01102013

I had a trial this month, so I was delayed in my wrap up of noteworthy developments from November.  Here they are:

Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:

  • Who would have thought a case about broccoli seeds could sprout so many interesting legal issues?  Certainly not me.  But the U.S. Court of Appeals for the Sixth Circuit just issued an opinion in Caudill Seed & Warehouse Co. v. Jarrow Formulas, Inc., that is, to quote the jurist Robert Bork, a veritable “intellectual feast” of trade secret issues.  In the culmination of a nearly-decade long dispute, the Sixth Circuit affirmed the verdict and several rulings by the district court about the viability of trade secrets arising from the collective research for those broccoli seeds.  The opinion is worth reading for several reasons.  In particular, the opinion provides guidance on what needs to be shown to assert a combination trade secret, which is a trade secret composed of multiple publicly available elements.  The Sixth Circuit held that because a combination trade secret has those publicly available elements, the trade secret owner must make an additional showing that the combination trade secret is unique, a requirement normally not imposed on other trade secrets.  The opinion is also noteworthy for its analysis of what needs to be shown for misappropriation of a combination trade secret as well for its analysis of the damages related to the defendant’s saved costs in connection with the research and development of those broccoli seeds.  For other takes on the Sixth Circuit’s opinion, check out Anthony Ferrara’s post for McDermott Will & Emery’s trade secrets section for its IP Update Blog and Siena Sylvester’s post for Sheppard Mullin’s Trade Secrets Law Blog.
  • And while we’re on the topic of an opinion covering multiple interesting trade secret issues, the U.S. District Court for the Central District of California has issued a highly factual decision that addresses, among other things, the intersection of a researcher’s general skill and knowledge and his former employer’s confidential research information. In Masimo Corp. v. True Wearables, Inc., Judge James Selna issued an injunction restraining the former researcher and his current company from using trade secrets arising from pulse oximetry, which involves measuring oxygen in the blood.  The opinion addresses a range of tricky issues such as the use of trade secrets from memory, the concept of independent development and a good discussion of the affirmative defense of what is readily ascertainable under California law, but I found Judge Selna’s application of the “person of ordinary skill in the art” test to differentiate the former employee’s general skill and knowledge to be particularly important.  Courts have grappled with tests to distinguish an employee’s general skill and knowledge from an employer’s trade secrets, and so far as I can tell, this is the first time that a court has used this objective test from the patent world to separate the two categories of information.
  • IBM scored a major victory in a dispute brought by a Chinese venture capital partner against one of IBM’s Chinese affiliates, securing the dismissal of a complaint for failure to state a claim for relief and lack of personal jurisdiction grounds.  In a post for The IP Watchdog, Alex Pronk summarizes the ruling in Beijing Neu Cloud Oriental System Tech. Co., Ltd. v. International Business Machines Corporation, in which U.S. District Court for the Southern District of New York Judge Alvin Hellerstein found that (a) the plaintiff had failed to adequately identify the trade secrets at issue (confidential customer information), and (b) that the information was “available through public and independent sources”, reasoning “it is implausible that [IBM] would not be able to identify potential users of IBM technology without [Beijing Neu Cloud] having identified some of them.”
  • Would you like insurance coverage for your trade secrets case?  Then you should review the U.S. Court of Appeals for the First Circuit’s opinion in Lionbridge Tech., LLC v. Valley Forge Ins. Co., which held that a trade secret claim that allegedly caused reputational damage to the plaintiff triggered defamation coverage for what were otherwise traditional trade secret claims.  Hannah Cohen details the opinion for the Trade Secrets section of McDermott Will & Emery’s IP Update Blog.
  • Here’s a head-scratcher out of California dismissing a statute of limitations defense.  In Pinkerton Tobacco v. Kretek Int’l, the defendant Kretek produced evidence that plaintiff knew in 2016 that Kretek was importing and selling a competing device that included the trade secrets, knew that another party (Ericsson) was involved in the manufacture of that device, and suspected that Ericsson was using the trade secrets to manufacture the device that he had sold to the plaintiff. As a result, Kretek moved for summary judgment, arguing the plaintiff’s claim was barred by the three-year statute of limitations because the plaintiff knew that the device was manufactured using its trade secrets. The U.S. District Court for the Central District of California, however, denied the motion, reasoning that the defendant had only shown that the plaintiff had knowledge that the product was manufactured using misappropriated trade secrets, as opposed to demonstrating that the defendant had the requisite knowledge of the trade secrets themselves.  Mark Klapow and Ryan Fitzgerald have a post for Crowell’s Trade Secret Trends Blog on this curious decision.
  • Wrestling with what you need to plead to ensure that your DTSA claim satisfies the interstate commerce requirement?  Then check out U.S. District Court for the Northern District of Ohio Judge Bridget Brennan’s opinion in Health Care Facilities Partners, LLC v. Diamond, which lays out the particulars required to satisfy that pleading requirement.

