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Jasmine Yu is an IPilogue Writer and a 1L JD Candidate at the University of Toronto Faculty of Law.

All that glitters is not gold, but trade secrets in the sparkling world of luxury jewellery might just be worth the gold and diamonds they sell. On February 28, French luxury jeweller Cartier its competitor, Tiffany & Co. (“Tiffany”), for stealing trade secrets related to its from a former Cartier employee, Megan Marino.

Cartier’s Claims

Tiffany’s high jewelry unit was in the midst of a restructuring following several resignations. Cartier claims that their competitor’s management used “quick money and title advancement” to lure Marino away in December 2021. Further, Cartier also asserts that immediately upon hiring her, Tiffany’s President for the Americas met with Marino for the express purpose of obtaining information about Cartier. This act disregarded Marino’s confidentiality and non-solicitation contractual obligations to Cartier.

Marino, ��a named co-defendant, started working at Cartier in August 2013, and most recently served as Assistant Manager for Merchandising, Jewelry. Cartier claims that upon her hiring at Tiffany in December 2021, Marino forwarded files containing “sensitive and valuable information” related to Cartier’s high jewelry business to her personal email. These files could purportedly “allow a sophisticated competitor to replicate key strategies” and to “reverse engineer how Cartier allocates, merchandises, and prices its High Jewelry stock.” Cartier claims that this was a breach of her employment agreement, as she was to return “any and all documents” containing “Confidential Information and Trade Secrets” that she obtained in connection with her employment.

The Lawsuit

In the wake of Cartier’s repeated written notices, Tiffany fired Marino for “failing to disclose her misconduct” in February 2022. The corporation did not take any action against upper-level management, who, according to Cartier, “repeatedly and knowingly solicited and received trade secrets” from Marino and tacitly approved of Marino’s breaches of her legal obligations to Cartier.

As Tiffany continues its use of Cartier’s confidential information, such as through using such information in its internal business presentations, Cartier brings this suit. Cartier is seeking injunctive relief and damages for Tiffany’s “deliberate scheming to misappropriate and convert Cartier’s highly confidential business information to unfairly compete with Cartier.”

The Trade Secret Claim

To succeed in its trade secret claim, Cartier will need to :

• The information is in fact, secret — that it is not generally known or readily ascertainable to competitors, and confers to Cartier a competitive advantage,
• Cartier has undertaken reasonable efforts to maintain its secrecy, and
• Tiffany & Co “misappropriated” the information

Cartier gains a strong position in this case from the evidence of emails and text messages between Tiffany’s management and Marino, as well as their outreach to current Cartier employees for information. Nevertheless, Tiffany may have some strong arguments as well. For instance, to the third requirement, Tiffany may argue that Cartier did not make reasonable efforts to maintain its secrecy. What is “reasonable” is typically a cost-benefit analysis. Marino, a lower-level employee who was not directly involved in Cartier High Jewelry, could access allegedly valuable, sensitive, and restricted information.

If they acquired the trade secret by improper means or a breach of confidence, Tiffany can be considered to have committed “misappropriation”. Tiffany may be in an even stronger position if they can establish that they somehow obtained the trade secrets lawfully — through means such as independent discovery or reverse engineering.

We should look forward to seeing the Court’s take on what constitutes “reasonable efforts” to maintain the secrecy of electronic documents in the age of Zoom.

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This case is particularly unique due to the criminal context. Typically, matters involving software code theft result in . However, after Aleynikov resigned to join a similar start-up company and was found to have copied sections of “High-Frequency Throughput” software code (which facilitates automated, high-speed stock trading), Goldman used their stature to involve the FBI. Aleynikov was arrested for theft, resulting in a federal conviction and 97-month prison term. Despite this conviction and that his contract strictly prohibited the transfer of data, which became the IP of Goldman upon creation by Aleynikov, the appellate court deemed the code “purely intangible property…beyond the scope of the [criminal theft legislation].”

In Canada, Roman Cisar recently suffered as Aleynikov, when he was sentenced to 30 months in prison for a similar software code theft from a former employer. However, in Cisar’s case, he utilized the code stolen from his relatively small-time employer to directly undercut their business through the creation of his own, while Aleynikov was only found to have copied the Goldman code for “personal use.” It is clear through these trial judgments that the courts are trying to develop criminal IP jurisprudence to protect companies from employees committing opportunistic digital thievery. Contrary to this end, by overturning the Aleynikov conviction under the premise that the code was not physical property, the Court deemed code as beyond the scope of criminal theft, leaving it to the realm of IP legislation. Thus, in future cases (e.g., the inevitable Cisar appeal), the role of the courts will be to establish whether such IP should be protected with criminal consequences.

A problem lies in the nature of the property being “stolen” and the scope of criminal laws against theft. Due to the nature of virtual data and the wording of legislation, it seems that the US Appellate Court made the correct ruling in Aleynikov. Unauthorized copying does not equal theft, as the copying of the code did not exclude the original owner from usage. With respect to Cisar (reasons of the court yet to be published), adoption of an intangible perspective of source code, should rule out criminal charges under . Copying the code did not preclude usage of the original company, which is a defining feature of criminal theft. Although it could be argued that unauthorized copying causes economic detriment to the companies employing the code, it is still very difficult to argue that this type of IP can be subject to theft, as the Court made clear in Aleynikov.

There is limited criminal recourse if theft is unavailable to the Crown. Generally, industrial software code is not truly protected by copyright, as it would require disclosure of , rendering ineffective. Moreover, s. 42 of the Copyright Act typically applies criminal recourse to , which was not evident in either Aleynikov or Cisar. Limited criminal action may be permitted through s. 430 criminal mischief if the copying of the code is used such that it causes egregious detriment to the violated party. However, the Criminal Code does not serve to protect exclusively abstract economic interests and applying it as such is inconsistent with the application of the Code. Furthermore, due to the higher standard of proof in criminal cases and the lack of economic restitution to the wronged party, civil suits are a more favourable recourse.

Certainly unfaithful acts such as those committed by Aleynikov and Cisar should be subject to civil lawsuits and potential remedies for lost profits or similar losses as a result of the usage of the code (in addition to contract breach, if applicable), but the nature of the software code as intangible property should preclude criminal action. If the courts are going to trend towards imposing criminal penalties on these types of IP incidents, it is essential that the legislature update statutory definitions of property and its theft to reflect the changing nature of property in the digital age.

Ryan Heighton is a JD candidate at Osgoode Hall Law School.

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