A recent scandal unites two of my favorite passions: college football and trade secret litigation. As most sports fans are aware, the University of Michigan’s polarizing head coach Jim Harbaugh was suspended last Friday by the Big Ten Conference as part of a disciplinary action against Michigan for improperly recording and stealing signs in violation of the conference’s Sportsmanship Policy. The scandal unfolded quickly as the NCAA announced it was investigating Michigan’s football team on October 20, and then metastasized as The Washington Post and The Wall Street Journal began to cover it. Michigan has a splendid football team this year and one of the strongest teams in college football. But from my vantage point, Michigan’s administration has put that potential championship season at risk by mishandling its response to the scandal and provoking a confrontation with the Big Ten’s Commissioner, Tony Petitti. As explained below, Michigan’s mistakes provide a case study for parties accused of stealing another’s trade secrets on how to avoid the hard lessons that Michigan is absorbing now.Continue Reading Five Lessons Trade Secret Defendants Can Learn from the Michigan Sign-Stealing Scandal
A debate is growing within the trade secret community about the scope of information that should be protected–specifically, confidential information that does not rise to the level of a trade secret. This debate is largely between employers and their counsel who want to have every available tool to protect all of their information, and those who believe existing trade secret law provides adequate protection and therefore, information that doesn’t meet that standard isn’t worthy of protection (hence, the derogatory moniker “mere confidential information”). On October 12, 2023, in Hanneman Family Funeral Home & Crematorium v. Orians, the Ohio Supreme Court addressed this issue as well as another noteworthy issue–whether customer information shared with the government can qualify as a trade secret. But as a concurring opinion by Justice Patrick Fischer persuasively argues, the Supreme Court passed up on an opportunity to squarely decide the issue of whether “mere confidential information” should be preempted (and therefore not protectable), a ruling that would be in line with the majority of other states holding the UTSA prohibits claims seeking protection for information that doesn’t rise to the level of a trade secret.Continue Reading Ohio’s Supreme Court Ducks the Question of Whether “Mere Confidential Information” Is Protectable
Another busy month, lots of developments in high-profile trade secrets cases, the latest on the FTC’s proposed noncompete ban, and trade secret identification continues to bedevil the federal bench:
Noteworthy Defend Trade Secret Act and other federal decisions, articles and posts:
- The mammoth jury verdict against Goodyear Tire & Rubber has been set aside. Readers will recall that punitive damages accounted for $62.1 million of the $65 million award, which I predicted would result in a remittitur reducing them under Ohio law. However, U.S. District Court Judge Sara Lioi of the U.S. District Court for the Northern District of Ohio went a step further and set aside the entire jury verdict, reasoning that CODA Development had not sufficiently identified its trade secrets or that the information did not qualify as a trade secret. (Her opinion can be found at CODA Dev. v. Goodyear Tire & Rubber Co.) Frankly, this was a stunning ruling, as Judge Lioi could have directed out these claims at trial and avoided the verdicts altogether, or she could have granted Goodyear’s motion for summary judgment on the same grounds last year. In her ruling, Judge Lioi defended her decision to dismiss the claims now, noting that she had expressed concern about the claims at trial and reserved the right to dismiss them later. Unfortunately, Judge Lioi’s ruling may encourage defendants to repeatedly challenge identification at every stage of the litigation and trial.
- Other federal courts are requiring the identification of trade secrets with greater particularity at different junctures of litigation, as they grapple with whether the information before them deserves protection. In Dental Services v. Miller, a Seattle federal court denied a request for temporary restraining order, finding that the plaintiff had failed to provide “sufficient detail to establish a trade secret.” And in United Source One, Inc. v. Frank, the U.S. District Court for the District of Maryland denied a motion for a default judgment because the plaintiff failed to sufficiently describe two of the four trade secrets at issue in that case.
