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.
“It’s all in your head but I own it anyway.” It’s a tough argument to make, let alone swallow, and, fortunately, it has been recently rejected by two federal courts in cases that follow an increasingly common fact pattern: an employee abides by their restrictive covenant but goes on to compete against their former employer after the covenant expires. Fearing the competition, the employer pursues a trade secrets claim, arguing that the employee will inevitably disclose its trade secrets or that the employee has memorized and is therefore misappropriating the trade secrets. Or it involves a similarly-attenuated fact pattern: the employer has no restrictive covenant at all and there is no evidence of tangible misappropriation (i.e., no evidence of thumbdrives or downloading, no Dropbox or GoogleDoc dumps, nor emailed documents to personal email accounts), but it relies on a trade secret claim that an employee must still be using those trade secrets because they are successfully competing.
You would think that evidence of the improper downloading of 5,000 files by a former employee who then invokes his Fifth Amendment privilege against self-incrimination, coupled with the remarkable similarity between inventions (see the picture alongside) would be enough to demonstrate circumstantial evidence of the misappropriation of trade secrets. If you thought so, you would be wrong. In one of the highest profile trade secret case since 
A lot has been written about the havoc that COVID-19 has wrought on courts and the changes it has caused in the way we litigate and try cases. Unlike more conventional litigation, which ultimately seeks damages in trials that go before a jury, trade secret litigation frequently revolves around a trade secret owner’s request for an injunction, fast-moving legal proceedings that are generally decided by judges rather than juries. So what has been the impact of COVID-19 on trade secret cases? Perhaps the easiest way to analyze the pandemic’s impact is to break it down into three components: (1) administrative, (2) procedural and (3) substantive.
