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On Thursday, March 21, 2024, I will be speaking at the Defense Research Institute’s 2024 Business and Intellectual Property Litigation Super Conference on a panel, “Tips from the Trenches: Litigating and Trying Trade Secret Cases as a Plaintiff and Defendant, What Every Business Needs to Know,” with Ben Fink of Berman, Fink, Van Horn P.C. …

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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

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Apologies for the lateness of this month’s post (another trial) but it contains some important developments from the past week. The potential impact of the FTC’s proposed ban on noncompetes continues to reverberate through the legal and business communities and bipartisan federal legislation has been introduced in Congress so I am emphasizing developments there, rather than leading with the past month’s DTSA decisions (I will supplement next month’s post with any decisions/posts I missed):

Latest on the FTC’s Proposed Ban on Noncompetes and Overly Broad NDAs:

  • Let’s start with the most recent news on the FTC’s proposed ban on noncompetes and overly broad NDAs. On Thursday, the FTC held a public forum to discuss its proposed rule. Russell Beck was there and his most recent blog post reports on the discussions and comments at what appears to have been a highly political forum. While the speakers/comments were balanced in number, many of the speakers who advocated for the FTC’s proposed ban were former employees who condemned their noncompetes; their comments were naturally anecdotal and emphasized specific abuses by their former employers. In contrast, Russell says the speakers/commenters opposing the ban were more policy-oriented and spoke to the rationales and interests that noncompetes may legitimately protect.
  • The other big news last week was the so-called “noisy exit” of FTC Commissioner Christine Wilson from the FTC, an exit punctuated by a pointed op-ed piece in The Wall Street Journal asserting that FTC Chair Lina Khan has disregarded the rule of law and due process in her management of the FTC. As you will recall, Commissioner Wilson, the lone Republican appointee to the FTC, dissented from the FTC’s proposed ban last month. Her dissent provided a roadmap of the potential legal and administrative infirmities of the proposed rule that will likely be used by employers and other stakeholders opposing the ban. Kate Perrelli and Dan Hart provide their take on her resignation in a recent post for Seyfarth’s Trading Secrets Blog and Erik Weibust provides his take as well for Epstein Becker’s Trade Secrets & Employee Mobility Blog.
  • The FTC’s proposed rule has now been published in the Federal Register, so interested parties have until March 20, 2023 to provide comments. However, it is generally believed that the FTC will extend that deadline as multiple stakeholders have asked for more time. Russell Beck and Scott Humphrey have both said over 12,000 comments have been submitted already.
  • In yet another op-ed for The Wall Street Journal, which is becoming the preferred forum for challenges to the FTC, the U.S. Chamber of Commerce’s lawyer makes the interesting observation that the FTC has never issued a rule before. If true, this would further support the argument that the FTC is engaging an administrative overreach.

Continue Reading Monthly Wrap Up (February 18, 2023): Noteworthy Trade Secret and Restrictive Covenant Posts, Cases and Developments

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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

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There is a significant amount of activity going on in the trade secret and restrictive covenant space, so I am going to do my best to resume my monthly wrap up posts, after a long (although some might say not long enough) hiatus.  Without further ado, here are the noteworthy developments of the past month:

