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On Tuesday, January 30, 2024, I will be giving a one-hour Webinar/CLE for the Ohio State Bar Association (OSBA) entitled “Trade Secret and Restrictive Covenant Law Year in Review.”

As readers of this blog know, the number of trade secret and restrictive cases continues to grow each year. As a result, trade secret disputes and…

On January 1, 2024, California officially began exporting its ban on noncompetes, nonsolicits, broad confidentiality agreements, and likely no-recruits to the rest of the country.

As Russell Beck has written, in September and October, California passed two laws that together will: (1) expand the scope of California’s ban on employee noncompetes and other restrictive covenants…

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.

Continue Reading Monthly Wrap Up (May 12, 2023): Noteworthy Trade Secret and Restrictive Covenant Decisions, Posts and Articles

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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.

Continue Reading Monthly Wrap Up (April 4, 2023): Noteworthy Trade Secret and Restrictive Covenant Cases, Posts and Developments

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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 pmenell@law.berkeley.edu (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.”

Continue Reading Monthly Wrap Up (March 12, 2023): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts

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

December was unusually busy and 2023 started with a bang courtesy of the Federal Trade Commission’s (FTC) proposed rule banning noncompetes.  Here are the noteworthy cases and posts from last month, with several notable posts regarding the FTC’s big announcement on Thursday, for good measure:

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

  • Courts continue to scrutinize claims of irreparable injury in trade secret cases, and no court runs a tighter ship than the U.S. District Court for the Southern District of New York.  In Tomgal LLC v. Castano, District Court Judge John Koeltl of the U.S. District Court for the Southern District of New York denied an injunction request, reasoning that irreparable injury did not exist because any injury arising from the misappropriated trade secrets could be easily calculated.  Judge Koeltl found “every unit of inventory that [defendant] Fashion Code sells to a Robin Ruth distributor is a sale that Robin Ruth did not make,” i.e., profits from the sale of the products containing the misappropriated trade secrets could be easily monetized. Judge Koeltl also rapped the plaintiff’s knuckles on laches grounds, finding that a 7-month delay was substantial and unreasonable.
  • If you don’t identify your trade secrets with particularity, you are not going to get an injunction.  That is the simple message that many federal courts are sending to trade secret owners, and a recent decision by District Court Judge Nugent of the U.S. District Court for the Northern District of Ohio is the latest. To date, most of the discussion regarding trade secret identification has been at the discovery stage but now courts are reinforcing that message by denying early requests for an injunction. In Collar Jobs, LLC v. Slocum, Judge Nugent denied the request for an injunction against a former joint venture partner, expressing concern that “it is not entirely clear what Collar Jobs’ ‘trade secret’ is.”   He also questioned the novelty of the alleged “platform” trade secret before him, which appeared to be a combination trade secret of customer and prospect data.
  • So Judge Nugent’s opinion begs the following question: should the DTSA be amended to include a requirement that trade secret identification is provided early in a case?  In an article for Law360, Willenken LLP’s Amelia Sargent details recent rulings by the U.S. Courts of Appeal for the Seventh Circuit and Ninth Circuit recognizing the need for identification and advocates for that amendment.  It’s a good read and Amelia’s points are reasonable and sound.
  • A recent decision out of Massachusetts cuts against the trend of decisions broadly interpreting the extraterritorial reach of the DTSA.  In Sysco Machinery Corp. v. Cymtek Solutions, Inc., District Court Judge Leo Sorokin of the U.S. District Court for Massachusetts ruled the sale of products in the U.S. that were made using the alleged trade secrets, without more, did not qualify as “an act in furtherance” of misappropriation under the DTSA.  According to Judge Sorokin, the defendant Cymtek used the misappropriated trade secrets improperly to make competing machines in Taiwan, but all of that conduct occurred in Taiwan or outside the United States; as a result, on this record, he found that there was neither “misappropriation” in the United States nor an “act in furtherance of the offense . . . committed in the United States” as required under §1837(2) of the DTSA.  Contrast this ruling to the decisions described in my September 2021 post.  Tough to reconcile in my judgment.

Continue Reading Monthly Wrap Up (January 9, 2023): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

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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.

