Trial and Evidentiary Issues

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On Tuesday, March 21, 2023, at 1 p.m. ET, I will be speaking with Nicole Galli of ND Galli Law LLC, Benesch’s Scott Humphrey, and DecisionQuest’s Michael Biek, Ph.D. for the Ohio State Bar Association’s CLE Live Interactive Webinar, “The Changing Shape of Trade Secret Trials: The Increasing Shift to Juries.”

Last year…

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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

On Saturday, February 18, 2023, I will be speaking at the American Bar Association’s Corporate Counsel CLE Seminar in Orlando on “Tips from the Trenches: Hot Issues and Best Practices in Trying a Trade Secrets Claim under the Defend Trade Secrets Act (DTSA)” with Nicole Galli of ND Galli Law LLC, Benesch’s…

2022 was a momentous year in trade secret and restrictive covenant law. Join Ben, Russell and me as we take a look back on some of the more significant developments in trade secret and restrictive covenant law from the past year and what we are expecting in the coming year. We discuss recent criminal…

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Part I of this post explored the increasing number of trade secret cases being presented to juries for damages, rather than to a judge for an injunction. This development appears to have accelerated in the past 6 months, as juries awarded $2 billion in a verdict for Appian Corp., a $65 million verdict against Goodyear Tire & Rubber Company, and a $105 million verdict against Ford Motor Company. Part II (below) describes the many forces that I believe are contributing to this shift, as well as the impact this development will have on trade secret owners, small companies, large companies and lawyers whose practices focus on trade secret cases.Continue Reading The Changing Shape of Trade Secret Trials: An Increasing Shift to Juries and What that Means for Trade Secret Owners and their Lawyers (Part II)

There is a subtle but important shift that is taking place in the way that many trade secret cases are being litigated and going to trial.  In the not-too-distant past, the vast majority of trade secret owners focused primarily on getting an injunction–generally in the form of a TRO or preliminary injunction–against a former employee.  However, some trade secret owners are increasingly pursuing a different path–namely, a claim for damages–usually against a large partner, vendor, customer or competitor with substantially deeper pockets.  Because these claims for damages are generally determined by a jury, unlike an injunction which is decided by a judge, this development presents a potentially seismic shift in how some trade secret cases are litigated.  As I explain below, several of these cases have resulted in substantial verdicts in recent months and they more closely resemble the path taken in many patent damages cases.  This post analyzes this development, offers some theories on why these changes are now taking place, and provides some thoughts on what clients and lawyers long accustomed to seeking injunctions need to do to adapt to these changes.
Continue Reading The Changing Shape of Trade Secret Trials: An Increasing Shift to Juries and What that Means for Trade Secret Owners and their Lawyers (Part I)

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

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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

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 Waymo v. Uber, the plaintiff Wisk Aero thought it had its competitor dead to rights after expedited discovery revealed these and other facts.  However, U.S. District Court for the Northern District of California Judge William H. Orrick disagreed, rejecting the circumstantial evidence presented by Wisk Aero because it did not tie the alleged trade secrets with the circumstantial evidence of misappropriation.  As explained below, this case is the latest in a line of decisions declining to find that evidence of improperly downloaded information may be sufficiently compelling circumstantial evidence of misappropriation.  (A copy of the opinion can be found here).
Continue Reading Wisk Aero LLC v. Archer Aviation Inc.: A High Profile Trade Secrets Case Shows the Limits of Circumstantial Evidence

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.
Continue Reading How COVID-19 Is Changing the Way We Litigate Trade Secret Cases