A debate is growing within the trade secret community about the scope of information that should be protected–specifically, confidential information that does not rise to the level of a trade secret. This debate is largely between employers and their counsel who want to have every available tool to protect all of their information, and those who believe existing trade secret law provides adequate protection and therefore, information that doesn’t meet that standard isn’t worthy of protection (hence, the derogatory moniker “mere confidential information”). On October 12, 2023, in Hanneman Family Funeral Home & Crematorium v. Orians, the Ohio Supreme Court addressed this issue as well as another noteworthy issue–whether customer information shared with the government can qualify as a trade secret. But as a concurring opinion by Justice Patrick Fischer persuasively argues, the Supreme Court passed up on an opportunity to squarely decide the issue of whether “mere confidential information” should be preempted (and therefore not protectable), a ruling that would be in line with the majority of other states holding the UTSA prohibits claims seeking protection for information that doesn’t rise to the level of a trade secret. Continue Reading Ohio’s Supreme Court Ducks the Question of Whether “Mere Confidential Information” Is Protectable
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.
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 firstname.lastname@example.org (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.”
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.
On Wednesday, December 21, 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. At the same time, federal and state legislators, …
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.
Last week, a jury hit Goodyear Tire & Rubber with a $65 million verdict in a trade secrets case in Akron presided over by U.S. District Court for the Northern District of Ohio Judge Sara Lioi. On its face, one would surmise the verdict was a major win for the plaintiff CODA Development, but a closer review reveals that it may not have been after all. According to Law360, CODA’s lawyers asked for between $89 million and $246 million, but the jury only awarded $2.8 million in compensatory damages to CODA; the remaining $62.1 million is for punitive damages, which I expect will be significantly scaled back by Judge Lioi. This is a case that has been vigorously litigated since 2015 and has already been up on appeal to the U.S. Court of Appeals for the Federal Circuit, meaning that both sides have incurred millions of dollars in attorneys’ fees. In short, as I explain below, this verdict has all the earmarks of Phyrric victory –a victory that comes at great cost, perhaps making winning the ordeal not worth it. The case should serve as a compelling reminder about the unpredictability of jury trials, and the wisdom of pulling out all stops to resolve a case before trial.
Continue Reading Anatomy of a Phyrric Victory: Did Defendant Goodyear Tire and Plaintiff CODA Development Both Lose a $65 Million Trade Secrets Case?
Trade secret and restrictive covenants are messy affairs. Accusations of theft, claims of betrayal of trust, skullduggery, late night visits to the office to remove documents, thumb drives and share files, computer forensics. But there is always a need to cut through this volatile morass and get to the heart of the dispute to determine whether there is truly a breach of an obligation triggering the right to relief from a court or jury.
In virtually all trade secret cases, there is a written agreement at the center of the dispute–a restrictive covenant, or a non-disclosure agreement (NDA), or an inventorship agreement or a licensing agreement–that should determine the obligations, if any, of the parties over the information at issue. If the trade secret owner is seeking a TRO or preliminary injunction, that request for an injunction should ensure an important decision is rendered promptly so that the parties get the necessary clarity over any obligations over that information. But what happens if a trade secret owner instead elects to seek damages or doesn’t have the grounds for an immediate injunction? Is there a tool that helps a party cut through these issues, frame the important questions for the court, and move its case forward? Let me introduce you to Federal Rule of Civil Procedure 42(b) and the Federal Declaratory Judgment Act, 28 U.S.C. § 2201(a), two critical mechanisms that should help parties in a trade secret dispute streamline their case.
Continue Reading So You Say You Want a Bifurcation: Imposing Order and Framing the Issues in a Chaotic Trade Secrets Case
The economic carnage unleashed by the COVID-19 virus has disrupted virtually every industry in the United States. At last count, more than 38 million workers had lost their jobs and made claims for unemployment benefits. And while states have begun easing restrictions on the ability of many businesses to reopen, it is reasonable to expect there will be further turnover, leading to the departure of many employees to competitors. Feeling more vulnerable because of the downturn, employers will inevitably look to enforce restrictive covenants, including non-competes and non-solicitation agreements, against those former employees. How will courts tend to handle requests to enforce restrictive covenants, especially non-competes, in this difficult economy? One guide may be looking at how they handled similar requests during the last economic downturn in 2008 in the state of Ohio.
Continue Reading Back to the Future: Do Restrictive Covenant Cases from the 2008 Recession Offer Clues to How Courts Will Rule in the Aftermath of COVID 19?
Most employee restrictive covenant disputes arise as a result of an employer’s concern about the potential loss of customer relationships and customer goodwill. These disputes generally involve sales representatives or high level business executives that have relationships with key customers; these disputes also frequently involve defenses that the employees had pre-existing business relationships with the customers that should fall outside the non-compete or non-solicitation agreement at issue. These disputes can be very fact-driven and the subject of very different recollections. For these reasons, non-solicitation cases can be especially messy. Unfortunately, a recent case out of the U.S. Court of Appeals for the Sixth Circuit, Hall v. Edgewood Partners Insurance Center, Inc., Case No. 18-3481/3482, highlights a doctrine — that an employee has rights to clients he/she acquired on his/her own time and dime — that may make these cases more complicated, expensive and problematic.
Continue Reading Whose Customer Is It Anyway? The Sixth Circuit Further Clouds New York’s Already Murky Law on Non-Solicitation Agreements