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.
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. 
“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.
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.