For the American Intellectual Property Law Association’s 125th Anniversary, John and Russell (both former chairs of the AIPLA Trade Secret Law Committee) and Ben (the current chair) went on the road to talk to the current AIPLA President, Brian Batzli, immediate past-President, Patrick Coyne, and Executive Director, Vince Garlock, at this year’s AIPLA Annual Meeting in Washington, D.C. We caught up about their experience with the AIPLA and the AIPLA’s Trade Secret Law Committee, and the importance of trade secret law more generally and its place with other forms of intellectual property. Enjoy the conversation!
When an employee leaves for a competitor, it’s not uncommon for the former employer to investigate whether the employee took information on the way out the door. But a recent case from the Georgia Court of Appeals, Patel v. Duke Hospitality LLC, highlights some limits on what the former employer can do.
As Ben discusses in his recent article about the case, “[e]mployers often assume they are empowered to exercise broad discretion when investigating employee computer misconduct, especially when employees are suspected of using company emails or computers to engage in the misconduct. However, employers should be aware of potential liability that could arise from their digital investigations and monitoring of employee computer and email use.”
In this episode, Ben, Russell and I explore discuss some of the lessons that employers and employees can take from the Patel v. Duke Hospitality LLC case, including what employers can and cannot do when they suspect misappropriation by a departing employee.
And away we go:
Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:
- If an employer presents specific evidence that former employees emailed, printed out or took copies of customer lists, is that sufficient evidence to establish that those former employees misappropriated those trade secrets for purposes of defeating summary judgment? In Busey Bank v. Michael G. Turnery, et al., U.S. District Court for the Northern District of Illinois Judge Sara Ellis concluded that it was not enough since “mere possession of trade secrets does not suffice to plausibly allege disclosure or use of those trade secrets, even when considered in conjunction with solicitations of former clients.” A link to the opinion can be found here, and Law360′s article on the case can be found here. The opinion is interesting to me in two respects: (1) it is consistent with an emerging trend requiring direct, rather than circumstantial, proof of misappropriation (see my earlier post on the Wisk Aero v. Archer Aviation case and on other federal cases finding that mere downloading isn’t enough for an injunction); and (2) reading between the lines, it seemed like Judge Ellis saw this case as an employee “raiding case” masquerading as a trade secrets case.
- Although most trade secret disputes arise in the employer/employee relationship, a recent opinion by the U.S. Court of Appeals for the Second Circuit serves as a reminder that the contours of trade secret law are often shaped by disputes in the public records context. In a post for Crowell’s Government Contracts Legal Forum, John McCarthy, Anuj Vohra and Daniel Wolff describe the decision that better defined what degree of competitive harm needs to be presented to support a trade secret invocation under the 2016 FOIA Improvement Act.
- Discovery disputes are common in trade secret litigation because of the nature of information at issue (i.e., highly sensitive trade secrets) and the potential intrusiveness of some of the types of discovery (imaging and forensic analysis of personal devices). However, a defendant’s continued resistance and non-compliance with discovery requests and court orders led to the rarest of sanctions–a default on the merits. In RedWolf Energy Trading, LLC v. BIA Capital Management, LLC, et al., the U.S. District Court for the District of Massachusetts imposed this sanction against the individual defendant and his company. Erik Weibust details the court’s 72-page decision for Epstein Becker’s Trade Secrets & Employee Mobility Blog. Erik’s post highlights the fact that the defendant tried to save costs on a discovery vendor (blaming him for its failure) and is now on the hook for more than $10 million in damages.
- And the U.S. District Court of Massachusetts is not the only court that has issued terminating sanctions against a party for failing to abide by discovery obligations and court orders. For a comprehensive list of spoliation cases involving requests for severe sanctions, check out Arent Fox’s Linda Jackson, Matthew Prewitt, Taniel Anderson, Nadia Patel and Pascal Naples’ article for The National Law Journal describing multiple cases over the past 3 years in which courts have imposed severe sanctions on recalcitrant parties.
- Speaking of discovery disputes, there is an interesting decision coming out of the Wisk Aero v. Archer Aviation case in the U.S. District Court for the Northern District of California (for more on that case and its well-reasoned decision denying a preliminary injunction, see my post from last year). U.S. District Court Judge Orrick affirmed the ruling of Magistrate Judge Donna Ryu that permitted the individual defendants accused of trade secret theft in that case to review the trade secrets at issue; frankly, given the need for a defendant to evaluate the trade secret claims against it, it never fails to amaze me that employers and trade secret owners resist these types of disclosures. However, the most interesting feature of the Magistrate’s order is that each defendant was only allowed to view the trade secret for 15 minutes. Jim Pooley briefly touches on this dispute in a post he wrote for The IP Watchdog as he describes the many situations where courts have to balance competing policies and interests in trade secret litigation.
- Steve Brachman has a post for the IP Watchdog on the viability of an argument that the DTSA’s policy supporting federal protection for trade secrets trumps a forum selection clause directing litigation to Denmark. In Amyndas Pharmaceuticals, S.A. v. New Zealand Pharma AS, the U.S. Court of Appeals for the First Circuit rejected that and other arguments and shipped the case out to a Danish court. The First Circuit made short work of the argument that the terms “defendants’ venue” meant anything other than the corporate headquarters of that defendant, reasoning any other interpretation would render the phrase meaningless. Dennis Crouch also has a post on the decision for the Patently-O blog.
Temporary retraining orders (called, “TROs”) are a staple of trade secret and restrictive covenant litigation. IIn this episode, Ben, Russell and I discuss what you need to know when you are either seeking or defending against a temporary restraining order in a trade secret or noncompete case.
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?
It was a busy August, so here are the highlights:
Noteworthy Defend Trade Secrets Act Cases, Federal Trade Secrets Opinions and Related Commentary:
- Can a trade secret owner plead a claim of inevitable disclosure under the DTSA? In Idexx Laboratories, Inc. v. Graham Bilbrough, Magistrate Nivoson of the U.S. District Court of Maine dismissed that claim, reasoning the majority of courts have rejected that theory based on the language and history of the DTSA. Readers of this blog will remember that language was added to the DTSA near the end of legislative negotiations to placate concerns of California Senator Dianne Feinstein about the use of this doctrine, which is prohibited in California. However, it is worth noting that multiple courts, including federal courts in Illinois and Pennsylvania, have allowed the doctrine to be pleaded under a pendent state law claim if that state recognizes the inevitable disclosure doctrine. For a good primer on past decisions regarding the inevitable disclosure doctrine and the DTSA, check out this post from Orrick’s Trade Secrets Watch.
- In a high profile case brought by NBA star Zion Williamson against his former agent, Williamson v. Prime Sports Marketing LLC et al., the U.S. District Court of North Carolina has ruled in his favor, holding that the concept of marketing Zion as the next Lebron James did not qualify as a trade secret. Astor Heaven and Emily Tucker summarize the decision in Crowell’s Trade Secrets Trends Blog.
- Avoided costs can qualify as damages for a trade secret claim says the U.S. Court of Appeals for the Third Circuit. Eileen McDermott has a summary of the Third Circuit’s ruling in a post for the IP Watchdog.
- Does a trade secret complaint’s allegations of misappropriation present facial plausibility or are they merely consistent with liability? Yes, that is lawyerspeak at its finest, but it’s an important question because it may determine whether your trade secret complaint will survive a motion to dismiss. As Federal Rule 12(b)(6) has become a more prominent tool for defendants in trade secret cases, the U.S. Court of Appeals for the Tenth Circuit provides a roadmap for plaintiffs and defendants alike for framing their arguments in connection pleading/attacking a trade secret or restrictive covenant claim. In LS3 Inc. v. Cherokee Nation Strategic Programs, LLC, the Tenth Circuit applied this test to a dispute over the poaching of employees, holding that the breach of fiduciary duty and misappropriate of trade secret claims survived Rule 12(b)(6)’s standards but that the breach of contract claims were insufficient as a matter of law.
- In the latest installment of lawyers behaving badly, Littler and Polsinelli continue to square off about whether a client development toolkit assembled at Littler qualifies as a trade secret and whether it was misappropriated when a lawyer and staff left to start a competing practice at Polsinelli. The parties are sparring over the scope of discovery and Littler has now withdrawn its request for a TRO. A summary of the arguments and related developments as reported by Law360 can be found here.
- The Motorola v. Hytera case, the high-profile case I have written about pending in Chicago, has some interesting developments. First, readers of this blog will know that Motorola prevailed in the case and is supposed to be receiving a sizable court-ordered royalty payment from Hytera; however, Hytera claims it can’t pay, so Motorola has filed a motion for contempt and is asking the district court to enter the injunction it previously denied (see this article summarizing the motion practice in Radio Research Mission Critical Communications). Second, Hytera has been granted leave to assert antitrust counterclaims against Motorola. These claims are rare in the trade secret context, so it will be interesting to see how they unfold. Stay tuned.
- I wrote about the Seventh Circuit’s opinion in Rexxa, Inc. v. Chester last month and there are two posts with different takes on the opinion worth reading. Sheppard Mullins’ Mikela Sutrina and Jenna Crawford emphasize that the 11-year wait by the plaintiff Rexxa undermined its trade secret claim because certain aspects of the alleged trade secret had become widely known by the time of the lawsuit. And Holland & Knight has a thorough client alert analyzing both the district court’s initial opinion and the Seventh Circuit affirming opinion; that post focuses on Rexxa’s failure to adequately identify the trade secrets as the key to the opinion dismissing the case.
- There are multiple decisions addressing attorneys’ fees sought by successful litigants this past month. U.S. District Court Judge Gray Miller ordered IBM to pay $21 million in attorneys’ fees after the $1.6 billion dollar verdict against it. And Law360 is reporting on a $3.9 million award to Munck Wilson for its fees in a trade secrets case pending in the U.S. District Court for the Eastern District of Texas; the decision enforced a contractual indemnity as the basis for those fees. Finally, Marcus Mintz and Robyn Marsh note that an unsuccessful plaintiff dodged a bad faith finding in a post for Seyfarth’s Trading Secrets Blog. In Transperfect Global, Inc. v. Lionbridge Technologies, Inc., U.S. District Court Judge Denise Cote of the Southern District of New York, denied that request, although she chastised the plaintiff for pursuing that claim after it should known they were without merit, characterizing its litigation conduct as “unsavory business.”
“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.
The two decisions, CAE Integrated, Inc. v. Moov Technologies, Inc., issued by the U.S. Court of Appeals for the Fifth Circuit, and First Interstate BancSystem, Inc. v. Hubert, issued by the U.S. District Court for the District of Wyoming, both reach the same conclusion: an employer has a very high burden to overcome when making a trade secret claim on these facts in the absence of compelling evidence of misappropriation. As I explain below, taken together, these are significant decisions that demonstrate that employers should think carefully before pursuing employees on claims that the former employees were or would be relying on their memories to improperly use trade secrets rooted in customer identity or customer preferences. Continue Reading Working through the Thicket of Memory, Misappropriation and the Inevitable Disclosure Doctrine: Two Recent Cases Demonstrate Judicial Skepticism
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
Episode 14 of Fairly Competing is out! In this episode, Ben, Russell and I are joined by special guest Vicki Cundiff, one of the true deans of the trade secret bar, as we discuss the requirement of proving irreparable harm in trade secret disputes.
As always, please email Ben, Russell or me with any topics you’d like to hear us discuss. While we cannot offer legal advice on the show, we can certainly discuss any issues you may be wondering about.