1. law, govt and politics

Trade Secret Case Law - 2013
1st Circuit
Massachusetts
Arbor Networks, Inc. v. Ronca, No. 12-11322, 2012 WL 5610835 (D. Mass. Nov. 14, 2012). Plaintiff filed
a complaint alleging misappropriation of trade secrets and various other claims arising out of the
departure of ten employees who subsequently began to work for a competitor. The individual
defendants filed a motion to dismiss because the complaint did not allege sufficient facts. The court
denied the motion holding that the complaint set forward over 200 factual allegations and exceeds the
threshold requirements of Iqbal and Twombly. The new employer also filed a motion to dismiss two of
the claims. The Court denied the motion to dismiss on the intentional interference with contractual
relations claim because the complaint sufficiently alleged each of the four elements. However, the court
did grant the motion to dismiss regarding the Chapter 93A claim, since the dispute arises out of an
employment relationship and the Supreme Judicial Court has specifically held that 93A is not intended
to cover employment contract disputes.
Avaya, Inc. v. Ali, No. 12-10660, 2012 WL 2888474 (D. Mass. July 13, 2012). Plaintiff, a global provider
of business products and services, brought this action against a former executive when he left and
accepted a position with a rival corporation. The trade secrets at issue were customer lists and strategic
plans, market research, sales leads, customer specifications, and technology. The court granted
plaintiff’s motion for preliminary injunction which was based on a breach of contract claim. A choice of
law provision dictated that Delaware law controls. In reviewing the contract claim, the court reasoned
that at this stage of the litigation the defendant was not able to prove fraud in the inducement
regarding the signing of a non-solicitation and non-competition agreement, and that the agreement was
reasonable in scope and duration and served multiple legitimate interests. The balance of the equities
also favored enforcement since the contract provided for a year of salary to be paid to the defendant in
the event that he could not work for a competing company, and the new company was not a party to
the action. The plaintiff prevailed in showing a likelihood of irreparable harm since trade secrets were
partly at issue and the plaintiff has serious business interests that could clearly be harmed.
Furthermore, the balance of harms tipped in favor of the plaintiff and there is a public interest in
protecting trade secrets and customer goodwill.
Blake v. Professional Coin Grading Service, 898 F. Supp. 365 (D. Mass. 2012). A coin collector who
claimed to have invented a new method of grading the “eye appeal” of coins, brought action against
three other coin graders alleging violations of the Lanham Act, conversion, breach of contract, breach of
the implied covenant of good faith and fair dealing, unjust enrichment, civil conspiracy,
misappropriation of trade secrets, and unfair business practice. Specifically, plaintiff alleges that he
shared key details of his new grading system and marketing plan with the defendants, who turned down
the opportunity to work with him, but then subsequently joined together, rebranded plaintiff’s product,
and launched a new plus (+) designation based on prior communications that the plaintiff had with two
of the defendants. On a motion to dismiss the court held that plaintiff could not claim ownership to the
plus (+) symbol because it is a symbol in the public domain and its common use within the industry
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predates the plaintiff’s alleged ownership of it. Furthermore, the plaintiff did not take reasonable
measures to keep his system secret because he published articles regarding part of the system and did
not allege with sufficient particularity which portion remained a trade secret at the time he
communicated with the defendants. However, the court held that the plaintiff did sufficiently show that
the proposed marketing plan was a misappropriated trade secret not in the public domain and that the
defendant disclosed the information despite an oral agreement to the contrary. Defendant argued that
plaintiff failed to allege continuous use of the secret in connection with a business, but the court
disagreed, finding that the plaintiff’s efforts to find a partner to launch his new system and marketing
plan is enough to show that the trade secret was used ‘in business’ even though in its earliest stages.
Furthermore, plaintiff’s efforts sufficiently qualified as “continuous use.” The court found the
misappropriation claim failed against the other two defendants because no facts were alleged that they
knew the marketing plan was misappropriated from the plaintiff.
Harlan Laboratories Inc. v. Campbell, 900 F. Supp. 2d 99 (D. Mass. 2012). The court granted plaintiff’s
motion for preliminary injunction to enforce a non-competition agreement and to enjoin a former
employee from using or disclosing trade secrets after the employee left to work for a competitor. The
two companies are in the same industry and are one of three main competitors. The employee argues
that his knowledge of company models and processes is public knowledge. Though he does not dispute
that he had access to confidential information, he contends that he does not remember any specifics.
He also claims that his new duties do not completely overlap with his former responsibilities. The court
heard evidence that the employee accessed confidential data belonging to the plaintiff, saved several
files to his computer and then discarded the flashdrive. Applying Indiana law, the court held that the
non-compete agreement is reasonable in scope considering the narrow and competitive nature of the
industry, the overlap between of services and products, and the legitimate interest of protecting sales
information. Furthermore, the employee was fairly sophisticated and should have understood the
implications of the agreement.
MKS Instruments, Inc. v. Emphysys, Inc., No. 12-1858, 2012 WL 5320093 (Mass. Super. Aug. 30, 2012).
Plaintiff brought an action for misappropriation of trade secrets and defendants filed a motion to
dismiss. Defendants formerly worked for the plaintiff, but left to start a consulting firm. A
confidentiality and non-complete agreement covered their actions both as employees and then later as
consultants for the plaintiff. Plaintiff filed the action when they learned that the defendants had filed
patent applications which allegedly were a replica of one of the plaintiff’s inventions. The court
acknowledged that federal law preempts state law on patent issues but noted that none of the
principles governing preemption and jurisdiction is a bar to the plaintiff’s state law claims.
Protégé Software Servs., Inc. v. Colameta, No. 09-03168, 2012 WL 3030268 (Mass. Super. July 16,
2012). Plaintiff Protégé sued a former employee alleging violations of an employment contract
(specifically, the non-competition, non-solicitation, and non-disclosure provisions) as well as
misappropriation of trade secrets. Plaintiff’s motion was denied, and defendant’s cross motion for
summary judgment was allowed because Protégé unilaterally breached the employment contract first
by changing defendant’s title twice, giving him additional duties, and by reducing his annual salary by
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$40,000. The court denied plaintiff’s motion for summary judgment on the misappropriation of trade
secrets claim because the defendant raised an issue regarding whether the alleged information was
generally known in the industry.
Troy Indus., Inc. v. Samson Mfg. Corp., No. 09-1571, slip op., (Mass. App. Ct. March 21, 2012).
Defendants appeal after a jury trial in Superior Court awarded damages to the plaintiff based on a
violation of a confidentiality agreement and the misappropriation of trade secrets. Defendants argue
that the confidentiality agreement did not provide for trade secret protection since it did not specifically
identify what was confidential. Furthermore, defendants contend that even if the plaintiff established a
trade secret, they waived it by holding an exhibition at a trade show. The court affirmed the findings of
the jury, holding that there was sufficient evidence to find that the plaintiff provided trade secret
information to the defendants, the defendants used the information, and they breached the agreement
by using the trade secret to manufacture a product. Attorney fees and costs were awarded to the
plaintiff in connection with the appeal.
U.S. Elec. Services, Inc. v. Schmidt, No. 12-10845, 2012 WL 2317358 (D. Mass. June 19, 2012). Plaintiff,
a national distributor of electrical products and services, sued two former employees, alleging breach of
contract, breach of the duty of loyalty, misappropriation of trade secrets, conversion, tortious
interference with contractual relations and advantageous relations, unfair competition, and civil
conspiracy. The court denied plaintiff’s motion for a preliminary injunction and distinguished the case
from a line of cases addressing the “inevitable disclosure” doctrine. A party may not rely solely on
inevitable future conduct to establish a likelihood of success on the merits of a trade secrets
appropriation claim or a breach of confidentiality claim. Plaintiff failed to show that the former
employee had a sufficient degree of knowledge and level of responsibility to justify an injunction. With
respect to the second employee, the defendant provided an affidavit explaining an alternate
explanation for camera images of the employee leaving the office with papers and other materials.
With two conflicting and plausible explanations, the court was unable to conclude that the plaintiff was
likely to prevail on the merits.
New Hampshire
Beane v. Beane, 856 F.Supp. 2d 280 (D.N.H. 2012). Two brothers commenced this litigation after their
company failed. The court granted summary judgment on the trade secret claim because it did not
identify the trade secret with reasonable specificity. Alleging that every piece of information created by
a company is a trade secret is far too broad to sustain a claim under the Uniform Trade Secrets Act.
Furthermore, the plaintiff made no effort to show that there were actions taken to protect the alleged
trade secrets or that there was an independent value derived from their secrecy.
Contour Design, Inc. v. Chance Mold Steel Co., Ltd., 693 F.3d 102 (1st. Cir. 2012).
Defendant, a
manufacturer, appeals a broad permanent injunction not to sell ergonomic mice after the plaintiff, a
seller of computer mice, brought action against them alleging trade secret misappropriation and breach
of contract. The issue on appeal with respect to the injunction, is whether the defendant’s
independently designed ErgoRoller was properly enjoined. The First Circuit found that the district courts
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subsidiary findings were not supported by the record and reversed the injunction because: (1) the two
products were not “palpably similar; (2) the development time of the ErgoRoller was not unusually short
so as to suggest it sprung from a prior design owned by the plaintiff; (3) the mold for the computer was
made independently of any molds for the plaintiff’s products; (4) electronic files belonging to the
plaintiff’s products were not used to create the ErgoRoller; and (5) there is no connection between a
single shared design similarity of the two products to establish that misappropriated information was
used to create defendant’s ErgoRoller.
Laser Projection Technologies, Inc. v. Ithal, No. 12-427, 2012 WL 6568500 (D.N.H. Nov. 8, 2012).
Plaintiff sought to enjoin a former employee from taking a position with one of its customers and
disclosing or using trade secrets and confidential information while so employed. The former employee
assented to an injunction barring him from using or disclosing trade secrets. The magistrate judge thus
took under advisement the relevant portions of the employee agreement and the former employee’s
consent and recommends that the employee be enjoined from inducing former customers and
disclosing confidential information by issuing a permanent injunction. Regarding the second cause of
action, the court found that the plaintiff was not entitled to an injunction barring the former employee
from going to work for one of its customers because the employee agreement only forbid working for a
competitor, not a customer. Furthermore, the court found that the plaintiff’s belief that the former
employee would share confidential information and trade secrets was unfounded in light of the
employee’s consent to the court order forbidding such conduct and the new company’s willingness to
abide by the confidential agreement.
OneSky Litigation Trust v. Sullivan, No. 10-344, 2012 WL 124739 (D.N.H. Jan. 17, 2012). Plaintiff
originally brought an action against a former employee, alleging that while an employee, he diverted
customers to a competitor for personal gain, shared customer lists with a competitor, and after being
fired, began to work for the same competitor. All of the claims were resolved by a settlement
agreement, which the defendant acknowledges he had no intention of complying with. Plaintiff then
brought this action, claiming (1) fraud; (2) violation of Consumer Protection Act; (3) unjust enrichment;
(4) enhanced compensatory damages; (5) larceny, and (6) fraudulent conveyance. The magistrate judge
granted motion for summary judgment in favor of defendant because all six of the plaintiff’s claims are
preempted by New Hampshire’s version of the Uniform Trade Secrets Act.