- Plaintiffs frequently insist that there should be a presumption of irreparable harm when they are seeking an injunction. Not surprisingly, both the U.S. Courts of Appeal for the Second Circuit and the Fifth Circuit have recently rejected those requests. In JTH Tax, LLC d/b/a Liberty Tax Service v. Agnant, the Second Circuit rejected a franchisor’s argument that a stipulation of irreparable harm in its franchise agreement created that presumption; see Davis Gilbert’s Neal Klausner’s post on that ruling. And in Direct Biologics L.L.C. v. McQueen, the Fifth Circuit held that courts applying Texas law can decline to apply a presumption of irreparable injury when there is no independent proof of harm. The Fifth Circuit affirmed the district court’s rejection of that presumption, holding that not only did the employer fail to produce any evidence that the former employee disclosed or used its confidential information but that the evidence in fact showed the exact opposite (question: what good is a presumption if you have to also show proof?). For more on that opinion, see McDermott Will & Emery’s Alexander Piala’s post for Lexology and Eron Reid’s post for Seyfarth Shaw’s Trading Secrets Blog.
- A mistrial was declared in another high-profile trade secret case pending in the U.S. District Court for the Northern District of California after the jury acknowledged it was deadlocked over the claims before it. In that case, Masimo Corp. is seeking $1.8 billion in damages against Apple, as well as co-ownership of 5 Apple pulse oximetry patents that Masimo said use its technology. The case has already generated a number of noteworthy opinions, including one addressing the issue of separating an employee’s general skill and knowledge from trade secret information.
- Questions over ownership of key trade secrets can derail a request for an injunction, as a plaintiff is learning in a New Jersey federal court. In JRM Construction Management, Inc. v. Plescia, the defendant was able to sufficiently dispute whether the trade secrets in question–Excel templates used to estimate and prepare final budgets for client project bids–were created by another company in the late 1990s. The defendants also challenged the confidentiality of the information because it was shared with customers who didn’t sign NDAs. Given these disputes over the central issues in the lawsuit, District Court Judge Evelyn Padin held that an injunction was premature and that “robust discovery” was needed.
- Late to discover that a former employee may have used your trade secrets in a patent application? Then you should check out Robins Kaplan’s Sharon Roberg-Perez’s article for IAM analyzing a recent decision by the U.S. District Court for Delaware. In Illumina Inc v Guardant Health, et al., the court found the former employer Illumina had presented sufficient evidence of fraudulent concealment to toll the statute of limitations. The court found that there was evidence that former employees had taken steps to conceal their activities with regard to their new company Guardant, including anonymously incorporating the company when they were still Illumina employees. Moreover, according to Sharon, Guardant had removed the names of one of Illumina’s former employees from the applications prior to their issuance as patents.
- Delaying your request for a preliminary injunction for 6 months because of discovery disputes can undermine the urgency of your request and claim of irreparable injury, at least according the U.S. District Court for the Middle District of Florida. In Partners Insight, LLC v. Gill, Judge Sheri Polster Chappel found this delay, coupled with waiting for 5 months to file the lawsuit, doomed the plaintiff’s request for an injunction.
- A challenge to an NDA on the grounds that it was facially overbroad was rejected as premature by Judge Pamela Barker of the U.S. District Court for the Northern District of Ohio. In AB Pratt & Co. v. Bridgeport Group, LLC, Judge Barker rejected a motion to dismiss the NDA and other claims, reasoning that any analysis of the scope and breadth of the NDA would involve a factually-intensive inquiry inappropriate at the motion to dismiss stage.
- Looking for a primer on DTSA caselaw in the U.S. Court of Appeals for the Third Circuit? Then check out Houston Harbaugh’s Henry Sneath’s post for JDSupra.
In 2016, Congress passed the Defend Trade Secrets Act (the “DTSA”). The vote was unanimous in the Senate and 410 to 2 in the House. President Obama signed it on May 11, 2016. Codified at 18 U.S.C. §1836, et seq., the DTSA created a federal private right of action for trade secret owners to sue for the misappropriation of their secrets.
But, as I pointed out in a recent blog post, “the DTSA is far from perfect. Like the Uniform Trade Secrets Act on which it was based, the DTSA can be improved as trade secret law evolves.”