Restrictive Covenant Cases from around the United States:

  • Should your agreement include a liquidated damages provision?  If you prefer a damages remedy, the answer may be “yes”, at least according to a recent case out of Texas.  In MWK Recruiting, Inc. v. Jowers, the U.S. District Court for the Western District of Texas used a liquidated damages clause to determine the damages in that case, a far easier mechanism for determining damages than a traditional lost profits or disgorgement model.  For more, check out Alex Meier’s post for Seyfarth’s Trading Secrets Blog.
  • Drafting errors can be fatal to a restrictive covenant because it is a restraint of trade.  A recent decision by the U.S. District Court for the District of Rhode Island illustrates that courts may be too eager to find find such an error.  In Schnitzer Steel Indus., Inc. v. Dingman, the district court declined to extend a noncompete’s protection to a corporate parent, reasoning that it would be peculiar to construe the singular term “the Company” to companies other than the subsidiary that the employee worked for, even though the term “Company” was defined to include the subsidiary’s “parents, divisions, subsidiaries, affiliates, successors and assigns.”   For more on this case, check out Dawn Mertineit’s post for Seyfarth’s Trading Secrets Blog which describes the TRO denied on these grounds.
  • In contrast, a Pennsylvania federal court recently took a different tact, electing to modify a noncompete that it found had an excessive term of duration.  In Syzygy Integration LLC v. Harris, the U.S. District Court for the Eastern District of Pennsylvania enforced the noncompete but reduced its duration from 5 years to 2 years because that time period sufficiently protected the plaintiff’s government contract business.  Finnegan’s John Paul, Brian Kacedon, Anthony Del Monaco and Umber Aggarwal summarize the opinion in an article for Lexology.
  • While the past month was quiet on the legislative front, Adam Fuller of Brennan, Manna & Diamond wrote a nice summary of the key provisions of the Uniform Law Commission’s proposed Uniform Restrictive Employment Act in an article for the American Bar Association.  According to Adam, that proposed statute has been relied upon for recently proposed legislation in Colorado, Oklahoma, West Virginia and Vermont.  The ULC’s proposed statute, which was released last year, advocates for advance notice of noncompetes to new employees and relaxed enforceability against terminated employees, among other proposals.

State Trade Secret Law Posts and Cases:

  • Looking for a primer on the last four years of the Massachusetts Trade Secrets Act?  Katherine Perrelli and Dawn Mertineit have a comprehensive summary of the statute’s key provisions and decisions construing it in Seyfarth’s Trading Secrets Blog.

The Latest on the FTC and Restrictive Covenants:

  • The Federal Trade Commission’s standard for what it deems to be anti-competitive conduct seems to be taking shape, as a November 10, 2022 policy statement lays out the elements that may trigger action from the FTC.  For more, check out Isabella Oradica and Kristin Madigan’s post for Crowell’s Retail and Consumer Products Law Observer Blog.  Erik Weibust suspects that the FTC may selectively target employers rather than issue broad rules, as he writes in his post about that memorandum for Epstein Becker’s Trade Secrets & Employee Mobility Blog.
  • The FTC and DOJ have filed amicus briefs in support of an appeal to the U.S. Court of Appeals for the Seventh Circuit of a federal district court’s decision holding that no-poach/no-hire restrictions in McDonald’s franchise agreements were not an antitrust violation.  Russell Beck has more on the appeal in a post for his Fair Competition Law Blog.

For the In-House Lawyers:

  • One of the consequences of the COVID-19 pandemic and resulting remote workforce has been employers’ increased surveillance and monitoring of their employees.  The National Labor and Review Board’s (NLRB) General Counsel just issued a memorandum that is a warning shot across the bow of the employment community on these practices.
  • So-called “dual purpose” advice that includes both privileged and business information may be at risk for IP lawyers.  Dennis Crouch has a post in his Patently O Blog about the New York IP Law Association’s (NYIPLA) recent amicus brief in a pending grand jury case that involved the potential disclosure of similar dual purpose tax and legal advice rendered to a client.  The NYIPLA argues that these same concerns over dual purpose advice are prevalent in the IP context because IP lawyers are frequently providing both legal advice and subject matter expertise they may have in the relevant underlying area of intellectual property.

Computer Fraud & Abuse Act:

  • Data scraping disputes, which involve claims that a party improperly used automated tools to extract large quantities of data from a website, have led to some interesting trade secret and Computer Fraud & Abuse Act (CFAA) decisions.  In perhaps the most famous trade secret case, Compulife Software, Inc. v. Newman, the U.S. Court of Appeals for the Eleventh Circuit punted on the issue, remanding the case back to the district court to determine whether the amount of data was significant enough to qualify as a misappropriation of the database and whether the data scraping means were improper under the UTSA.  But the propriety of data scraping has also been challenged through claims under the CFAA.  I have written previously about the hiQ v. LinkedIn case, a high profile data scraping case brought under the CFAA, which has made multiple trips to the U.S. Court of Appeals for the Ninth Circuit.  Jeffrey Neuberger has an excellent summary of the long odyssey of this case, as well as a recent decision by the district court finding that hiQ breached LinkedIn’s terms prohibiting scraping in Proskauer’s New Media and Technology Law Blog.