Paper Thermometer Co., Inc. v. Murray, No. 10-419, 2012 WL 194369, (D.N.H. Jan. 23, 2012).
Manufacturer of adhesive temperature-sensitive labels brought an action against the founder’s
daughter and her husband, claiming they misappropriated trade secrets and breached a non-compete
agreement. The court denied the motion for preliminary injunction, finding that the facts of the case did
not even weakly support the allegation that the defendants’ would attempt to compete by trying to
manufacture a similar product. The court declined to exercise supplemental jurisdiction and did not
reach the merits of the plaintiff’s state law claims, including theft of trade secrets.
Wentworth-Douglass Hosp. v. Young & Novis Professional Ass’n, No. 10-120, 2012 WL 1081172
(D.N.H. March 30, 2012). Hospital brought this action against several physicians and a professional
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association alleging that the defendants misappropriated and erased important computer data, among
other claims. Defendants’ filed several counterclaims, one of them alleging the misappropriation of
trade secrets in relation to a particular document. The Court denied summary judgment on the trade
secret allegation, finding that whether the defendants’ took reasonable steps to protect their trade
secret was a question for the jury.
Wilcox Industries Corp. v. Hansen, 870 F.Supp.2d 296 (D.N.H. May 7, 2012). Manufacturer of military
equipment brings an action for misappropriation of trade secrets and other state law claims against a
person who was an employee and then later became a consultant. Defendants move to dismiss claiming
preemption under New Hampshire’s Uniform Trade Secrets Act (“NHUTSA”) and that all claims are
insufficiently plead. The Court held that Wilcox had stated a sufficient claim for unfair competition by
commercial disparagement, and a valid claim for intentional interference with prospective contractual
relations, and that these claims are not preempted by NHUTSA. However, the court held Wilcox’s
claims of breach of fiduciary duty, and unjust enrichment was preempted by NHUTSA. Lastly, the Court
held that Wilcox had sufficiently plead the existence of trade secrets because Wilcox identified the trade
secrets at issue in respect to a specific product, the complaint described actions Wilcox took to protect
its confidential information, and that plaintiffs pleaded sufficient facts to show the defendants used
trade secrets despite knowing that it was an improper use.
2nd Circuit
Connecticut
Univ. of Connecticut v Freedom of Info. Com'n, 303 Conn 724, 36 A3d 663 (2012). The University of
Connecticut (“UConn”) appealed an order from the Freedom of Information Commission
(“Commission”) requiring UConn to disclose its databases identifying everyone who paid to attend,
donated to, inquired about or participated in certain UConn educational, cultural or athletic activities.
UConn argued that the databases were trade secrets in the form of customer lists and student
information and were therefore exempt from disclosure under the Freedom of Information Act. The trial
court sustained the administrative appeal. The Commission appealed the trial court’s decision. The
Commission argued that the databases could not be trade secrets as UConn was not principally engaged
in trade and that public policy favors disclosure of public records. The court affirmed the trial court’s
decision. The court held that the Freedom of Information Act exemptions could be used by UConn to
afford protection to its confidential information so long as the information meets the criteria within the
statute. The court concluded that while the Act favors public disclosure, it was not the legislature’s
intent to bar government entities from seeking trade secret protection under the Act.
Worldcare Intern. Inc. v Kay, 36 Misc 3d 1204(A) (Sup Ct 2012). Worldcare International, Inc. d/b/a
Medstock and Medstock Inc. (collectively “Plaintiffs”) filed suit against former employees, Scott Kay,
MFS Industries, Inc., Jason Bran, Superior Maintenance Supply LLC, Mariela Jimanez, and Robert
Ubracio. Amongst other claims, including the violation of the Racketeer Influenced and Corrupt
Organizations Act of 1970, Plaintiffs alleged defendants misappropriated trade secrets in the form of a
marketing and sales system which included developed techniques for successfully marketing and selling
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Plaintiffs’ products as well as Plaintiffs’ client lists, vendor lists, pricing, product specification, as well as
other data. Plaintiffs further allege defendants used the alleged trade secrets in their new business
ventures, Superior Maintenance LLC and MFS Industries. Kay and MFS moved to dismiss 16 out of 20
claims contained in Plaintiffs’ 88-page Complaint and the remaining defendants moved to dismiss all
claims. Plaintiffs opposed both motions. The court granted the motion to dismiss in part for 11 of the
claims and denied in part as to the remaining claims. As to the misappropriation claim, the court denied
the motions concluding Plaintiffs properly asserted that the alleged trade secrets were kept confidential
and that Defendants stole such information to compete against Plaintiffs.
Williams Trading v Murphy, CV116009668S, 2012 WL 3206201 (Conn Super Ct July 10, 2012). In a
transcript, the court reversed its decision to sanction defendants for filing certain documents from an
arbitration hearing in support of defendant’s motion to set aside the arbitration award. The documents
included exhibits alleged to be trade secrets, which became non-confidential when filed. The court
previously concluded that defendants’ actions were made in bad faith. The court’s sanction required
defendants to pay one-third of the plaintiff’s attorney fees incurred in prosecuting a motion to seal
which was granted in favor of plaintiff. The court in the present case held that it erred in not applying
the high standard required by New Covy Metal Common, which provides there must be clear evidence
that the actions were without color, and taken to harass, delay, or serve some other improper purpose.
Applying such standards, the court found the standard had not been met as defendants reason for filing
the alleged trade secrets were not taken in bad faith or without color. Therefore, the court vacated the
previous ruling and denied the motion for sanctions.
Fairwindct, Inc. v Connecticut Siting Council, CV116011389S, 2012 WL 5201354 (Conn Super Ct Oct. 1,
2012). Fairwindct, Inc., Stella Somers, Michael Somers and Susan Wagner (“Plaintiffs”), appealed a
declaratory ruling in favor of BNE Energy, Inc. (BNE) by the Connecticut siting council (the council) that
approved a wind turbine project known as “Wind Colebrook North. Plaintiffs, amongst other claims,
alleged the council violated their procedural rights by allowing materials to be filed under seal and
protective order that did not warrant such protection and as such prevented access by plaintiffs’
attorneys and experts or made access overly burdensome. Plaintiffs claimed that one of the sealed
documents were publicly available on the internet. The court affirmed the council’s ruling concluding
the exhibit that plaintiffs sought was never deemed confidential and that the printing of one of the
documents on a New York State website did not lead to public availability.
Genworth Fin. Wealth Mgt., Inc. v McMullan, 3:09-CV-1521 JCH, 2012 WL 1078011 (D Conn Mar. 30,
2012). Genworth Financial Wealth Management, Inc. (“Genworth”) filed suit against several former
high-ranking employees, the TJT Capital Group, LLC, the business formed by said employees, and two
other employees who left Genworth to work for TJT. Genworth alleged, amongst other claims,
defendants violated the Connecticut Unfair Trade Secrets Act by using Genworth’s customer information
within TJT Capital Group. Genworth and defendants moved for summary judgment. Genworth's motion
was denied; and Genworth's and Ahluwalia's motion as to Defendant’s counterclaims was granted in
part and denied in part. Defendant’s motion was denied. In regards to the misappropriation claim, the
court concluded that a reasonable juror could reach a conclusion in favor of either party as to whether
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the customer information constituted trade secrets. The court also concluded that there remained
genuine issues of fact as to whether Genworth took reasonable precautions to maintain the secrecy of
its customer information; therefore, summary judgment was not appropriate.
Kutik v SharedXpertise Media, LLC, 3:11 CV 605 JBA, 2012 WL 1435288 (D Conn Apr. 25, 2012). Kutik
filed suit against SharedXpertise Media, LLC alleging, amongst other claims, unfair competition, violation
of privacy rights, and violation of Connecticut Unfair Trade Practices Act. Defendant moved for an
“Attorneys' Eyes Only” Protective Order with respect to interrogatories and requests for production
posed by the plaintiff arguing the information sought constituted trade secrets. The court denied
defendant’s motion with respect to any customer, registrant, or e-mail recipient for which information
holding they did not constitute trade secrets, as they were readily available on defendant's websites.
The court granted defendant’s motion with respect to customer, registrant, or e-mail recipient
information that was not identified on defendant’s website.
Powerweb Energy, Inc. v Hubbell Light., Inc., 3:12CV220 WWE, 2012 WL 3113162 (D Conn July 31,
2012). Powerweb Energy, Inc. filed suit against Hubbell Lighting, Inc. and Hubbell Building Automation
Inc., (collectively “Defendants”) alleging, amongst other claims, misappropriation of trade secrets and
confidential information in connection with wireless lighting controls. Defendants sought to compel
Powerweb to identify with specificity the trade secrets at issue in Powerweb’s complaint. The court
found no good reason to require Powerweb to specify the trade secrets.
Powerweb Energy, Inc. v Hubbell Light., Inc., 3:12CV220 WWE, 2012 WL 5835392 (D Conn Nov. 16,
2012). This action concerns agreements made between Powerweb Energy, Inc., Hubbell Lighting, Inc.,
and Hubbell Building Automation (collectively called “Hubbell Defendants”) regarding a project to
design, develop and manufacture lighting components and equipment. Powerweb entered into a nondisclosure agreement with Hubbell Lighting related to the information exchanged for the fulfillment of
the project. Powerweb and Hubbell Defendants entered into an exclusive supply, purchase, and license
agreement granting permission for Hubbell Defendants to use the Powerweb technology in all of
Hubbell Defendants’ manufactured products and in retrofitting kits for previously manufactured
products.
Powerweb alleged, amongst other claims, Hubbell Defendants violated the Connecticut Uniform Trade
Secrets Act (“CUTSA”) with Hubbell Defendants’ unauthorized use of the technology in connection with
another product created with another company. Hubbell Defendants argued that the misappropriation
claim should be dismissed because Powerweb did not specify the way in which Hubbell Defendants
misappropriated the technology, and the technology was not confidential since it was known within the
industry.
The court denied Hubbell Defendants’ motion to dismiss. The court found that Powerweb stated
plausible claims for all asserted claims. In regards to the misappropriation claim, the court found the
Powerweb technology was adequately defined. Additionally the court found that others did not
generally know the Powerweb technology and that Powerweb took reasonable efforts to maintain its
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confidentiality. Lastly, the court held that Powerweb was not required to assert that Hubbell
Defendants misappropriated the information in order to state a claim for trade secret misappropriation.
Milso Indus. Corp. v Nazzaro, 3:08CV1026 AWT, 2012 WL 3778978 (D Conn Aug. 30, 2012). Milso
Industries Corporation filed suit against Edward C. Nazzaro, Liberty Casket Company, Edward Larkin, and
Kirk A. Boggia (collectively “Defendants”) alleging, amongst other claims, a claim for misappropriation of
trade secrets under the Connecticut Uniform Trade Secrets Act. Milso and Defendants moved for
summary judgment. The court granted in part and denied in part the motions. In regards to the claim
for misappropriation of trade secrets, the court held Milso's customer lists and “business plan” were of
the kind included in CUTSA, however, that there is a genuine issue of fact as to whether the customer
lists and business plan are of independent economic value and whether Milso made reasonable efforts
to maintain their secrecy. Additionally the court found that there was a genuine issue of material fact as
to whether there was a misappropriation of any of Milso's alleged trade secrets. Therefore, both
motions for summary judgment on the misappropriation of trade secret claims were denied.
