Posts Tagged ‘capital issuance’

The Limits of Intellectual Property

Telluride Asset Management LLC v. Eric Falkenstein has been settled but the pain lingered on for many years. I learned about the case recently while reading Eric’s blog and wanted to learn more. Eric kindly agreed to share his experiences in an exclusive interview, and over the last week has been educating me in trade secrets and intellectual property law. 

The Limits of Intellectual Property

Are There Any in the Hedge Fund World?

By Ilene

So who is Eric Falkenstein and how did he become an ex-portfolio manager with no portfolio to manage? 

Eric graduated from Northwestern with a PhD in economics and wrote his dissertation on cross sectional stock returns and volatility.  Prior to joining Telluride as a hedge fund manager in 2004, he had been using strategies that drew upon his education, previous work running his own fund and a fund, Deephaven.
 
Eric resigned his position at Telluride in September, 2006. Several months later, Telluride initiated a lawsuit claiming that strategies used by Eric belonged to Telluride. The claims in the lawsuit would require a court to determine the nature of the components of the strategy Eric had been using and decide who owned them. This is more complicated than it may appear.
 
Consider this analogy.  Baker E goes to work baking sugar cookies for Bakery B.  E, who’s been a baker for ten years, has a favorite recipe calling for flour, butter, sugar, eggs and baking soda.  During the next few years, E tinkers with the ratios of ingredients and experiments with chocolate frosting and colorful sprinkles, but never deviates significantly from the basic recipe.
 
Then one day, Baker E decides to leave Bakery B and open a Cookie Shoppe C in another town.  Bakery B initiates legal action to prevent E from operating C, arguing that E’s cookie recipe will inevitably be derived from privileged information gained while working for B.
 
In response, Baker E argues that his recipe is a standard sugar cookie recipe, using common ingredients. He argues that B cannot own the sugar cookie constituents (sugar, flour, butter, etc.), and that B needs to define the specific recipe in its complaint. Bakery B argues they will provide that, after full discovery has been completed (which could be a few years).
 
And so began Eric's adventure into IP law.  
 
In a hedge fund “trade secret” case, the “ingredients” are variables used to construct


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