Search and Seizure Questions Redefined

On November 3, 2011, the Israel State Employment Tribunal handed down its decision in Zuko Marketing and Distribution Ltd. (Zuko) et. al. v. Haim (Cherry) Bakush et. al. The case involved two appeals on search and seizure operations by Zuko’s attorneys. Zuko runs a heavy machinery and engineering business. Cherry was a senior employee of Zuko for over 20 years and when he resigned Cherry undertook to maintain in confidence the trade secrets of Zuko. Cherry was well compensated in his retirement agreement. Shortly after his retirement in 2006, Cherry began to compete with Zuko. Zuko argued Cherry was making use of proprietary software and database it developed over dozens of years. Zuko further argued the software and database were not available on the market and contained its trade secrets.  Zuko learned of Cherry’s actions in 2009 and in March 2010 filed a motion for preliminary injunction and search and seizure. The District Employment Court rejected the motion based on laches. On appeal the State Employment Court reversed and granted the motion based on the fact that the motion was for the seizure of evidence. Moreover, already in this appeal the court found Zuko had trade secrets.

Following the performance of the search and seizure Cherry filed a response to the motion and sought the cancellation of the search and seizure and the disqualification of the evidence seized. The District Employment Court cancelled the search and seizure and disqualified the evidence seized because it found there were no trade secrets because the database was comprised from public sources and because the execution officer acted contrary to the order handed out by the court. Zuko appealed.

The State Employment Court accepted the appeals and reversed. The court found that the lower court failed to give the appellants time to respond to the motion to cancel the seizure order. The lower court’s failure to to allow the appellants to respond to a motion was contrary to the basic legal principles that the court will not rule without receiving both parties’ position. Likewise, the lower court refused to hear some of the appellant’s witnesses without providing any explanation. These procedural defaults were sufficient reasons for the court to reverse.

In addition the court stated that in accordance with Section 16 of the Commercial Torts Law, the lower court had jurisdiction to grant a search and seizure order if there was a real threat that a tort was being committed. One such tort would be the misappropriation of a trade secret without the consent of its owner, or the use of the secret by its misappropriater. The court stated further that two elements should have been proved to obtain the order: 1. that there existed a trade secret; and 2. that there was a real threat that the tort of misappropriation of trade secrets was being committed.

In reviewing the lower court’s ruling on the first issue, the appeals court stated that the fact that the sources for a collection of a database were public, did not render that database public lacking a trade secrets. On the contrary, the appeals court stated that the collection of data, sorting, updating, adding data, and adding data mining capabilities over many years and cataloging said data generated an added value which provided its owner’s with a business advantage resulting in a trade secret. Attaining a trade secret status allowed others to create their own database, even on the same subject and from the same sources, but did not award Cherry the right to misappropriate it.

As to the execution of the search and seizure order the appeals court stated that while the lower court found the following actions damaging to the execution of the court order, in effect, such actions were normative and did not harm the execution thereof: 1. that the order was provided to the executing officer in the office of the appellant’s attorneys office; 2. that executing officer received explanations from the appellant’s attorneys; 3. that the executing attorney performed a search in Cherry’s “company” and not “place of business”; 4. that a computer expert can be a second witness to the performance of the order; 5. that the information seized was reviewed by the computer expert while being assisted by the appellants; 6. that the expert report was filed at a later stage; and 7. that the return of seized items was done with the approval of the appellant’s attorneys and not the court. Finding that the flaws found by the lower court were normative and was acted upon as granted the appeals court re-enstated the results of the search and seizure order.

This case shows the haphazards of trying to enforce IP rights before the Israeli employment courts. In many cases, the Israeli district employment courts judges are not familiar with complicated search and seizure operations and tend to be overly protective of employees (even if they left the company with trade secrets and are clearly misappropriating them). This case serves to instruct lower employment courts how to handle search and seizure orders and how to treat trade secrets.