New York
Gurvey v. Cowan, Liebowitz & Latman, P.C., 462 Fed. Appx. 26 (2d Cir. Feb. 10, 2012). Amy Gurvey,
client, appealed United States District Court for the Southern District of New York judgment dismissing
her complaint against law firm Cowan, Liebowitz, & Latman, P.C., several partners of Cowan, and one
associate employed by Cowan (collectively “Cowan Defendants”), executives of the corporate
defendants, and Michael Gordon, the bass guitarist for Phish alleging, amongst other claims,
misappropriation of trade secrets. In regards to the misappropriation claim, the district court held the
claims were time-barred. The Second Circuit affirmed the district court’s decision for all claims except
those claims for attorney malpractice and breach of fiduciary duty against the Cowan defendants.
Grynberg v. ENI S.P.A.,503 Fed.Appx. 42, (2nd Cir.Nov. 20, 2012). Jack Grynberg and the three closely
held businesses owned by the Grynberg family appealed an order of the United States District Court for
the Southern District of New York, which granted ENI S.P.A.’s motion for summary judgment against
Grynberg’s claim for unjust enrichment. Grynberg argued that his unjust enrichment claim was premised
on misappropriation of trade secrets and therefore did not need to satisfy the traditional unjust
enrichment elements, therefore the district court erred in ruling Grynberg did not establish his claim.
Second Circuit affirmed the judgment of the district court concluding Grynberg did not satisfy the
elements of unfair enrichment nor did he establish a trade secrets claim because he did not offer
evidence to show ENI had notice that the information ENI allegedly received through was in breach of a
confidential relationship.
Aon Risk Services v Cusack, 34 Misc 3d 1234(A) (Sup Ct 2012). Aon Corporation and Aon Risk Services
Northeast, Inc. (Aon Northeast) (collectively, “Plaintiffs”) sought damages and injunctive relief against
Michael Cusack, the former Aon Senior Vice President and Managing Director, and his new employer,
Alliant Insurance Services, Inc. Plaintiffs alleged, amongst other claims, defendants stole Plaintiffs’ client
and employee information. Defendants filed a motion to dismiss. Alliant’s motion to dismiss was
denied. The court denied Cusack’s motion, except as to Aon’s misappropriation claim. The court
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concluded Aon did not establish the claim because Aon did not show that any information was taken,
disclosed to, or used by Alliant.
Kryman v Jalas, 35 Misc 3d 1218(A) (Sup Ct 2012). Jacob Kryman, J.C. Carter, Inc. (“J.C.Carter”), and
KCH Corporation (“KCH”) (collectively, “Plaintiffs”) moved for a preliminary injunction enjoining Sam
Jalas, Simon Rubinfeld, Fantastic Industries, Inc. (“Fantastic”), Everwin Enterprises Ltd. (“Everwin”), and
Leung Wing Cheong (collectively “Defendants”) from, amongst other actions, using and sharing
Plaintiffs’ proprietary information and trade secrets. Defendants Leung and Everwin moved to dismiss
Plaintiffs' complaint for lack of personal jurisdiction. The court held there was personal jurisdiction over
Leung and Everwin since the use of the alleged misappropriated trade secrets caused injury in New York,
and defendants were engaged in business in New York. Therefore, the court denied Leung and
Everwin’s motions to dismiss.
MSCI Inc. v Jacob, 36 Misc 3d 211 (Sup Ct 2012). MSCI, a distributor of computer software to clients
who participate in the global financial market, filed suit against Philip Jacob, a former employer of MSCI,
and Axioma, Inc., Jacob’s new employer. MSCI alleged defendants misappropriated MSCI trade secrets
in the form of MSCI source codes. Defendants sought to compel MSCI to affirmatively identify its trade
secrets during discovery. MSCI sought to identify the trade secrets by identifying the components of the
source codes that were not claimed to be trade secrets. Defendants argued that if they exposed
Axioma’s trade secrets in full prior to MSCI revealing its source codes, MSCI could misappropriate
Axioma’s trade secrets. The court agreed with defendants and held that MSCI must identify, with
reasonable particularity, the portions of the source code that are trade secrets prior to seeking further
discovery from defendants.
Luxus Aviation, LLC v Kerwin Media LLC, 91 AD3d 569 (1st Dept 2012). Luxus, a New Jersey limited
liability company specializing in advertising, and UMI, a 50% member of Luxus, filed suit against Roaring
Thunder Media and Kerwin Media related to UMI’s purchase of Kerwin’s 50% membership interest in
Luxus. Plaintiffs alleged, amongst other claims, that defendants misappropriated Luxus trade secrets in
the form of the Luxus business model, client information, and other purported confidential information,
to compete against Luxus. Defendants moved to dismiss all claims under New Jersey law. The court
granted defendants’ motion to dismiss and concluded that the claims all fell within the scope of a
release agreement under which plaintiffs and affiliates waived any claims against defendants related to
breach of fiduciary duties, confidentiality, or other obligations. Plaintiffs appealed. The court affirmed
the ruling, except as to the misappropriation claim because the alleged conduct occurred after the date
the release agreement was signed.
Pop Intern. Galleries Inc. v Swarts, 34 Misc 3d 1239(A) (Sup Ct 2012). Pop International Galleries, Inc.
(“Pop”) filed suit against Brian Swarts, former Pop art consultant and salesman, DJT Fine Art
International d/b/a/ Taglialatella Galleries, a similar pop-art related business, and Dominic Taglialatella.
Pop alleged Swarts misappropriated trade secrets in the form of Pop’s confidential customer, artist,
distributor, and vendor lists to compete against Pop. Pop sought an order granting a temporary
restraining order and preliminary injunction enjoining defendants from continuing to use such
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information. The court denied the Pop’s motion because Pop did not sufficiently show that the alleged
trade secrets were confidential information or that Pop took reasonable efforts to maintain secrecy.
Friedman v. Wahrsager, 848 F Supp 2d 278, 304 (EDNY 2012). Ronald J. Friedman, Receiver court
appointed in a separate action entitled Bank of America v. New York Merchants Protective Co. Inc., New
York Merchants Alarm Response, and N.Y. Merch., filed suit against Wayne Wahrsager, Eric Wahrsager,
and Aaron Wahrsager, alleged officers of the receivership businesses , alleging, amongst other claims,
misappropriation of trade secrets. Friedman alleged defendants transferred the receivership business
information regarding customer lists, rates, and historical responses from customers to Central Station,
a business solely owned by Eric and Aaron Wahrsager. Defendants argued Friedman failed to establish
proof that the above-mentioned information were trade secrets and that Defendant's misappropriated
such information. The court granted in part and denied in part defendants’ motion to dismiss. In
regards to the misappropriation claim, the court held Friedman sufficiently pled that the information
were trade secrets and whether or not the information was misappropriated was a question of fact;
therefore, dismissal was not warranted.
Thayil v. Fox Corp., 101 USPQ2d 1755 (SDNY Feb. 2, 2012). Paul Thayil, creator of a marketing plan
possessing concepts for two projects, proceeding pro se, filed suit against Fox Corporation, Simon
Cowell, EMI Music Publishing Company, Sony Music Entertainment, Simon Fuller, 19 Entertainment,
CKX, Inc., Nigel Lythgoe and NBC Universal (collectively “Defendants”), seeking injunctive relief,
damages, and punitive damages, and alleging, amongst other claims, misappropriation of trade secrets.
Thayil alleged the marketing plans were trade secrets and Defendants used the information to create
the shows “American Idol,” “Dancing With the Stars,” “So You Thing You Can Dance,” and “America’s
Got Talent.” Defendants moved to dismiss all of Thayil's claims for failure to state a claim for which
relief can be granted. The court granted Defendants’ motion to dismiss for failure to adequately state a
claim. In regards to the misappropriation claim, the court concluded Thayil failed to allege that he used
reasonable efforts to maintain the secrecy of the marketing plans, or that he shared the information
with Defendants with an expectation of confidentiality understood by Defendants.
Alpha Media Works, Inc. v. Perception Research Services, Inc. 09 CIV. 9563 GBD, 2012 WL 406914
(SDNY Feb. 9, 2012). Alpha Media Works, Inc., a developer of computer software, filed suit against
Perception Research Services, Inc., a market research company and creator of Eye-Tracking technology,
alleging, amongst other claims, misappropriation of trade secrets in connection with Alpha Media’s
software, Outdoor DRIVE. Alpha Media and Perception Research Services moved for summary
judgment. The court granted Perception Research’s motion for summary judgment and denied Alpha
Media’s motion for summary judgment. The court held Alpha Media failed to support a claim that
Perception Research misappropriated its trade secrets as it was based primarily on mere information
and belief without any supporting evidence.
BLT Restaurant Group LLC v. Tourondel, 855 F Supp 2d 4 (SDNY 2012). BLT Restaurant Group (“BLT”)
filed suit against Laurent Tourondel, Michael Cinque, and LT Burger, a company formed by Tourondel
and Cinque, alleging, amongst other claims, misappropriation of trade secrets. Tourondel moved to
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dismiss part of the complaint for lack of supplemental jurisdiction and moved for partial summary
judgment. BLT moved for leave to serve a second amended complaint. BLT alleges Tourondel, in
connection with LT Burger, copied BLT’s recipes, used similar names as those utilized in the BLT menu,
and mimicked BLT’s meal combinations and pricing. The court denied defendants' motion to dismiss,
granted plaintiff's motion to amend, and denied defendants' motion for partial summary judgment
except for the portion of the disputed contract that the court deemed unambiguous. In regards to the
misappropriation claim, the court held dismissal was not warranted because BLT adequately alleged
Tourondel misappropriated secret recipes.
Geo Group, Inc. v. Community First Services, Inc., 11-CV-1711 CBA, 2012 WL 1077846 (EDNY Mar. 30,
2012). GEO Group, a corporation that provides private correctional and reentry services, filed suit
against Community First Services (“CFS”), and former employees Jack Brown, founder of CFS, Akroyd
Lake, and Josette Nelson–Dabo, Vice-President of CFS (collectively “Defendants”) alleging, amongst
other claims, misappropriation of trade secrets against CFS and Brown. GEO Group alleged Jack Brown
and CFS used GEO’s confidential and proprietary information in connection with his new business, CFS
to compete against GEO in the procurement of a government contract. Defendants moved to dismiss
and filed a Motion to Stay. The court granted in part and denied in part Defendants motion to dismiss
and denied Defendants' motion to stay. In regards to the misappropriation claim, the court denied the
motion to dismiss as GEO’s complaint provided enough facts to establish an expectation that additional
evidence will be offered in discovery.
International Chauffeured Service, Inc. v. Fast Operating Corp., 11 CIV. 2662 NRB, 2012 WL 1279825
(SDNY Apr. 16, 2012) International Chauffeured Service, Inc., operator of a global chauffeured car
service, filed suit against Faster Operating Corp., d/b/a Carmel Car & Limousine Service (“Carmel”), a
global operator of chauffeured car services, and John Does 1–100. International alleged, amongst other
claims, misappropriation of trade secrets and unfair competition relating to Carmel misappropriated
International’s database. Carmel moved to dismiss for failure to state a claim upon which relief can be
sought. The court granted Carmel’s motion to dismiss. As to the misappropriation claim, the court
declined to exercise supplemental jurisdiction over the state claim since the court dismissed the claim
for which it had original jurisdiction.