A recurring problem under the DTSA is that many defendants get caught up in the DTSA’s enforcement mechanism far longer than they should be. For example, some defendants (typically former employees) are either wrongfully accused of taking information that they did not take, or are accused of taking information that they did take, but that they had not intended to take or even realized they took. For example, employees often forget that they have company information on thumb drives they used for work, or in their email, or backed up on personal devices as part of routine computer or cellphone backups. There are also plenty of employees who made a mistake of judgment and took information they should not have taken.
Many of the employees who have their former employer’s information will — at least once counsel is involved — promptly realize the error of their ways and cooperate with the trade secret owner to ensure that all information is returned and that all copies are permanently removed from their possession. Nevertheless, in many of those cases, the former employer continues to press the misappropriation claim, long after any potential material harm has been addressed.
Having represented many such defendants, I’ve identified two proposed amendments to the DTSA:
- (1) a “safe harbor” provision for penitent defendants who have agreed to an injunction and are cooperating in a litigation; and
- (2) a trade secret identification requirement similar to the Model Local Rule suggested by the Sedona Conference’s Trade Secrets Working Group.
I have been invited by the American Bar Association’s Intellectual Property Law Section to speak on Thursday, April 13 at 3:00 p.m. in Washington, D.C. with Nicole Galli of ND Galli Law LLC, Procopio’s Mindy Morton and DecisionQuest’s Michael Biek, Ph.D. on the topic “Tips from the Trenches: Hot Issues and Best Practices in Trying a Trade Secrets Claim under the Defend Trade Secrets Act (DTSA).”
With the COVID pandemic slowing the trial of cases, many DTSA cases, especially jury trials, are only now seeing their day in court. Our panel will discuss some of the novel trial issues presented under the DTSA, as well as best practices for trying a DTSA case especially to a jury. Topics will include:
- Judge or jury? Who decides issues such as restitution damages and bad faith under the DTSA? What are the pros and cons of judges and juries as triers of fact in trade secrets cases?
- Best practices for jury selection, developing jury-focused winning case themes and legally sustainable and effective jury instructions and verdict forms; and
- Other unsettled legal issues under the DTSA including the standard for proving bad faith, the scope of DTSA preemption, and which party has the burden of showing independent invention and under what circumstances.
ABOUT THIS EVENT
The ABA’s Intellectual Property Law Section’s Annual Conference is one of the premier intellectual property conferences of the year. The meeting, featuring more than 20 CLE sessions, networking events, wellness programs, business meetings and more will take place at the Omni Shoreham Hotel in Washington, D.C. Don’t miss this opportunity to meet with and learn from the leaders in our field. View the Full Program Outline here.
You can register for this CLE here. Hope you can join me.
Here are last month’s noteworthy cases, article and posts, as well as a few other cases that I didn’t have room for in last month’s wrap up post:
Noteworthy Defend Trade Secret Act and Other Federal Cases, Posts and Articles:
- Can an employee be prohibited from communicating with his/her new employer’s lawyers? If there is a risk that they might share details of other trade secret disputes, they can, at least according to the U.S. Court of Appeals for the Sixth Circuit. In Stryker Emp. Co., LLC v. Abbas, Case No. 22-1563 (6th Cir. Feb. 16, 2023) (Clay, Bush, JJ.; Sutton, C.J.), the Sixth Circuit affirmed an injunction enforcing, among other things, a provision limiting the employee, Abbas, from communicating with his employer’s (Alphatec) counsel. Stryker was involved in three other cases against Alphatec involving other former Stryker employees, and the Sixth Circuit found that Abbas “was privy to confidential information that if disclosed to Alphatec or Alphatec’s counsel, would detrimentally affect Stryker” in those other lawsuits. McDermott Will & Emery’s Tessa Kroll has a summary of the decision. I have to confess this decision seems extreme, given that a standard confidentiality order would achieve the narrow purpose sought–protection of confidential information involving a pending litigation–and the breadth of this ruling may unfairly impinge on the ability of counsel to engage in joint defense communications.
