Real Property Investment Vehicles Have Intellectual Property Too

by Wendel, Rosen, Black & Dean LLP
Contact

The terms “intellectual property” and “real estate” are rarely found in the same sentence.  Real estate industry veterans generally view “property” as an asset comprised at least partly of dirt.  But real estate investment vehicles – including REITs, private equity real estate firms, and private lending/investment entities – often have valuable intellectual property worth fighting over, most often in the form of trade secrets.

KBS v. ARC

Allegations of trade secret theft are at the center of ongoing litigation between two major sponsors of nontraded REITs (American Realty Capital Advisors and KBS Capital Advisors), a dispute that also includes the sponsors’ broker-dealers (Realty Capital Securities and KBS Capital Markets Group).  And this is no small skirmish.  The battle is being waged on two fronts – a Financial Industry Regulatory Authority (FINRA) arbitration, which was initiated in 2009, and an Orange County Superior Court action, filed in 2011, which is scheduled for a jury trial on March 9, 2015.

A “trade secret” is defined as information that derives independent economic value from not being generally known to the public or competitors, and which is the subject of reasonable efforts to maintain its secrecy.  Trade secret theft (or “misappropriation”) occurs when a person acquires another’s trade secret by improper means or uses or discloses another’s trade secret without consent.  If the information is generally known by the public or those within the industry, or if the information is readily ascertainable (i.e., via the internet), then it’s not a trade secret.

In the litigation between KBS and ARC, KBS claims that three of its former broker-dealer employees misappropriated trade secrets by downloading KBS information and using it to compete against KBS after they joined ARC.  Specifically, KBS claims that one former employee, on the day that he resigned, emailed to ARC a large spreadsheet containing a record of all KBS sales.  KBS also claims that two other former employees downloaded confidential information from KBS’ proprietary sales database, including contact information for registered dealers who sold the company’s REITs, and KBS’ former employees used that information after joining ARC.  That information could have value because nontraded REITS are sold almost exclusively through independent broker-dealers.

Who will win?

Who will win?  In trade secret cases, the ultimate outcome is so fact driven and there is so much “gray area” in the law that it is difficult to predict or handicap the final verdict.  For example, courts often hold that basic contact information of clients or key allies is not a trade secret, especially where that information is readily available on LinkedIn and other websites.  On the other hand, a trade secret finding is much more likely if contact information is mixed with more detailed (and less publicized) data such as pricing, ordering preferences, or other operational facts built up through research and experience.  If successful, trade secret claims can result in actual damages, recovery of unjust enrichment, imposition of a reasonable royalty on profits made through the trade secret theft, and (in cases of willful/malicious misappropriation) exemplary damages and attorney’s fees.

Just like other companies, real estate investment vehicles need to protect their valuable trade secrets, most typically by requiring employees to sign agreements acknowledging the company’s trade secrets, limiting and monitoring access to confidential information, with extra sensitivity during times of key employee departures.  Similarly, when hiring, great care should be taken to ensure that the new employees don’t bring their former firm’s stolen trade secrets with them.  Simple steps like these can avoid the courtroom and keep the focus on the “dirt-based” kind of property.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Wendel, Rosen, Black & Dean LLP | Attorney Advertising

Written by:

Wendel, Rosen, Black & Dean LLP
Contact
more
less

Wendel, Rosen, Black & Dean LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!