International Biometric Group, LLC v. Intrepid Solutions and Services, Inc., 12 CIV. 4029 ALC, 2012 WL
2369501 (SDNY June 21, 2012). International Biometric Group, LLC (“IBG”) filed suit against Intrepid
Solutions and Services, Inc. (“Intrepid”) and Colonel Stephen G. Hood (“Col.Hood”) (collectively
“Defendants”) seeking declaratory judgment and alleging, amongst other claims, misappropriation of
trade secrets against Defendants. Defendants moved to dismiss for lack of personal jurisdiction. The
court granted the motion to dismiss as to Intrepid and denied the motion to dismiss as to Col. Hood.
The court held that it did not confer personal jurisdiction over Intrepid as the trade secrets were not
used in New York nor was it reasonable for Intrepid to believe the transactions would be governed
under New York law. However, personal jurisdiction can be conferred over Col. Hood because Col. Hood
signed a restrictive covenant agreement in which it expressly waived any inconvenient forum objection.
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Document Sec. Systems, Inc. v. Coupons.com, Inc., 11-CV-6528 CJS, 2012 WL 3597769 (WDNY Aug. 20,
2012). Coupons.com, Inc. moved to dismiss, amongst other claims, Document Sec. Systems, Inc.’s
misappropriation of trade secrets claim related to Coupon.com’s alleged unauthorized use of
Document’s “blockout” technology. Coupons.com also filed a motion to strike part of Document’s
reply. Document filed a motion to amend the complaint. The court granted in part and denied in part
Coupons.com’s motion, granted Document’s motion to amend and denied Coupons.com’s motion to
strike. In regards to the misappropriation claim, the court denied Coupon.com’s motion to dismiss for
mootness, as Coupon.com did not oppose Document’s motion to amend the claim.
Dorset Indus., Inc. v. Unified Grocers, Inc., 893 F.Supp.2d 395, 406 (E.D.N.Y.2012). Dorset Industries,
Inc., a developer and manufacturer of merchandising equipment and services in connection with “check
out” programs filed suit against Unified Grocers, Inc., a wholesale grocery distributor. Dorset alleged,
amongst other claims, Unified misappropriated Dorset’s trade secrets related to confidential
information regarding the development of the “check out” program. Unified filed a motion to dismiss.
The court granted in part and denied in part Unified’s motion to dismiss. Regarding the
misappropriation claim, the court held the complaint adequately supported the claim that the
“checkout” program that Unified allegedly misappropriated was confidential information and that
Dorset took reasonable efforts to maintain its secrecy, therefore the claim did not warrant dismissal.
Harris v Fairweather, 11 CIV. 2152 PKC AJP, 2012 WL 5199250 (SDNY Oct. 19, 2012). Patricia Judah
Harris, owner of PPH, filed suit against Lesmine Fairweather alleging, amongst other claims
misappropriation of trade secrets. A Certificate of Default was issued against Fairweather. The case was
referred to the Southern District for an inquest as to damages. The court adopted the R&R for damages.
Regarding the trade secrets claim, Fairweather was permanently enjoined from soliciting business based
on PPH customer lists was ordered to return all PPH files and computers to PPH.
Vaughan Co. v. Global Bio–Fuels Tech., LLC, No. 12 Civ. 1292, 2012 WL 5598501 (N.D.N.Y. Nov. 15,
2012). Vaughan Company filed suit against Global Bio–Fuels Technology, LLC and Richard Behnke
(collectively “Defendants”). Vaughan alleged, amongst other claims, a claim for misappropriation of
trade secrets related to Vaughan contact list and other confidential information. Defendants filed a
motion to dismiss. Behnke was an employee of Vaughan during which time he had access to extensive
information. As part of his responsibilities, Behnke was assigned to take pictures for use by Vaughan.
During his employment with Vaughan, Behnke formed Global a company with similar business as
Vaughan. Defendant’s used said pictures on Global’s website and in a trademark application without
Vaughan’s consent. Behnke subsequently resigned from his position at Vaughan. However, he refused
to return Vaughan’s laptop containing confidential company information that Vaughan alleges
Defendants used to compete against Vaughan in contract bids. The court denied Defendants motion. In
regards to the misappropriation claim, the court concluded that Vaughan adequately alleged that
Defendants possessed trade secrets and used such information in breach of their fiduciary duties to
maintain the confidentiality.
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Sandrino v. Michaelson Associates, LLC, 10 CIV. 7897 BSJ, 2012 WL 5851135 (SDNY Nov. 19, 2012).
Gloria Sandrino and Michaelson Associates, a New York City legal recruiting firm, entered into an
agreement (Agreement) to engage Sandrino’s recruiting talents. The Agreement contained a nondisclosure provision, however it did not include a non-compete provision. While working with
Michaelson Associates, Sandrino began employment discussions with Merle Vaughn and C. Thomas
Williamson III of the Lucas Group, a large national recruiting firm and subsequently entered into an
agreement to provide recruiting services with the Lucas Group. Sandrino began to provide Lucas Group
with job leads she obtained through Michaelson Associates and forwarded an internal candidate log to
Lucas Group. Michaelson Associates terminated Sandrino; however, Sandrino was not fully
compensated for her services.
Sandrino filed under seal, a complaint against, Michaelson Associates, LLC and Catherine Michaelson,
the sole owner of Michaelson Associates (collectively the “Michaelson Defendants”) claiming breach of
contract. Michaelson defendants filed an Answer and Counterclaim, including Lucas Group, Vaughn,
and Williamson (collectively the “Lucas Counterclaim Defendants”) alleging, amongst other claims,
misappropriation of trade secrets. The Michaelson Defendants, Lucas Counterclaim Defendants, and
Sandrino each filed a motion for summary judgment.
The court granted Sandrino's motion for summary judgment on her breach of contract claim and the
Michaelson Defendants' counterclaims for unjust enrichment, misappropriation, and unfair competition
and dismissed the claims. The district court denied Sandrino's motion for summary judgment as to the
Michaelson Defendants' counterclaims for breach of contract and breach of loyalty. The district court
also denied the Michaelson Defendants' motion for summary judgment, and the Lucas Counterclaim
Defendants' motion for summary judgment. Regarding the misappropriation claim against the Lucas
Group, the court held the client lists Sandrino shared were trade secrets since Michaelson Associates
intended for the names to remain private and used reasonable efforts to maintain confidentiality.
However, there genuine issues of fact as to whether Lucas misappropriated such information. Therefore,
summary judgment was not warranted.
3rd Circuit
Delaware
Mosaid Technologies Inc. v. LSI Corp., 878 F.Supp.2d 503 (D. Del. Jul. 20, 2012). The issue relates to
balancing the public interest in public disclosure of court proceedings against the Court’s prerogative
under Fed. R. Civ. Proc. 26(c) to ensure “that a trade secret or other confidential research, development,
or commercial information not be revealed or be revealed only in a specified way”. Pre-trial oral
argument on summary judgment motions contained many references to documents the parties
considered secret. The parties submitted proposals on which portions of the oral argument transcript
should be permanently redacted. Plaintiffs submitted proposals for expansive redaction, supported only
be a general statement that they considered the matters proposed for redaction to be “Confidential”. In
denying their request, the Court noted that a party seeking removal of materials from the public record
must establish good cause by showing that “disclosure will work a clearly defined and serious injury” to
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the party. Defendants’ proposal categorized the requested redactions and provided described specific
alleged harms resulting from disclosure of each of them. The Court held that references to “confidential
financial information and licensing strategy” would be redacted because disclosure of such references
would plausibly cause specific material harm to defendants. The Court declined to redact references to
non-financial contractual terms, such as the existence of agreements, effective dates, parties to the
agreements etc. There was no “clearly defined and serious injury” that would result from such
disclosures.
Tri-State Energy Solutions, LLP v. KVAR Energy Savings Inc., 884 F.Supp.2d 168 (D. Del. Aug. 13, 2012).
The Court granted a motion to dismiss claims of Misappropriation of Confidential Information and
Misappropriation of Trade Secret, because the claimant failed to specifically identify the information
allegedly disclosed. KVAR’s assertions that Tri-State had disclosed KVAR’s “sales and marketing
‘theories’” were not sufficiently specific to support the claim.
XpertUniverse, Inc. v. Cisco Systems, Inc., 868 F.Supp.2d 376 (D. Del. Jun. 19, 2012). The Court denied
a motion to dismiss a claim of trade secret misappropriation, stating: “Cisco's allegations that XU's
‘attempting to pass Cisco's trade secrets off as information that is proprietary and confidential to XU’
and ‘continuing to use, without authorization, hardware and software that Cisco provided to XU
containing Cisco's trade secrets’ adequately plead that XU used or disclosed Cisco's trade secrets.”
Dow Chem. Canada Inc. v. HRD Corp., 909 F. Supp. 2d 340 (D. Del. 2012). Dow and HRD contracted to
jointly develop customized Polyethylene wax according to a Joint Development Agreement (“JDA”). The
JDA called for a confidential and exclusive relationship. Dow was to conduct the actual research and
development of the PE wax product with HRD to share the costs. Once the developmental goals of the
JDA were met, Dow was to exclusively supply HRD with PE wax for a period of time. Once Dow began
actually supplying HRD with the PE wax, however, HRD determined that the PE wax did not meet the
needs of its customers. HRD refused to accept further deliveries of the PE wax on these grounds. Dow
sued for breach of contract. HRD filed counterclaims of misappropriation of four trade secrets, arguing
that Dow wrongfully disclosed its trade secrets in patent filings based upon the joint development.
On Dow’s motion for summary judgment, the court evaluated the potential of trade secret
misappropriation based on the requirements of the Uniform Trade Secrets Act. The court held that the
HRD did not state three of the four alleged trade secrets with a “reasonable degree of precision and
specificity ... such that a reasonable jury could find that plaintiff established each statutory element of a
trade secret.” The court held that: (1) giving lists to the other party without actually identifying what
comprises that list, (2) claiming to give the other party a “concept” without any details as to the specifics
of the concept, and (3) giving a “list of physical characteristics” without explaining the details of the list
all failed to meet the plaintiff’s burden of establishing a trade secret.
The court found that one alleged trade secret was stated with reasonable particularity, but held that
HRD failed to prove that the trade secret was communicated from the plaintiff to the defendant, as
required in all trade secret misappropriation claims. While Dow may have published confidential
information as to the joint development project, since Dow created the confidential information, it
could therefore not be liable for misappropriation of a trade secret.
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Pennsylvania
MTR Gaming Group, Inc. v. Arneault, 899 F.Supp.2d 367 (W.D. Pa. Sept. 27, 2012). MTR brought a
claim for trade secret misappropriation against Arneault, arising from Arneault’s activities with another
company after resigning from MTR. The Court dismissed the claim because MTR had executed a
settlement agreement with Arneault in an unrelated case, releasing him from any and all claims, known
and unknown. The Court determined that, under West Virginia law, Arneault’s alleged trade secret
misappropriation was within the scope of that release.
