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

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.


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

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

The 10-year legal brawl between Goldman Sachs and its former programmer Sergey Aleynikov has spilled over into multiple courts — a federal conviction that was overturned, another conviction by a New York state jury still on appeal today, and finally, the fight in two different courts over payment of his defense fees.  While the prosecutions have garnered considerable media attention, the civil litigation over Aleynikov’s demand for advancement of his $10 million in legal fees from Goldman is the most relevant for civil litigators.  Why?  An order granting advancement, which requires the employer to pay for the former employee’s attorneys fees, can fundamentally alter the course of a trade secret litigation.  Last week, the U.S. District Court for New Jersey rejected Aleynikov’s claims for advancement, declining to essentially reconsider a Delaware court’s ruling that Aleynikov had failed to demonstrate that he qualified for advancement under Goldman’s bylaws.  As I explain below, the ruling is an important reminder for both employers and employees in trade secret disputes of the power of advancement claims, and the determined resistance an employee may face if he or she pursues that claim.

Continue Reading How Sergey Aleynikov’s 10 Year Legal Battle Highlights The Pros and Cons of Advancement Claims in Trade Secret Disputes

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?

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