Phoenix sues DeviceVM over trade secret theft

Phoenix claims rival stole its instant-on technology, sues ex-employee for breach of contract

Ratcheting up the already hard-fought competition in the instant-on market, Phoenix Technologies Ltd. is suing next-door rival DeviceVM Inc. for trade secret theft and a former employee now at DeviceVM for breach of contract.

Milpitas, Calif.-based Phoenix claims that San Jose-based DeviceVM is using Phoenix's proprietary information in the latter's popular Splashtop software, which allows PCs to skip the Windows boot-up and run software within seconds via Splashtop.

Phoenix, which offers the competing HyperSpace platform, claims that trade secrets were passed to DeviceVM via an employee, Benedict Chong. Chong, according to his LinkedIn profile, was a former engineering team lead at Phoenix and an eight-year employee at the company. He left Phoenix in November 2004 and worked at three other startups before joining DeviceVM as director of program management in January 2007.

Phoenix first filed a lawsuit against DeviceVM in mid-July in Superior Court in Santa Clara. Phoenix amended its complaint in late August and accused DeviceVM and Chong with trade secret misappropriation, breach of Chong's employment contract, which was signed when he joined Phoenix in November 1996, interference with that contract, unfair business practices, conversion of intellectual property assets and constructive trust. Phoenix is asking for unspecified damages, along with "injunctive relief ... to prevent further irreparable harm to Phoenix, and to put an immediate halt to DeviceVM and Chong's on-going practice and pattern of wrongful conduct."

Both companies declined to comment.

DeviceVM appealed earlier this month to have the latter four charges thrown out. A hearing is scheduled for Nov. 17 in U.S. District Court in San Francisco.

According to Phoenix's complaint, Chong began working on technologies in 2000 that are now incorporated into Phoenix's HyperSpace instant-on platform, as both an engineer and manager. Chong was also listed as the first inventor for a Phoenix patented technology called Raptor, which uses the BIOS to accelerate boot-up.

According to the complaint, DeviceVM began filing U.S. patent applications regarding an "instant-on appliance" a month after Chong's hire. DeviceVM has filed a total of six patent applications listing Chong as the first or a named inventor relating to instant-on technology that are now incorporated into DeviceVM's principal product, the Splashtop software, according to Phoenix.

Phoenix "only became aware of DeviceVM's and Chong's unlawful activities in June 2009," according to its lawsuit. "In addition, Phoenix recently discovered evidence of the use of an anti-forensic wiping tool on the Phoenix computer that was assigned to Chong while employed at Phoenix. Upon information and belief, Chong used such a tool to conceal information from Phoenix or destroy evidence of misappropriation of Phoenix Proprietary Information."

Daren Orzechowski, a New York intellectual property lawyer for White & Case LLP, said this is a common type of case among high-tech companies and their employees, and is governed by California's Trade Secrets Law.

Orzechowski, who is familiar with the lawsuit but confined his comments to the general, described trade secrets as any sensitive information that a company is trying to "keep under wraps." Protection for trade secrets "can, in theory, go on forever," he said, though it disappears as soon as companies attempt to protect it by applying for a patent, since that is a public process.

However, trade secret theft can be difficult for a plaintiff to prove, he said, which is why many companies require employees to sign an employment contract. California courts generally view such contracts as legal, provided there is no overly strict non-compete clause or overly broad language, such as laying claim to inventions created by an employee during his personal time or off-hours.

Founded in 2006, DeviceVM appears to have a huge lead in the instant-on market. Holding contracts with Asustek Inc., Acer Inc., Hewlett-Packard Co. and Sony Corp., DeviceVM expects to see the Linux-based Splashtop shipped on 30 million PCs this year, and 100 million next year.

Best known for the BIOS software seen on boot-up, Phoenix debuted its Linux-based HyperSpace platform in November 2007, a month after DeviceVM announced its first customer, Asustek.

HyperSpace has been slower than Splashtop to gain adherents. But Phoenix has started signing some deals in the past few months. Intel agreed in September to bundle HyperSpace with all Atom net-top PC motherboards. It said today that Samsung Electronics has agreed to install HyperSpace on its netbooks and notebooks.

Both HyperSpace and Splashtop are generally installed on PCs that also have Windows installed as the main operating system. A looming instant-on competitor, Google Inc.'s ChromeOS, however, would be installed on netbooks and ARM-based smartbooks as the primary operating system.

Copyright © 2009 IDG Communications, Inc.

7 inconvenient truths about the hybrid work trend
Shop Tech Products at Amazon