Continue Reading Monthly Wrap Up (December 15, 2022): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

While there was minimal legislative actively last month, there were a number of interesting decisions and articles on the trade secret and restrictive covenant front:

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

  • Perhaps the biggest news last month was the $104.65 million verdict against Ford Motor Co. delivered by a Michigan federal jury for the breach of its contract with Versata Software and the misappropriation of Versata’s trade secrets.   The dispute arose over a 2004 agreement between Versata and Ford for software that Versata developed to manage how components in Ford vehicles would be configured during assembly.  Versata had been a vendor of Ford’s since the 1990’s until 2015 when Ford terminated the relationship.  The jury found that after off-ramping Versata, Ford improperly reverse engineered the software for its own use.  The jury awarded $22.39 million to Versata for three of the software trade secrets and $82.26 million for Ford’s breach of contract.  Ford plans to appeal.  Like the Goodyear case that I recently wrote about, this dispute highlights the fact that trade secret cases don’t just involve departing employees.
  • Speaking of cases involving employees, Patently O‘s Dennis Crouch did an informal survey of 10 recently filed federal trade secret cases.  Dennis noted that all 10 of the cases involved employer/employee disputes and many arose in the sales representative context over customer and sales information.  One of the cases, Cartiga, LLC v. Robles, provides a textbook example of how NOT to respond to a cease-and-desist letter from your former employer’s lawyer (the emojis below were attached as an exhibit to the complaint):
  • Having prevailed before the U.S. Court of Appeals for the Eleventh Circuit, Boeing successfully secured the dismissal of trade secrets claims asserted against it by arguing that a limitation of liability provision in its nondisclosure agreement (NDA) also applied to the same trade secret claims.  Reasoning that because the NDA’s choice of law provision applied to those trade secret claims, the U.S. District Court for the Northern District of Alabama held that the NDA’s limitation of liability provision applied to those claims as well.  That opinion, Alabama Aircraft Indus., Inc. v. The Boeing Company, can be found here.
  • The U.S. Court of Appeals for the Third Circuit issued yet another opinion taking a narrow approach to a trade secrets claim, affirming the trial court’s decision to deny an injunction against a group of employees.  In Matthews Int’l Corp. v. Lombardi, the Third Circuit found that the trial court properly exercised its discretion to limit injunctive relief to a single bad actor and not impose a broader injunction against the remaining individual defendants preventing them from otherwise lawfully competing.  The other individuals had already agreed, as memorialized by a subsequent order, to (1) return all of the plaintiff’s information, (2) remove the information from their devices, and (3) refrain from servicing customers who had the plaintiff’s cremation equipment.  The Third Circuit reasoned that no injunction was necessary for multiple reasons, including the absence or expiration of any restrictive covenants, the absence of any breach and the plaintiff’s inability to show irreparable injury.  Isaiah Weedn has a good summary of the case in Sheppard Mullin’s Trade Secrets Law Blog.
  • Federal courts continue to grapple with the importance of circumstantial evidence to demonstrate misappropriation at the summary judgment stage.  Last month, I wrote about a decision out of the U.S. District Court for the Northern District of Illinois holding mere possession of a trade secret was insufficient to show use.  However, in Clean Energy v. Trillium Transportation Fuels, Inc., Magistrate Peter Bray of the U.S. District Court for the Southern District of Texas held that “proof of ‘use’ often depends upon circumstantial evidence” and found that the circumstantial evidence presented to him was sufficient to deny the defendants’ motion for summary judgment.  The cases probably can be reconciled by the fact that there was more circumstantial evidence to offer in the Clean Energy case, but the decisions do highlight a schism on the significance of direct vs. circumstantial evidence.
  • Federal courts are also split on the availability of the inevitable disclosure doctrine under the DTSA, according to Mintz’s Oliver Ennis, Nicholas Armington and Adam Samansky in an article for The National Law Journal.
  • One of the signature developments of the DTSA has been the mind-numbing number of opinions addressing motions to dismiss under Federal Rule of Civil Procedure 12(b)(6).  Fisher & Phillips’ David Walton provides a five-step action plan for making sure your bases are covered if you are filing a claim under the DTSA.  Maxwell Goss also has an earlier post this year on the same topic that was published by The Michigan Law Journal.
  • Is there a circuit split on the enforceability of forum selection clauses?  Given the many differences between state laws on restrictive covenants, a forum selection clause can be outcome determinative.  Sarah Tisher of Beck Reed Riden has a post about that split and the prospects that the U.S. Supreme Court may address it.
  • The avoided cost theory of damages continues to gain traction as an element of damages in trade secret cases, advises Andrea Feathers for Sheppard Mullins Trade Secrets Law Blog.  In essence, the doctrine recognizes the cost savings that a misappropriator realizes when it is able to shortcut the research or development of a product or service by using that trade secret.  Heather writes about a recent decision of the U.S. District Court for the Southern District of California in Medimpact Healthcare Sys. v. IQVIA Inc., No. 19cv1865-GPC(DEB), 2022 U.S. Dist. LEXIS 186470, at *1 (S.D. Cal. Oct. 7, 2022), that recognized the availability of the doctrine but deferred ruling on how best to calculate those damages in further briefing.  Heather’s post provides a solid summary of the development of this theory of damages and the key decisions that have led to its increasing recognition and use by trade secret owners.