Nova Design Technologies, Ltd. v. Walters, 875 F.Supp.2d 458 (E.D. Pa. Jun. 28, 2012). Nova shared
secret technology with Omni Therm under a confidential disclosure agreement. Matthew Walters, CEO
of Omni, subsequently filed a patent on Nova’s technology and sold the patent to another company.
Nova sued Matthew Walters, Dale Walters (prior owner of Omni) and Brian Guerra (VP Sales of Omni),
and Omni for trade secret misappropriation. The misappropriation of trade secret claims arose under
common law, since the alleged misappropriation occurred prior to April 9, 2004, the effective date of
Pennsylvania’s Uniform Trade Secrets Act.
The Court granted summary judgment to the corporate defendant on ground that there was no
evidence to indicate they were aware the technology had been misappropriated and to Dale Walters on
the ground that there was no evidence that the technology was disclosed to him or improperly used by
him.
The Court granted summary judgment to Matthew Walters and Brian Guerra on the basis of
Pennsylvania’s Gist of The Action Doctrine, which generally precludes actions in tort for damages that
are not “collateral” to any contract between the parties. Because Nova’s alleged harm results solely
from an alleged violation of the terms of the confidential disclosure agreement, Nova could not sue on a
misappropriation tort.
ITP, Inc. v. OCI Co., Ltd., 865 F.Supp. 2d 672 (E.D. Pa. 2012). In this case, the plaintiff, ITP, Inc., contends
it had an exclusive distributorship agreement that was breached. Defendant moved to dismiss the
complaint. ITP’s amended complaint against OCI USA alleged a variety of legal theories, including
violation of Pennsylvania’s Uniform Trade Secrets Act. OCI USA moved to dismiss ITP’s claim for violation
of the Pennsylvania Uniform Trade Secrets Act, (“PUTSA”) for failure to assert a sufficient factual basis–
specifically, that no trade secret was identified in the complaint.
The Court denied the motion to dismiss on the basis that: ITP had alleged that it provided OCI USA with
specific trade secrets, including confidential market studies and reports, as well as customer and
distributor lists. ITP alleged that it used reasonable means to keep this information secret and disclosed
it to OCI USA only because of the confidential nature of their relationship. ITP alleged that OCI USA had
reason to know the information was confidential and was obtained because of the confidential business
relationship and that OCI USA had a duty not to abuse that trust. Finally, ITP alleged that OCI USA
misappropriated and misused these trade secrets to the detriment of ITP.
New Jersey
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Fox v. Millman, 210 N.J. 401, 45 A.3d 332 (2012). Plaintiff alleged that a former employee’s subsequent
employer benefited because that employee used a list of customers she implied was her own to
generate business for her new employer when the list was instead the property of the former
employer.
The court recognized that employees have a “common law duty to safeguard confidential information
they have learned through their employment relationship and that they are generally precluded from
sharing that information with unauthorized third parties.” Here, however, the plaintiffs sought redress
not from the former employee, but instead from her subsequent employer. The court did not find a
basis on which to impose on defendants an affirmative duty to undertake an inquiry, independent of the
information given to them by its newly hired employee, as to the source of the customer list that she
possessed. Accordingly, the court held that there was no ground on which to impose a duty of
independent inquiry upon an employer faced with an otherwise unremarkable representation by a
prospective employee that a list of contacts is her own.
Howmedica Osteonics Corp. v. Zimmer, Inc., Not Reported in F. Supp. 2d, 2012 WL 5554543 (D. N.J.
Nov. 14, 2012). Howmedica, a Stryker Corp. subsidiary, and Zimmer were companies in the biomedical
devices industry. Howmedica alleged that Zimmer had initiated a plan to solicit compensation and sales
information from two Stryker branch managers in order to lure virtually all Stryker managers and sales
representatives from those two branches to leave Stryker and join Zimmer. Howmedica (Stryker)
brought suit against Zimmer, and several former Stryker employees, for actual or threatened
misappropriation of trade secret, among other claims.
The Court rejected corporate defendant’s motion for summary judgment which argued, inter alia, that
plaintiffs had not sufficiently protected their alleged secrets and that the alleged trade secrets lacked
independent economic value. Instead the Court found that, while employee compensation information
may lack independent economic value and thus fail to meet trade secret criteria, other allegedly
misappropriated information such as Stryker customer lists, product pricing, and financial figures could
sufficiently satisfy the independent economic value criterion to avoid summary judgment.
The Court additionally held that plaintiff’s trade secret misappropriation claims against the individual
defendants, former Stryker employees, were barred by the economic loss doctrine as the harm allegedly
caused by the individual defendants arose from breach of their confidentiality agreements with Stryker.
IDT Corp. v. Unlimited Recharge, Inc., Not Reported in F.Supp.2d, 2012 WL 4050298 (D. N.J. Sept. 13,
2012). Plaintiff IDT alleged that three former employees had violated Confidentiality Agreements, and
one had additionally violated a Non-Compete Agreement, in their activities with Unlimited Recharge, a
company formed after the three individual defendants left IDT. Plaintiff filed claims of trade secret
misappropriation and tortious interference with contract, among others, in connection with allegations
of defendants’ use of secret client lists and marketing strategies, attempts to persuade IDT clients that
IDT products were no longer viable, etc. In their motion for dismissal of plaintiffs’ claims for failure to
state a claim for which relief can be granted, defendants first argued that plaintiffs’ trade secret claims
was barred by the economic loss doctrine, prohibiting relief in tort for harm resulting from breach of
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contract. The Court rejected this argument, noting that while plaintiff cannot recover on inconsistent
theories, it may plead alternative or even inconsistent claims.
Defendants additionally argued that plaintiffs had not pled sufficient facts to support each of the five
elements of trade secret misappropriation: “(1) the existence of a trade secret, (2) communicated in
confidence by the plaintiff to the employee, (3) disclosed by the employee in breach of that confidence,
(4) acquired by the competitor with knowledge of the breach of confidence, and (5) used by the
competitor to the detriment of the plaintiff.” The Court held that plaintiffs’ somewhat general
allegations were sufficient to sustain the claim. For example, plaintiffs were not required to specifically
identify every trade secret allegedly misappropriated or to precisely quantify their alleged damages.
Premio Foods, Inc. v. Purdue Farms, Inc., Not Reported in F.Supp.2d, 2012 WL 3133791 (D. N.J. July 30,
2012). Defendants sought dismissal of Premio’s claim of misappropriation of trade secrets and breach
of a Non-Disclosure Agreement. Premio contended they had shared proprietary sausage-making secrets
with defendants under a “Co-Pack Agreement” (a contract to pack sausage on behalf of defendants) and
that their secrets were additionally protected by a separate NDA. Premio further alleged that
defendants subsequently used Premio’s proprietary information to package sausage at the facilities of a
later-acquired company. Assuming all of Premio’s allegations were true for the purpose of deciding
defendants’ summary judgment motion, the Court found that Premio had pled sufficient facts to
support the elements of trade secret misappropriation.
4th Circuit
WEC Carolina Energy Solutions LLC v. Miller, 687 F.3d 199 (4th Cir. 2012). Plaintiff, a welding company,
brought action against former employee, employee's assistant, and a competitor, alleging that
Defendants violated the Computer Fraud and Abuse Act (CFAA) when employee, before resigning and at
competitor's direction, downloaded company's proprietary information and used the information to
make a presentation to a customer on behalf of competitor. The customer ultimately chose to do
business with the Defendant. Among other things, the CFAA renders liable a person who (1)
“intentionally accesses a computer without authorization or exceeds authorized access, and thereby
obtains ... information from any protected computer,” in violation of § 1030(a)(2)(C); (2) “knowingly and
with intent to defraud, accesses a protected computer without authorization, or exceeds authorized
access, and by means of such conduct furthers the intended fraud and obtains anything of value,” in
violation of § 1030(a)(4); or (3) “intentionally accesses a protected computer without authorization, and
as a result of such conduct, recklessly causes damage[,] or ... causes damage and loss,” in violation of §
1030(a)(5)(B)-(C). Here, WEC alleged that Defendant violated all three of these provisions. Defendants
moved to dismiss. The District Court granted the motion holding that the CFAA did not provide relief for
the alleged conduct. The Court of Appeals affirmed the district court's decision and, in a matter of first
impression, held that Plaintiff failed to adequately allege that employee and assistant accessed
company's protected computer or information on computer “without authorization,” or “exceeded
authorized access,” as required to state claims under the CFAA. The court further stated that the Court
was unwilling to contravene Congress's intent by transforming a statute meant to target hackers into a
vehicle for imputing liability to workers who access computers or information in bad faith, or who
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disregard a use policy. Thus, the court rejected an interpretation of the CFAA that imposes liability on
employees who violate a use policy, choosing instead to limit such liability to individuals who access
computers without authorization or who obtain or alter information beyond the bounds of their
authorized access.
Maryland
Contract Materials Processing, Inc. v. Kataleuna GmbH Catalysts, 462 Fed.Appx. 266 (4th Cir. 2012).
Plaintiff, seller of petroleum refining technology, sued Defendant’s for breach of contract, conversion,
bailment, and misappropriation of business information in connection with buyer's assignment of
technology to Defendant’s sister company. Defendant filed counterclaim alleging breach of contract,
unjust enrichment, breach of warranty, conversion, and related claims. The District Court entered
summary judgment in Defendant’s favor. Plaintiff appealed the Judgment. The Court of Appeals
affirmed the District Court's decision and held that the district court did not abuse its discretion in
determining that misappropriation of trade secret claims were brought by seller in bad faith. The Court
held that a claim under Maryland law for the misappropriation of business information is governed by
the state's adoption of the Uniform Trade Secrets Act (“UTSA”), which requires, among other things,
that the information be “acquired by improper means.” Md.Code. Ann. Com. Law § 11–1201(c)(1). To
the extent that Defendant may have used the Plaintiff’s technology to facilitate its business, it was not
barred from doing so because Defendant was required to only pay royalties to Plaintiff on sales of the
specific additives that were the subject of that agreement. Consequently, the information that Plaintiff
sought was not reasonably calculated to lead to the discovery of admissible evidence, and the district
court did not abuse its discretion by declining to compel the Defendants to produce it. The
misappropriation claims ultimately failed at the summary judgment stage, as Plaintiff could show no
impropriety or misuse in that Defendant legitimately acquired all rights to the additives, and there was
no evidence adduced of a subsequent transfer in violation of a supposed oral agreement. The 4th Circuit
concluded that the district court therefore appropriately awarded summary judgment to Defendant on
Plaintiff’s claim for breach.
South Carolina
Milliken & Co. v. Morin, 399 S.C. 23 (S.C. App. Ct. 2012). Plaintiff, former employer, brought suit against
former employee, a research physicist, for breach of covenants in employment agreement. The
Defendant allegedly resigned and started a new venture using the Plaintiff’s proprietary information.