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

  • The Motorola v. Hytera litigation in the U.S. District Court for the Northern District of Illinois has generated a number of noteworthy developments, including a seminal opinion affirming the DTSA’s extraterritorial reach, as well as a substantial jury verdict ($597 million).  Last month, U.S. District Court Judge Ronald Norgle denied a request to reconsider his denial of Motorola’s request for a permanent injunction (that earlier opinion can be found here December 17, 2020).  The December 17, 2020 opinion provides an excellent analysis of the roadmap courts will likely follow when contemplating a permanent injunction in connection with a significant monetary award (spoiler alert:  a royalty looks like the best option given the reality that the trade secrets have now been monetized).  In his most recent July 5, 2022 ruling, Judge Norgle notes that Hytera’s inability to satisfy the judgment might establish the irreparable injury element necessary for that injunction, but Hytera’s pending appeal forecloses his ability to exercise jurisdiction on that order.  Stay tuned for the Seventh Circuit’s eventual ruling.
  • A recent ruling by the U.S. Court of Appeals for the Tenth Circuit should serve as a reminder to trade secret owners to make sure their claim of misappropriation is sufficiently tied to the proximate cause required for damages.  Kyle Jahner of Bloomberg Law has a summary of that decision, GeoMetWatch Corp. v. Hall, et. al, Case No. 19-4130, in which the Tenth Circuit affirmed the district court’s dismissal of those claims on the grounds their damages were speculative.
  • Are federal courts imposing higher pleading standards on trade secret owners to identify their trade secrets with particularity?  Foley & Hoag’s Jeff Lewis, Paul Downs and Robert Haney Jr. persuasively argue that a consensus for that higher standard is emerging in the U.S. District Court for the Southern District of New York and elsewhere.
  • Is manipulating documents produced in discovery enough to get you sanctioned?  The U.S. Court of Appeals for the Seventh Circuit says “kind of.”  In REXA Inc. v. Chester, the Seventh Circuit reversed an order imposing sanctions on the plaintiff for producing documents in a manner that obscured, among other things, whether the defendant had actually signed an employment agreement.  The Seventh Circuit reasoned that while this discovery misconduct was troubling, the $2.3 million in attorneys’ fees for that misconduct were not sufficiently broken down and remanded for further consideration.
  • If you’re a trade secret owner trying to fend off a motion for summary judgment and get your case to a jury, take a look at U.S. Magistrate Christina Bryan’s Memorandum and Recommendation in Vest Safety v. Arbor Environmental, LLC.  The opinion, which comes out of the U.S. District Court for the Southern District of Texas’ Houston Division, shows how a well-organized and tight trade secret claim — addressing among other things, the §757 of Restatement of Tort’s comment b  six factor test — can survive such a motion.
  • What comes first, a motion to challenge jurisdiction or a preliminary injunction?  In Aquate II v. Jesse Myers, the U.S. District Court of Alabama elected to entertain a motion challenging subject matter jurisdiction rather than the pending motion for preliminary injunction.  Although U.S. District Court of for the Northern District of Alabama Judge Abdul Kallon does not provide a lot of analysis for that choice, the decision provides support that challenges to subject matter jurisdiction can take priority.

Continue Reading Monthly Wrap Up (August 2, 2022): Noteworthy Trade Secret and Restrictive Covenant Cases, Developments and Posts

The issue of trade secret identification, on its face, seems like an elementary and uncontroversial one.  In concept, every trade secret plaintiff should be expected to identify the trade secrets in the lawsuit it brings.  After all, the plaintiff knows best what it considers to be a trade secret and what it doesn’t consider to be a trade secret, and the defendant shouldn’t be left to guess what those trade secrets might be.  For these and other reasons, California, a key bellwether state for trade secret law, has long required by statute that a party claiming trade secret misappropriation identify those trade secrets with specificity before being permitted to conduct discovery relating to its trade secret claim.  However, nothing tests the limits of common sense like the realities of litigation, and plaintiffs in California have complained that this procedure has been misused by defendants to frustrate or derail otherwise meritorious trade secret cases.  Perhaps for these reasons, courts outside California remain divided over the so-called California rule as several recent rulings have demonstrated.
Continue Reading Are Other States Following California’s Lead On Trade Secret Identification?

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Here are the noteworthy trade secret and restrictive covenant posts from September and some of October:

Legislative Developments
  • Massachusetts is once again contemplating multiple bills regarding non-competes as well as a possible adoption of what appears to be the DTSA advises Russell Beck in his Fair Competition Blog.  Russell and his team also have summaries of legislative activity in Maryland, Maine, Michigan, New York, Oregon, Pennsylvania, Washington and West Virginia, among others.

Continue Reading Monthly Wrap Up (October 27, 2017): Noteworthy Trade Secret and Restrictive Covenant Posts from Around the Web

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Here are the noteworthy trade secret, restrictive covenant and cybersecurity posts from the past month or so:

The Defend Trade Secrets Act

  • The U.S. District Court for the Eastern District of Texas has found that certain deer registry information qualified as a combination trade secret under the DTSA and Oklahoma’s version of the UTSA, as explained by Michael Weil and Tierra Piens for Orrick’s Trade Secrets Watch blog.
  • The issue of whether the DTSA applies to misappropriation that may have taken place prior to the DTSA’s enactment has been one of the more frequent areas of litigation under the DTSA.  Jonathan Shapiro of Epstein Becker has a summary on these cases for Law360.

Continue Reading Monthly Wrap Up (July 31, 2017): Noteworthy Trade Secret and Non-Compete Posts From Around the Web

Highlights from the AIPLA Trade Secrets Summit: The Challenges of Trade Secret Litigation on the In-House/Outside Counsel Relationship…
Continue Reading Highlights from the AIPLA Trade Secrets Summit: The Challenges of Trade Secret Litigation on the In-House/Outside Counsel Relationship