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.
The Latest on the FTC’s Proposed Noncompete Ban:
- Over 26,000 comments were provided in response to the FTC’s proposed rule banning noncompetes, including a letter authored by Russell Beck that was signed by yours truly and over 100 other lawyers who practice in this space. (Spoiler alert: we don’t agree with the proposed ban).
Federal and State Legislation:
- There are currently 73 state bills and 5 federal bills addressing restrictive covenants, according to Russell Beck.
- The Minnesota Senate just passed a labor omnibus bill that includes provisions that would render noncompetes void and unenforceable, prohibit employers from requiring employees to agree to choice of law and venue clauses for any state other than Minnesota, and provide employees with the right to recover their attorneys’ fees if they have to enforce this statutory noncompete ban. For more on this development, check out David Clark’s post for Epstein Becker’s Trade Secrets & Employee Mobility Blog.
Artificial Intelligence, ChatGPT and Trade Secrets:
- While the public debates whether AI is being developed too quickly and should be shut down, multiple commentators have been considering the less existential question of its impact on trade secret protection. The latest potentially disruptive technology giving employers headaches is ChatGPT. Since its launch last November, ChatGPT has sparked a wave of interest from employers and employees because of its potential to increase productivity but many are noting the potential loss of confidentiality as information is inevitably shared in the ChatGPT process. For more on this development, check out the articles written by Jeremy Kahn of Berman Fink Van Horn, Patrick Muffo for Seyfarth Shaw’s Trading Secrets Blog, and Bill Doerrfeld for Acceleration Economy.
Nondisclosure Agreements in the Crosshairs?
- Are NDAs being abused? In a guest post for Patently-O, Professor Camilla Hrdy suggests that they may be, relying on a survey by Professor Chris Seaman and his colleagues of 450 NDAs litigated throughout the U.S. According to Camilla, 408 of the NDAs were problematic because they did not include sufficient carve-outs for public information or general skill and knowledge of the employee, or because their definition of “confidential information” was too broad and included information beyond trade secrets.
Restrictive Covenant Decisions:
- Yet another unfavorable noncompete ruling from Delaware, again from Vice Chancellor Will. In HighTower Holding, LLC v. Gibson, the Vice Chancellor rejected the parties’ choice of law provision calling for Delaware law and instead applied Alabama law, reasoning Alabama had a more substantial relationship with the dispute. For more on the case, see Gibbons PC’s lexology post.
- Using the words “directly or indirectly” in North Carolina may get your noncompete struck for being overly broad, warns Jonathan Crotty in a client alert for Parker Poe. In Prometheus Group Enterprises, LLC v. Gibson and Prospecta Software, the North Carolina Business Court invalidated a former employee’s noncompete for this reason and also because it had a worldwide territorial restriction.
- Is a conversation with a former colleague asking whether she is going to work for your new employer enough to qualify as a solicitation? Not according to the U.S. District Court of Massachusetts. In Parexel International LLC v. Signant Health Holding Co., Judge Angel Kelley found that the former employee did not violate the provision forbidding her from soliciting her former colleagues; Judge Kelley also found that the employee’s recommendations for potential hires to her new employer were not “indirect” violations of that restrictive covenant. For more, see this post for Massachusetts Lawyers Weekly.
Other Noteworthy Trade Secret Posts:
- Jim Pooley weighs the pros and cons of establishing a “clean room” to avoid claims of misappropriation in his most recent guest post for the IP Watchdog.