- The winner of this month’s Gladys Kravitz Award is EmergencyMD, LLC, an employer that couldn’t resist peering into the Gmail account of its former employee. That snooping led to a viable claim under the Stored Communications Act (SCA), ruled the U.S. Court of Appeals for the Fourth Circuit. In Carson v. EmergencyMD, LLCC, et al. the Fourth Circuit reversed the district court’s summary judgment dismissal of the former employee’s SCA claim, finding genuine issues of fact existed over whether the defendants’ accessing of the emails was unintentional and whether EmergencyMD’s policies authorized the defendants’ obtaining and disclosing their former employee’s emails.
- How much risk does a cannabis-loving employee truly pose to his employer’s trade secrets? Not very much, according to Judge Kenneth Bell of the U.S. District Court for the Western District of North Carolina in Microban Int’l Ltd. v. William Bartley Kennedy. The employee had been terminated for ingesting a marijuana gummy bear before an important meeting, and Judge Bell found the former employee’s “hollow threats” to share his employer’s confidential information uttered during severance negotiations were insufficient for an injunction.
- Illinois proudly claims the title of the Land of Lincoln. But it has another honor that it doesn’t boast about nearly as much. It is the birthplace of the infamous inevitable disclosure doctrine (see PepsiCo, Inc. v. Redmond), a doctrine much maligned by scholars and lawyers representing employees in trade secret cases. Fortunately, the doctrine may be close to expiring as a recent case, Petrochoice, LLC v. Amherdt, suggests. Judge Jorge Alonso of the U.S. District Court for the Northern District of Illinois rejected the former employer’s inevitable disclosure argument, ruling that the information the former employer was attempting to limit (the employee Amherdt’s “level” of performance of his “sales skills”) “is precisely the sort of sales acumen that employees are permitted to take with them.”
- When can a new employer be vicariously liable for its newly-hired employee’s alleged trade secret misappropriation? In Alert Enterprises, Inc. v. Rana, Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California dismissed claims by a former employer to include a competitor, SoloInsight, who hired a former employee who had downloaded over 2,600 of Alert Enterprises’ files and deleted other information to cover up those and other transfers. SoloInsight represented that none of those files had been uploaded to its system, which the plaintiff had to acknowledge in its complaint. On this record, Judge Scott Corley found there were no plausible claims of use or disclosure by SoloInsight and that it could not be vicariously liable for conduct that occurred before it hired that employee.
- Many of the decisions ordering early trade secret identification fail to provide guidance on how a plaintiff should identify those trade secrets with particularity. The reason for this is obvious: the descriptions themselves include allegedly proprietary information and therefore the key portions of the court’s analysis are frequently under seal. This reality means there aren’t many decisions to assist trade secret owners on what qualifies as a defensible identification. However, in Carlyle Interconnect Tech. Inc. v. Foresight Finishing LLC, the U.S. District Court for the District of Arizona provides that rare roadmap. In that case, Judge Steven Logan oversaw a discovery dispute over the identification of the plaintiff’s plating process trade secrets, providing a fine explanation of the factual context at issue, and ultimately holding that the plaintiff must “identify the steps in the process and explain how those steps make their method or process unique.”
- Consistent with the trend that I noted last month, federal courts continue to deny motions to dismiss trade secret claims but remain willing to narrow cases by getting rid of other tort claims. Check out the latest case, PRO MINERAL, LLC v. Marietta, Dist., where the U.S. District Court for the Northern District of Texas kept the trade secret and breach of contract claims but applied Texas’ preemption doctrine to dismiss claims for breach of fiduciary duty and civil conspiracy.
- It must be frustrating for trade secret owners seeking an injunction before courts bound by decisions issued by the U.S. Court of Appeals for the Second Circuit. Why you ask? The fact that they have to contend with the ill-conceived Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009) decision. For those unfamiliar with that opinion, the Second Circuit inexplicably ruled that irreparable injury did not exist in situations where a competitor was simply using trade secrets; the Second Circuit reasoned that the risk of further disclosure was not present because the misappropriating defendant and trade secret owner were both aligned on the issue of disclosure, and neither would therefore benefit from further disclosure. Of course, this rationale runs counter to a central tenet of ownership–namely, the owner’s right to exclude a competitor from using its IP. In Amimon, Inc. v. Shenzen Hollyland Tech Co. Ltd., et al., Judge Edgardo Ramos relied on Faiveley‘s holding and denied Amimon’s request for a preliminary injunction, ruling that it could recover money damages for the alleged misappropriation which was confined to the use of the trade secrets by defendants. It should be noted that Amimon did itself no favors, as its irreparable injury arguments were based on damage to its reputation and the threat that defendants might further share the trade secrets, neither of which were supported by sufficient facts.