Continue Reading Monthly Wrap Up (November 11, 2022): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts

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And away we go:

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

  • If an employer presents specific evidence that former employees emailed, printed out or took copies of customer lists, is that sufficient evidence to establish that those former employees misappropriated those trade secrets for purposes of defeating summary judgment?  In Busey Bank v. Michael G. Turnery, et al., U.S. District Court for the Northern District of Illinois Judge Sara Ellis concluded that it was not enough since “mere possession of trade secrets does not suffice to plausibly allege disclosure or use of those trade secrets, even when considered in conjunction with solicitations of former clients.”  A link to the opinion can be found here, and Law360′s article on the case can be found here.  The opinion is interesting to me in two respects:  (1) it is consistent with an emerging trend requiring direct, rather than circumstantial, proof of misappropriation (see my earlier post on the Wisk Aero v. Archer Aviation case and on other federal cases finding that mere downloading isn’t enough for an injunction); and (2) reading between the lines, it seemed like Judge Ellis saw this case as an employee “raiding case” masquerading as a trade secrets case.
  • Although most trade secret disputes arise in the employer/employee relationship, a recent opinion by the U.S. Court of Appeals for the Second Circuit serves as a reminder that the contours of trade secret law are often shaped by disputes in the public records context.  In a post for Crowell’s Government Contracts Legal Forum, John McCarthy, Anuj Vohra and Daniel Wolff describe the decision that better defined what degree of competitive harm needs to be presented to support a trade secret invocation under the 2016 FOIA Improvement Act.
  • Discovery disputes are common in trade secret litigation because of the nature of information at issue (i.e., highly sensitive trade secrets) and the potential intrusiveness of some of the types of discovery (imaging and forensic analysis of personal devices).  However, a defendant’s continued resistance and non-compliance with discovery requests and court orders led to the rarest of sanctions–a default on the merits.  In RedWolf Energy Trading, LLC v. BIA Capital Management, LLC, et al., the U.S. District Court for the District of Massachusetts imposed this sanction against the individual defendant and his company.  Erik Weibust details the court’s 72-page decision for Epstein Becker’s Trade Secrets & Employee Mobility Blog.  Erik’s post highlights the fact that the defendant tried to save costs on a discovery vendor (blaming him for its failure) and is now on the hook for more than $10 million in damages.
  • And the U.S. District Court of Massachusetts is not the only court that has issued terminating sanctions against a party for failing to abide by discovery obligations and court orders.  For a comprehensive list of spoliation cases involving requests for severe sanctions, check out Arent Fox’s Linda Jackson, Matthew Prewitt, Taniel Anderson, Nadia Patel and Pascal Naples’ article for The National Law Journal describing multiple cases over the past 3 years in which courts have imposed severe sanctions on recalcitrant parties.
  • Speaking of discovery disputes, there is an interesting decision coming out of the Wisk Aero v. Archer Aviation case in the U.S. District Court for the Northern District of California (for more on that case and its well-reasoned decision denying a preliminary injunction, see my post from last year).  U.S. District Court Judge Orrick affirmed the ruling of Magistrate Judge Donna Ryu that permitted the individual defendants accused of trade secret theft in that case to review the trade secrets at issue; frankly, given the need for a defendant to evaluate the trade secret claims against it, it never fails to amaze me that employers and trade secret owners resist these types of disclosures.  However, the most interesting feature of the Magistrate’s order is that each defendant was only allowed to view the trade secret for 15 minutes.  Jim Pooley briefly touches on this dispute in a post he wrote for The IP Watchdog as he describes the many situations where courts have to balance competing policies and interests in trade secret litigation.
  • Steve Brachman has a post for the IP Watchdog on the viability of an argument that the DTSA’s policy supporting federal protection for trade secrets trumps a forum selection clause directing litigation to Denmark.  In Amyndas Pharmaceuticals, S.A. v. New Zealand Pharma AS, the U.S. Court of Appeals for the First Circuit rejected that and other arguments and shipped the case out to a Danish court.  The First Circuit made short work of the argument that the terms “defendants’ venue” meant anything other than the corporate headquarters of that defendant, reasoning any other interpretation would render the phrase meaningless.  Dennis Crouch also has a post on the decision for the Patently-O blog.

Continue Reading Monthly Wrap Up (October 5, 2022): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts