon Valley, along with efforts by companies to acquire premium talent from competitors. New words like "acqui-hire" have even been invented to describe start-up acquisitions by larger companies that target a start-up's employees, rather than its businesses.
Workforce mobility in the technology sector, however, can lead to legal disputes involving claims of intellectual property misappropriation, breaches of employment contracts, interference with employment contracts, and other similar claims. Companies can protect themselves and their intellectual property with appropriate employee agreements and hiring procedures and by pursuing claims where necessary and appropriate.
- Continued Internationalization of Technology
Large-scale litigation between technology companies has become increasingly internationalized, with disputes between companies frequently being litigated in distant forums. This often has led to litigation on multiple fronts, with conflicting results from jurisdiction to jurisdiction. These international matters include not only the high-profile smartphone patent lawsuits taking place in Germany, the United States, and Asia, but also one-off matters. Technology companies require worldwide representation and must be prepared to litigate literally anywhere in the world they do business.
1. Sasha Romanosky, David A. Hoffman & Alessandro Acquisti, Empirical Analysis of Data Breach Litigation, Temple Univ. Legal Studies Research Paper No. 2012-30 (2012), available at http://ssrn.com/abstract=1986461.
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This article is provided as a general informational service and it should not be construed as imparting legal advice on any specific matter.