Delaware, where more than half of U.S. public companies are incorporated, has done much to drive the development of corporate governance. As a result, “Delaware’s courts have led the way, which is not surprising given the crucial role the state’s judiciary plays under what Chief Justice Leo Strine has described as the ‘Delaware Model’ of corporation law.” Look no further than the Delaware Court of Chancery’s own website which says it is “widely recognized as the nation’s preeminent forum for the determination of disputes involving the internal affairs of the thousands upon thousands of Delaware corporations and other business entities through which a vast amount of the world’s commercial affairs is conducted.” Consequently, rulings by the Delaware Chancery Court are highly influential and may impact the reasoning of other state and federal courts. Three recent noncompete decisions by the Chancery Court potentially signal a significant shift against noncompetes involving sophisticated commercial parties.Continue Reading Are Three Decisions a Trend? The Delaware Chancery Court’s Turn Against Noncompetes
On Tuesday, March 21, 2023, at 1 p.m. ET, I will be speaking with Nicole Galli of ND Galli Law LLC, Benesch’s Scott Humphrey, and DecisionQuest’s Michael Biek, Ph.D. for the Ohio State Bar Association’s CLE Live Interactive Webinar, “The Changing Shape of Trade Secret Trials: The Increasing Shift to Juries.”
Last year, juries awarded $2 billion to Appian Corp., $65 million against Goodyear Tire & Rubber and $105 million against Ford Motor Company in high profile trade secret cases. These big verdicts signal a potentially significant shift away from how trade secret cases have been traditionally litigated, as employers have previously relied on injunctions to prevent employees and others from taking their trade secrets. This webinar will address this potential paradigm shift in trade secret litigation and help trade secret owners and their lawyers better understand the forces contributing to this important development and what clients and lawyers should be doing to adapt to these changes.
You can register for this CLE here. Hope you can join me.
Here are the noteworthy cases, articles and posts from last month, along with several DTSA cases from January that didn’t make it into last month’s update:
Notable Defend Trade Secrets Act and Federal Trade Secret Developments, Opinions and Posts:
- For those interested in shaping an important trade secrets resource for the federal bench, Berkeley Professor Peter Menell is looking for comments to the Trade Secret Case Management Judicial Guide (TSJCMG), which is intended as a “go-to” resource for judges in these cases. In a post for Patently-O, Peter describes how the TSCMJG came into existence. He also discusses the unique qualities of trade secret cases that prompted the TSCMJG, including (1) the challenges of trade secret identification; (2) the highly emotional nature of trade secret cases, and (3) the interplay between criminal and civil proceedings in these cases. A number of trade secret luminaries (Vicki Cundiff, Jim Pooley, Peter Toren, Elizabeth Rowe, Rebecca Wexler and Professor Menell) have already contributed to its drafting, and for those interested in providing comments, please reach out to Peter at firstname.lastname@example.org (please note he is working on a tight timeline).
- Disputes over inventorship are not confined to patent cases and often arise in trade secrets cases too. However, that question does not guarantee federal subject matter jurisdiction, as the defendants learned in a decision remanding an ownership dispute removed to federal court back to state court. In Calvary Indus., Inc. v. Winters, U.S. District Court for the Southern District of Ohio Judge Timothy Black rejected arguments that a state court declaratory relief action over the ownership of several disputed patent applications involved federal patent or trade secret claims and ruled that it belonged in state court. In particular, Judge Black found that declaratory relief for a correction of ownership under 35 U.S.C. § 256 was premature because no patents had yet issued.
- Can a pleading citing “information and belief” for its allegations of misappropriation survive a motion to dismiss under Rule 12(b)(6)? If the information is solely within the possession of the defendant and the inference is otherwise plausible, the answer is “yes,” according to the U.S. Court of Appeals for the Eighth Circuit. In Ahern Rentals, Inc. v. EquipmentShare.com, Inc., the Eighth Circuit joined six other federal circuits that found this form of pleading to be sufficient. For more on the decision, check out Scott Lauck’s post on the case for Missouri Lawyers Media.
- The U.S. District Court for the Southern District of New York recently rejected a motion by Amazon to dismiss a complaint accusing Amazon of improperly reverse engineering the artificial intelligence (AI) trade secrets of a vendor. In GateGuard, Inc. v. Amazon.com Inc., No. 21-cv-9321, 2023 WL 2051739 (S.D.N.Y. Feb. 16, 2023), the vendor GateGuard alleged that Amazon was misappropriating GateGuard’s “proprietary security technology that acts as an ‘AI Doorman’ for multifamily residential properties, allowing authorized users to unlock entrances remotely and to monitor activity.” Judge John Koeltl’s sixty-three page opinion focused on, among other things, Gateguard’s terms of service agreement which specifically forbid reverse engineering. For more on the case, check out McGuire Wood’s Trade Secrets Tidbits post by Sarah Holub, Meghaan Madriz, Yasser Madriz and Miles Indest.
- Staying on the topic of Rule 12(b)(6) motions, during the course of my review of these cases each month, I am seeing a trend by federal courts denying these motions on the trade secret claims but sometimes dismissing other tort claims. This trend is supported by the decisions above, as well as other decisions this past month by the U.S. District Court for the District of Columbia in Aristotle Int’l, Inc. v. Acuant, Inc. (a case involving data scraping), the U.S. District Court for the Eastern District of New York in Hardwire, LLC v. Freyssinet Int’l Et Cie, et al. (dismissing Sherman Act claims), and the U.S. District Court for the Southern District of Ohio in Sunjoy Indus. Group, Ltd., v. Permasteel, Inc. (dismissing trade dress claims).
- Looking for ideas for your motion in limine to exclude improper evidence at your next trade secret trial? Then look no further than HP Tuners, LLC v. Cannata, where the U.S. District Court of Nevada ruled on a host of different requests to exclude evidence, including requests under Daubert and other expert challenges, Rule 408 settlement discussions and evidence of the parties’ respective wealth.
- Never underestimate the power of an accelerated development timetable to create an inference of misappropriation when seeking an injunction. In Palltronics, Inc. v. Paliot Solutions, Inc., Judge Page Hood of the U.S. District Court for the Eastern District of Michigan was persuaded by the fact that the former employees’ brand-new company “managed to accomplish in one year, what it took Lightning [the former employer] over five years and $25 million in research and development to achieve” and she ruled “[i]t can be inferred that such dramatic progress was possible because Defendant relied on Lightning’s former employees’ knowledge of the trade secrets, processes and other information they gained from working at Lightning to set up its business.”
Since its enactment in 2016, the Defend Trade Secrets Act (DTSA) has become the most important trade secrets statute in the world. Here’s the proof. DTSA filings have steadily increased, doubling from 2016’s 476 filings to 2020’s 1,008 filings. According to Lex Machina’s 2021 Trade Secret Litigation Report, 72.9% of all trade secret cases in 2020 and 72.5% in 2019 included a claim under the DTSA. And as other nations recognize the importance of trade secrets and develop their own trade secret laws (see the EU’s Trade Secret Directive and China’s recent amendments to its trade secret law), those nations will likely look to the DTSA for inspiration. When you throw in the increasing reliance on trade secret law and perceived erosion of patent protection, it’s hard to dispute the DTSA’s growing importance.
But the DTSA is far from perfect. Like the Uniform Trade Secrets Act on which it was based, the DTSA can be improved as trade secret law evolves. To that end, I would humbly propose the following two amendments to the DTSA: (1) a “safe harbor” provision for penitent defendants who have agreed to an injunction and are cooperating in a litigation; and (2) a trade secret identification requirement similar to the Model Local Rule suggested by the Sedona Conference’s Trade Secrets Working Group (described below).Continue Reading Two Ideas to Improve and Balance the Defend Trade Secrets Act: A Safe Harbor Rule and Early Trade Secret Identification