The Plaintiff alleged that the Defendant breached confidentiality and invention assignment agreements
he signed when he started working for Plaintiff. Following entry of judgment on jury verdict for Plaintiff,
the Court of Appeals granted certiorari to review the issue of whether the agreements are overbroad as
a matter of law. The Defendant claimed that the confidentiality provision is so broad that it prevents
him from using his own general skills, knowledge, and inventive ability as opposed to just restricting the
dissemination of Plaintiff’s propriety information. The Court found that the holdover clauses did not
limit the employee's post-employment activities except with respect to the affected inventions and
improvements. The Court further found that Plaintiff had a legitimate business interest that it can
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protect through the use of the confidentiality agreements and that the holdover clauses of the
agreement were not unduly harsh or oppressive if the Defendant is able to use his general skills and
knowledge in a new line of employment. Furthermore, the Court found that the agreements were not in
restraint of trade. The Supreme Court of South Carolina affirmed the Circuit Court’s decision, certiorari
was granted, and the court held that: 1. invention assignment and holdover clause in employment
agreement were not so broad as to be unenforceable as a matter of law; and 2. confidentiality provision
in employment agreement was enforceable.
North Carolina
Aecom Tech. Corp. v. Keating, 2012 NCBC 10 (N.C. Sup. Ct. 2012). Defendants, a corporation's
competitor and the corporation's former employees, moved to dismiss, inter alia, the corporation's
claim that Defendants misappropriated trade secrets, under N.C. Gen. Stat. § 66-152 et seq. The claim
failed because allegations that Defendants used "wrongful means" to obtain "confidential commercial
information," including "customer lists, customer contract information, pricing information, and product
information" did not (1) tell defendants what they allegedly misappropriated, or (2) enable a court to
find if misappropriation occurred or was threatened to occur. The motion was granted in part and
denied in part.
Out of the Box Developers, LLC v. LogicBit Corp., 2012 WL 5356282 (N.C. Sup. Ct. 2012). Plaintiff
brought an action for monetary and injunctive relief alleging Defendants misappropriated trade secrets
and breached a licensing agreement for the licensor's proprietary customizing of law firm management
software, LexisNexis' Time Matters. Plaintiff contended that Defendants misappropriated Plaintiff's
customizations and integrated them into LogicBit's law firm management software. Defendant’s argued
that their software lost no functionality in using its own client data when changing the software
platform. The court was not persuaded that any public policy argument excuses violating the Licensing
Agreement. But the Supreme Court of North Carolina could not find such a violation had been proven by
the uncontested facts. More specifically, the Court found that the record does not clearly lead to a
conclusion that Defendants actually incorporated Plaintiff’s protected customization. The Court
reasoned that the undisputed evidence demonstrates some degree of reverse engineering, but the
evidence is disputed whether the reverse engineering was of such a degree as to constitute developing a
competitive product. The Court held that: 1. the licensor had standing to assert violations of the
agreement; 2. two of the licensor's three breach of contract claims were not preempted by the federal
Copyright Act; 3. the law firm breached the agreement by refusing to allow removal of the software; and
4. there were material issues of fact as to the licensor's reverse engineering claim. Plaintiff's motion for
partial summary judgment was granted in part and denied in part. Defendant’s motion to dismiss was
denied in part and granted in part.
Barbarino v. Cappuccine, Inc., 722 S.E.2d 211 (N.C.R. App. 2012). Plaintiff filed suit alleging that
Defendant had failed to pay Plaintiff commissions for plaintiff’s work as a sales representative for
Defendant. Defendant filed an answer substantially denying the allegations in Plaintiff’s complaint and
counterclaiming for breach of contract, violation of North Carolina Trade Secrets Protection Act,
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conversion, and claim and delivery. Plaintiff asserted a cause of action under the North Carolina Wage
and Hour Act and for a declaratory judgment that the covenant not to compete in plaintiff’s
confidentiality agreement was unenforceable. Defendant appealed from the trial court's order granting
Plaintiff’s motion to dismiss its counterclaims. The court held that Defendant's allegations were
insufficient to state a claim for relief for violation of the North Carolina Trade Secrets Protection Act. The
court also affirmed the trial court's dismissal of Defendant's cause of action for claim and delivery due to
Defendant's failure to comply with the requirements of N.C. Gen.Stat. § 1–473 (2011). The Court held
that Defendant’s counterclaim failed to meet the requirements of the statute in two respects: 1. the
answer was not verified, and the record contained no other affidavit to comply with the statute; and 2.
the counterclaim failed to allege the actual value of the property. Because, however, Defendant was
not required to plead its claims for breach of contract or conversion with particularity and because
those counterclaim allegations were sufficient for notice pleading, the court reversed the trial court's
order to the extent that it dismissed the counterclaims for breach of contract or conversion. The court
affirmed in part and reversed in part.
Smith v. Lewis, 2012 NCBC 8 (N.C. Sup. Ct. 2012). Defendant, financial management firm owner,
employed Plaintiff who provided managerial services. Defendants alleged, in a counterclaim, that
Plaintiff: 1. was provided access to trade secrets; 2. had a duty not to misappropriate any trade secrets
of Defendants by virtue of the position of trust and confidence held by Plaintiff with respect to the
Defendant companies; 3. misappropriated trade secrets belonging to Defendants without their express
or implied authority or consent after his termination and/or resignation; and 4. continued to use the
trade secrets and other materials created by Defendants without their express or implied consent. The
Appellate Court disagreed. The Court held that Plaintiff was entitled to summary judgment on
Defendants' counterclaim alleging a violation of the Trade Secrets Protection Act, N.C. Gen. Stat. § 66152(3), because Defendants did not provide a more specific allegation or forecast of evidence as to an
alleged trade secret, as defined in § 66-152(3); rather, the counterclaim referred generally to
confidential financial information. The court concluded that there existed no genuine issues of material
fact with regard to the trade secret counterclaim.
Virginia
21st Century Sys. v. Perot Sys. Gov't Servs., 284 Va. 32, 726 S.E.2d 236 (Va. Sup. Ct. 2012). Plaintiff, a
consulting company, filed an amended ten-count complaint in trial court against Defendants, which,
amongst other claims, alleged a violation of Virginia's Uniform Trade Secret Act. Plaintiff alleged that the
Defendants, including former employees of the Plaintiff and a conspiring company, "willfully and
maliciously attempted to destroy Plaintiff and steal away tens of millions of dollars a year of Plaintiff's
business by unfairly and improperly using Plaintiff's confidential and proprietary information" so that
Defendant could establish itself in the US Navy consulting business. Plaintiff provided evidence, as
admitted by the trial court and acquired through a computer forensic investigation, that Defendants
were "exporting or taking large numbers of files off on to other devices" and doing so the day after their
resignations. The Defendant argued that the trial court erred when it failed to set aside damages for the
computer forensics firm because it was a cost of litigation. The Supreme Court of Virginia disagreed. The
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court held that the trial court's award of punitive damages in connection with the trade secrets claim
was found to be proper. The evidence was sufficient to demonstrate that the employees' actions caused
the company to initiate a computer forensics investigation. Thus, the trial court did not err when it
refused to set aside the jury's award for computer forensics damages. An award of $350,000 in punitive
damages was affirmed against each entity for the trade secret claim. The matter was remanded for
further proceedings and for entry of a final judgment order.
Bhagat v. Diamond Info. Sys., L.L.C., 84 Va. Cir. 233 (Va. Cir. Ct. 2012). Plaintiffs sued Defendant for
breach of contract. Defendant counterclaimed alleging seven causes of action, one being a violation of
the Virginia Trade Secret Act and conspiracy to injure Defendant in its trade. A jury returned a verdict for
Plaintiff. However, the court denied Plaintiff's motion to strike the misappropriation of trade secrets
claim. The issue was whether attorney's fees were recoverable absent a statutory or contractual liability
as part of Defendant's conspiracy claim for misappropriation of trade secrets. After review of Virginia's
conspiracy statutes, the court concluded that recovery of attorney's fees is limited to victims of
conspiracies. Plaintiff did not qualify for recovery of attorney fees because Plaintiff litigated over
monetary damages and had not pursued an equitable remedy. As Defendant's misappropriation count
survived Plaintiffs' motion to strike, the Court held that it would be inappropriate to find that Defendant
engaged in bad faith in filing that count; therefore, Plaintiffs were held to not be entitled to recover
attorneys' fees. The Court entered a bill of costs, granted Plaintiffs' motion to keep certain exhibits
under seal, and denied their motion to award attorney's fees.
Collelo v. Geographic Services, Inc., 283 Va. 56, 727 S.E.2d 55 (Va. Sup. Ct. 2012). Plaintiff, geographic
name mapping subcontractor, filed a motion for judgment against former employee for breach of
contract, tortious interference with a contract, and violations of the Virginia Uniform Trade Secrets Act.
Plaintiff subcontracts with various United States government prime contractors, to perform what is
known as geographic names work. Plaintiff trained Defendant in geonames work and exposed
Defendant to confidential information and alleged trade secrets. Defendant signed Plaintiff's
employment agreement, which included a non-disclosure and non-solicitation provision. Defendant
resigned from Plaintiff’s company and began working for Plaintiff's prime contractor. Plaintiff alleged
that Defendant was performing geonames work for the prime contractor such the prime contractor was
pressuring Plaintiff to reduce its’ rates and hours on a bid for geonames work. Plaintiff filed suit soon
thereafter. The trial court did not permit the jury to consider the existence of trade secrets of
misappropriation. Instead, the trial court granted the Defendant's motion to strike and dismissed the
Plaintiff's case with prejudice. In reviewing the requirements for a trade secret violation, namely the
existence of a trade secret and its' misappropriation by the Defendant, the court held that the trial court
erred in granting the motion to strike. Upon consideration of the evidence in the light most favorable to
the Plaintiff, the court could not say as a matter of law that Plaintiff did not present sufficient evidence
on the question of damages to survive a motion to strike. The court held that: 1.) subcontractor was not
required to show competition in order to establish trade secret misappropriation; 2.) damages evidence
was insufficient to support breach of contract and tortious interference with contract claims; 3.)
attorney's fee provision in addendum, rather than fee provision in body of employment agreement,
governed award of fees; and 4.) subcontractor's position that addendum's fee provision applied was not
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legally inconsistent with its pleadings. Affirmed in part, reversed in part, and remanded for a new trial
on Plaintiff's claims under the Trade Secret Act.
Preferred Systems Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 732 S.E.2d 676 (Va. Sup. Ct. 2012).
Plaintiff, an information technology contractor, sued Defendant, former subcontractor, for breach of
contract, tortious interference with contract, and misappropriation of trade secrets, seeking an
injunction requiring Defendant to stop working for competitor of contractor. The Circuit Court dismissed
the trade secret claim, found for the contractor on the breach of contract claim, and awarded the
contractor damages. The Supreme Court affirmed the Circuit Court’s decision and held that: 1.
noncompetition agreement between contractor and former subcontractor was unambiguous; 2. The
lack of a specific geographic limitation is not fatal to the covenant because the non-compete clause is so
narrowly drawn to this particular project and the handful of companies in direct competition with
Plaintiff. The noncompetition agreement was not overbroad and was thus enforceable; 3. evidence
supported a finding that Defendant was working in support of a particular program when it began to
work for competitor; 4. evidence supported a finding that Plaintiff, absent Defendant’s breach of the
noncompetition agreement, would have continued to bill and be compensated for work performed by
Defendant for competitor; 5. trial court could arrive at a reasonable, non-speculative amount of an
award of lost profits by using evidence of former subcontractor's bills to competitor for work of a similar
nature and contractor's own established profit margin; 6. contractor did not show that it lacked an
adequate remedy in law for former subcontractor's breach of the noncompetition agreement, and thus
contractor was not entitled to injunctive relief; 7. breach of the noncompetition agreement did not
constitute tortious interference; and 8. contractor did not state a claim for misappropriation of trade
secrets. Plaintiff had asserted that the Circuit Court erred by dismissing its claim under the Uniform
Trade Secrets Act. The Supreme Ct. of Virginia disagreed and held that although Virginia is a noticepleading jurisdiction, a complaint must still contain sufficient allegations of material facts to inform a
Defendant of the nature and character of the claim being asserted by Plaintiff. The Court held that the
complaint did not identify the trade secrets that were misappropriated and as a result did not set forth
the material facts to sustain a trade secret claim. The Court concluded that the Circuit Court did not err
by dismissing the claim.
5th Circuit
Bohnsack v. Varco, L.P., 668 F.3d 262, 101 U.S.P.Q.2d 1393 (5th Cir. 2012). Defendant Varco appeals
the district court's denial of judgment as a matter of law on claims of misappropriation of trade secrets
and fraud. The appellate court reversed the jury's award for compensatory damages on Plaintiff's fraud
claim and the jury's awarding of punitive damages. However, the appellate court affirmed the jury's
award of compensatory damages on misappropriation of trade secrets. Plaintiff, a drilling fluids
engineer, negotiated for several years regarding a new device which would allow the cleaning of drilling
fluids to be done more efficiently. The patent for the device was initially filed by Varco's attorney on
behalf of himself and Bohnsack. Varco's attorney later granted his interest to Varco. After numerous
tests and negotiations, Varco decided that the product would not be financially viable and dropped the
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product. Bohnsack attempted to patent the invention on his own, however, as it had been in use for
over a year commercially, he could not receive a patent for the device.
In determining whether trade secrets were misappropriated a court must find the presence of four
elements: "(1) existence of a trade secret; (2) breach of a confidential relationship or improper discovery
of a trade secret; (3) use of the trade secret; and (4) damages." To determine whether there was a
trade secret and if it was used, the court relied on the Restatement test which includes, "marketing
goods that embody the trade secret, employing the trade secret in manufacturing or production, relying
on the trade secret to assist or accelerate research or development, or soliciting customers through the
use of information that is a trade secret." The court reasoned that the jury was reasonable and
sufficient evidence to show that Varco exploited Bohnsack's idea in a way that would result in injury to
Bohnsack. Furthermore, by filing the patent and not moving forward, Varco lowered the market value
of Bohnsack's invention while protecting Varco from competition. Varco also claimed that since
Bohnsack could not prove precise damages for the misappropriation that he was not entitled to
damages. The court concluded that a claimant need only provide sufficient evidence for jury to
determine the value that a reasonably prudent investor would pay for the trade secret.
Louisiana
CheckPoint Fluidic Systems Intern, Ltd. V. Guccione, 888 F.Supp.2d 780 (E.D. LA. 2012). This case arose
out of trademark infringement, false advertising and unfair competition claims between Plaintiff,
CheckPoint, and Defendants, Guccione and RAM Repairs LLC. Plaintiff manufactures and sells chemical
injection pumps and pump components. After some negotiations, Guccione (as part of Elliot/Ellis
Enterprises, Inc. (EEI)) came on to work at and be a limited partner with CheckPoint after EEI gained a
70% majority interest in Checkpoint. Plaintiff alleges that in his role at CheckPoint, Guccione had access
to valuable proprietary information involving CheckPoint's products.. After leaving CheckPoint on
December 15, 2005, Guccione became managing partner and a 36% owner of RAM which also
manufactures chemical injection pumps called "Monkey Pumps". Plaintiff alleges that RAM and
Guccione designed the Monkey Pumps through the use of CheckPoint's confidential and proprietary
information and trade secrets which Guccione previously had access to. Furthermore, Plaintiff alleges
that Guccione knew that Dyn-O-Mach produced CheckPoints parts and that he later approached Dyn-OMach to reverse engineer Checkpoints pumps for RAM via their drawings and Computer Numeric Code
("CNC"; the code which instructs machines how to produce the parts).
After going into an analysis of preemption of federal law as well as the Louisiana Unfair Trade Practices
and Consumer Protection Act ("LUTPA"), the court looked to the plaintiff's motion for summary
judgment on the claim of misappropriation of trade secrets. Under the Louisiana Uniform Trade Secrets
Act ("LUTSA") a trade secret is: "information, including a formula, pattern, compilation, program, device,
method, technique, or process, that: a) derives independent economic value, actual or potential, from
not being generally known to and not being readily ascertainable by proper means by other persons
who can obtain economic value from its disclosure or us, and b) is the subject of efforts that are
reasonable under the circumstances to maintain secrecy. Defendants do not deny the economic value
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of CheckPoints drawings and CNC code, but that these are not trade secrets since 1) CheckPoint's
information was readily ascertainable, 2) CheckPoint did not adequately protect its drawings, and 3) the
CNC code was created by Dyn-O-Mach and therefore does not belong to CheckPoint. The court
determined that there were issues of material fact as to whether the information was readily
ascertainable because there was sufficient testimony to show that the pumps could be replicated based
on the publicly available diagrams. The court also agreed with defendants' next point, that CheckPoint
did not adequately protect its drawings. The Court held that, "LUTSA requires a party to take reasonable
measures to maintain relative, but not absolute, secrecy." The court looked to Plaintiff's failure to
retrieve drawings from Dyn-O-Mach (and similar firms), a lack of compiled inventory of drawings sent to
outside companies, and the fact that the drawings were faxed and not on bond-paper which would not
allow distinguishing from the originals. The court declined to rule on the final contention, that Dyn-OMach was the owner of the CNC code because there were still material questions of fact to determine
whether the drawings were a trade secret. The court chose to not grant summary judgment to
Plaintiff's on the issue of misappropriation of trade secrets.
WebApps, L.L.C. v. Accelerize New Media, Inc., 847 F. Supp. 2d 912 (E.D. La. 2012). Plaintiff WebApps,
L.L.C. developed, promoted, advertised, marketing and licensed HitPath Software. Their direct
competitor and defendant in this case was Accelerize New Media (PAB67 was also named as a
defendant). Plaintiff alleges that Defendants, "resorted to misappropriating trade secrets developed by
WebApps by accessing, copying, and downloading proprietary information from secure passwordprotected websites operating HitPath Software without authorization or consent on at least 24
occasions between January 1, 2011 and March 31, 2011," instead of competing on the merits. Plaintiff
further alleged that this misappropriation enabled Defendants to, "enhance the functionality of its own
software products, to avoid incurring the substantial costs and expenses associated with software
development," as well as gaining a competitive advantage which would not have been available but for
the theft. It is also alleged that in the process of copying, WebApps' servers were so taxed that actual
customers' access was either delayed or disturbed resulting in harm towards WebApps' reputation.
The court granted Accerlize's motion to dismiss in part and denied it in part. Defendant's motion to
dismiss was on counts 1 (Computer Fraud and Abuse Act claim), 2 (Stored Communications Act claim), as
well as 4, 5 and 7 (Trade Secret Preemption). In defending against claims 4, 5, and 7, Defendants argued
that claim 3 (appropriation of trade secrets) preempts claims 4, 5, and 7 since the claims were based
upon unfair practices and general tort law. The court stated that even if statutory law was controlling,
dismissal would have been inappropriate because Plaintiff alleged, "more than improper acquisition of
trade secrets." The court also held that if the issue of trade secret preemption would arise later on in
the action that the Louisiana and California statutes do not preempt an unfair trade practice claim. The
motion was granted to the extent that Plaintiff was given an additional 15 days to submit an amended
complaint that includes any necessary amendments to claims as outlined within the opinion.
Mississippi
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B&G Gulf Coast Properties, LLC v. Demo Diva, L.L.C., No.: 1:10CV143-RHW, 2012 WL 1025725 (S.D.
Miss. Mar. 26, 2012). The court denied Defendant's Motion for Partial Summary Judgment regarding a
claim of misappropriation of trade secrets. B&G provided leads to businesses (such as Demo Diva) who
contract with homeowners to demolish houses or slabs affected by Hurricane Katrina. In early 2009
B&G entered into a contract with Demo Diva where B&G would provide unique leads to Demo Diva.
Demo Diva would then pay B&G after a property owner contracted with Demo Diva and the work was
completed. The contract was non-exclusive, allowing B&G to solicit other demolition companies, but
the leads provided were unique to Demo Diva. B&G allowed Demo Diva to access the leads through a
password protected database. Unable to reach a new contractual agreement in 2010, Demo Diva
cancelled the contract and stated it would no longer be purchasing leads from B&G and would not pay
B&G for any pending or future contracts derived from the leads. Demo Diva then directly contacted
leads and told them to deal with Demo Diva directly.
Demo Diva moved for partial summary judgment on the claims of misappropriation of trade secrets and
unjust enrichment. Demo Diva argued that the leads did not constitute a trade secret as the data was
not kept secret, and that once the leads were purchased it gained an ownership interest in them. The
court declined to follow this reasoning citing that B&G's leads satisfied the requirement of, "deriving
independent economic value, actual or potential, from not being generally known to and not being
readily ascertainable by proper means by other persons who can obtain economic value from its
disclosure." The issue revolved around whether B&G took reasonable efforts under the circumstances
to maintain secrecy. B&G prevailed by arguing that since the leads were unique to each demolition
company and since the only way to access them was on a password-secured database, that the leads
were confidential data. The court declined summary judgment because there was a genuine issue of
material fact as to whether the leads constituted a trade secret.
Morton v. Cooper Tire & Rubber Co., 27 A.D. Cases 605, 288 F.R.D. 126 (N.D. Miss. 2012). This case
arises out of a discharge of employment and failure to accommodate in violation of the Americans with
Disabilities Act (ADA). Plaintiff had a below-the-knee amputation and prosthetic. He had been hired
without knowledge of his disability, but he was later let go due to a lack of productivity. Plaintiff alleges
that in a twelve hour shift he would need a couple of ten-minute breaks in order to readjust his
prosthetic leg, but Defendant alleges that there were several 30-minute breaks requested which were
not reasonable. In order to prove that the accommodation would not be overly burdensome, Plaintiff
made a discovery request for either pictures of the machine and video of an employee operating the
machine in order to show the physical demands of operating the machine. Defendants filed for a
protective order contending that the pictures and videos would compromise its trade secrets. Plaintiff
filed a motion to compel the discovery.
When arguing that trade secrets may be compromised, courts place the burden of proof on the party
seeking a protective order that the discovery materials sought are, in fact, trade secrets. The party
seeking the protective order must also show that disclosure of these trade secrets would lead to
identifiable and significant harm. Once the party has satisfied the burden of proving that trade secrets
are in question, the party seeking discovery must show that there is a legitimate need for the protected
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information. When balancing Cooper Tire's interest in protecting trade secrets and Morton's necessity
for the information, the court decided to deny Cooper Tire's motion for protective order because a mere
explanation, rather than photo and video discovery, would hinder Morton's case. Since the case was
not a products liability case and there was not going to be any expert inspecting the machine to
determine exactly how it performs, Cooper Tire did not face exposure of its trade secrets. However, the
court did hold that all discovery information gathered as a result of the inspection would be confidential
and placed certain restrictions on the inspection.
Unified Brands, Inc. v. Teders, 868 F. Supp. 2d 572 (S.D. Miss. 2012). This case involved Unified Brands,
the plaintiff, suing defendants (Teders, AEC and Holder) for violations of the Computer Fraud and Abuse
Act, misappropriation of trade secrets, tortious interference, and negligent supervision. Unified is a
manufacturer and marketer of food service equipment who purchased Intek in 2010. Teders had been
an executive at Intek and came aboard. Included in his employment contract was a covenant under
which Teders was prohibited from working for any enterprise that engaged in the sale or production of
steam cooking equipment for one year. Teders's contract also contained provisions to maintain
confidentiality as well as a non-compete clause. Unified alleges that in December of 2010 Teders
secretly negotiated and accepted employment with co-Defendant America Equipment Corporation
(AEC). Before announcing his resignation, Unified alleges that Teders accessed his work laptop and
downloaded a substantial amount of its sensitive and confidential business information, including
pricing information and customer lists.
Defendants AEC and Holder moved for summary judgment on Unified's claim of misappropriation of
trade secrets under the Mississippi Uniform Trade Secrets Act ("MUTSA"). Under MUTSA Unified had to
demonstrate: 1) that a trade secret existed, 2) the trade secret ws acquired through a breach of a
confidential relationship or discovered by inappropriate means, and 3) the use of the trade secret was
without the plaintiff's authorization. Under MUTSA product pricing and customer-related information
are considered trade secrets. It was further alleged that Teders obtained the trade secrets at a time
when he knew he was leaving unified to work at ARC, that he later disclosed them and that AEC/Holder
authorized or directly participated in the misappropriation and disclosure of the trade secrets. This was
deemed sufficient to survive a summary judgment claim.
Missouri
Accent Packaging, Inc. v. Leggett & Platt, Inc., 707 F.3d 1318 (Fed. Cir. 2013). The Court affirmed the
dismissal of Appellant’s trade secret misappropriation claim because the specifications and tolerances of
a patented baling device were not trade secrets under Missouri law, where the device had been sold in
regular steam of commerce and those sales were not subject to non-disclosure or confidentiality
restrictions and Appellant did not make any actual efforts to keep specifications and tolerances of
device a secret. Information that can be obtained from examining products sold into the public domain
or specifications and tolerances disclosed in or ascertainable from asserted patents after patent
applications were published cannot constitute trade secret under Missouri law.
Texas
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Clearline Technologies Ltd. V. Cooper B-Line, Inc., No. H-11-1420, 2012 WL 43366 (S.D. Tex. Jan. 9,
2012). Plaintiff is the manufacturer rooftop support products (trademarked C-PORT) filing suit against
Defendant (whose primary place of business is Illinois) for misappropriation of trade secrets,
infringement of Plaintiff's trademark and trade dress, false advertising, and other claims. In 2003
Plaintiff and Defendant entered into an agreement to, "evaluate and negotiate the prospect of [Plaintiff]
supplying strut supports, bridge supports and other related rooftop support products to [Defendant]."
Defendant was also given the exclusive rights to sell Plaintiff's products within the United States. In July
2007, Defendant expressed desire to distribute 700,000 units of Plaintiff's product which would require
Plaintiff to expand its operations. Relying on Defendant's desire to increase distribution, Plaintiff signed
a 5 year lease and incurred expenses in excess of $700,000. Defendant then abruptly cancelled the
relationship and stated it would no longer distribute Plaintiff's product. In July 2008, Plaintiff discovered
that Defendant was selling products similar to C-PORT under a new trademark DURA-BLOK which had
the same non-functional shape, dimensions, color, and yellow striping. The DURA-BLOK line was solid in
a virtually identical catalogue to the one developed and used by Plaintiff for its C-PORT product line.
The court dismissed Count 6 of Plaintiff's complaint that claimed Defendant misappropriated trade
secrets. The court applied the Illinois Trade Secret Act which defines a trade secret as information, "that
is (1) sufficiently secret to derive economic value, actual or potential, from not being generally known to
other persons who can obtain economic value from its disclosure or use and (2) the subjects of efforts
that are reasonable under the circumstances to maintain its secrecy or confidentiality."
Misappropriation involves the improper acquisition of a trade secret or the disclosure of a trade secret
without consent. Plaintiff's relied solely upon entering into a Proprietary Information Agreement with
Defendant. The court refused to infer that trade secrets existed simply because of the existence of a
proprietary information agreement. Plaintiffs also did not have sufficient factual basis to show that the
Defendant's "virtually identical" products were made using the same materials and process as Plaintiff’s.
Due to lack of factual grounds, the Court dismissed the misappropriation of trade secrets claim.
DT Apartment Group, LP v. CWCapital, LLC, No. 3:12-CV-0437-D, 2012 WL 6693192 (N.D. Tex. Dec. 26,
2012). Plaintiffs obtained financing from Defendants to purchase and operate four apartment
complexes. The original loan had stipulations for minimum financial conditions that needed to be
maintained otherwise a "cash restriction condition" would be imposed. Plaintiffs defaulted in 2008, but
an agreement was made that would modify and extend the loan. Plaintiffs defaulted again causing
Defendants to attempt foreclosure resulting in a lower fair market value and restriction of plaintiffs'
options in dealing with the property in an already difficult market. After being refused a third
modification, plaintiffs decided to attempt to sell the property. On two occasions buyers showed
interest, but each time Defendant requested the buyers' identities. Plaintiff alleges that Defendant
stated this was to help the sale happen in an expeditious manner, but that Defendant actually informed
buyers that the property was to be foreclosed and they could purchase the Note directly from
Defendant.
Along with breach of contract claims, Plaintiffs aver that they "entrusted defendant's agent. . .with
confidential, proprietary information: the identity of the investor who had presented plaintiffs with a
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letter of intent to purchase the Properties." Plaintiffs contend that this misuse of confidential
information allows for a claim for misuse of trade secrets. Held: The court held that there was no
misuse of trade secrets. In Texas, "there is no cause of action for misappropriation of confidential
information that is not either secret or, at least substantially secret." (emphasis in the original).
Furthermore, a trade secret "differs from other secret business in a business in that it is not simply
information as to single or ephemeral events in the conduct of the business. . . . A trade secret is a
process or device for continuous use in the operation of the business." Plaintiffs' claim was dismissed.
Gate Guard Services L.P. v. Solis, No. V-10-91, 2012 WL 4625679 (S.D. Tex. Sept. 30, 2012). Plaintiff,
Gate Guard Services, L.P., moved to seal portions of Deposition Transcripts given by two employees
claiming that a variety of documents discussed Gate Guard's client identities and marketing strategies
which are arguably trade secrets which, "are used for competitive advantage and are kept 'secret' so
that they are not readily ascertainable by the public." The court recognized that there is a public
common law right to inspect and copy judicial records, but that this right is not absolute and may be
denied, "where court files might have become a vehicle for improper purposes." When assessing if a
trade secret is present, Texas courts use the definition that, "a trade secret is, any formula, pattern,
device or compilation of information which is used in one's business and presents an opportunity to
obtain an advantage over competitors who do not know or use it.'" Furthermore, Texas courts have
deemed "customer lists, client information, and marketing strategies," as trade secrets.
The court determined that because the identities of Gate Guard's clients bore no relevance as to the
case's central issue (whether Gate Guard's attendants were employees or independent contractors) a
motion to seal a copy of the client list would be granted. However, the court also decided that not every
document that referenced a client must be sealed, noting that in many cases a simple redaction of the
client's names would suffice. The court also determined that sealing any deposition testimony that
discussed Gate Guard's marketing strategies (and issuing a protective order limiting the disclosure of
them) was appropriate because the Fifth Circuit "has held that using or disclosing even one trade secret
may create a substantial threat of irreparable injury." Therefore, the court granted the Amended
Motion to Seal Portions of the Deposition Transcripts and Motion for Protective Order in part and
denied it in part ordering certain documents to be sealed, others to be redacted, and some to be left
alone.
Reaux Medical Industries, LLC v. Stryker Corp., No. 3:09-cv-01582-M, 2012 WL 612534 (N.D. Tex. Feb.
27, 2012). Brian Reaux, founder of Reaux Medical set out to develop a surgical eye protector with peelaway eye shields. Reaux contacted various individuals and companies to help him develop the product.
Among them was Racing Optics. All of the parties were allegedly under a non-disclosure agreement
(NDA) regarding Reaux's product. Reaux alleges that Racing and Stryker then entered into a secret
relationship in which Racing provided Stryker with trade secret information covered by the NDA to assist
Stryker in the development of its products. Stryker filed a motion for summary judgment as to Reaux's
claims of misappropriation of trade secrets and claims of unfair competition. The former was denied
whereas the latter was granted.
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Stryker argued that, rather than being under a theory of misappropriation of trade secrets, Reaux's
claim fell under common law misappropriation. This is significant due to the effect of which statute of
limitations would apply because common law misappropriation has a two year statute of limitations in
Texas whereas misappropriation of trade secrets are subject to a three year statute of limitations.
Furthermore, in Texas, a claim of misappropriation of trade secrets must be brought within three years
of the misappropriation being, "discovered or by the exercise of reasonable diligence should have been
discovered."
Conversely, common law misappropriation begins to accrue as soon as the
misappropriation has occurred with the discovery rule only applying in cases of, "fraudulent
concealment" and "when the nature of the injury is inherently undiscoverable and the injury itself is
objectively verifiable." The court determined that Reaux's Complaint put Defendant's on notice of a
claim of misappropriation of trade secrets. Texas law defines a trade secret as, "any formula pattern,
device or compilation of information which is used in one's business and presents an opportunity to
obtain an advantage over competitors who do not know or use it." The information alleged in the
complaint regarding, "design, research and development efforts, and physical dimensions and
specifications" of a product fall "with the realm of information that could be subject to trade secret
protection. The court then looked to see when the statute of limitations began to toll and determined
that there was sufficient question of material fact that it must be put to a jury to decide. The court also
rejected Stryker's argument that Reaux's claim of misappropriation of trade secret was preempted by
federal patent law. Citing Kewanee Oil Co. v. Bicron Corp., the court adopted the Supreme Court's
holding that trade secret law is not preempted by federal patent law because the, "extension of trade
secret protection to clearly patentable inventions does not conflict with the patent policy of disclosure."
Versata Software, Inc. v. Internet Brands, Inc., 902 F. Supp. 2d 841 (E.D. Tex. 2012). Both Versata and
defendants (collectively "Autodata") sell technology that allows persons sopping for cars to use the
Internet to configure and compare different vehicles that are available for purchase. Both sell their
software to car manufacturers such as Chrysler and Toyota. In 2008 Chrysler terminated its contract
with Versata and began using Autodata's instead. Versata sued for patent infringement, breach of a
settlement agreement (from earlier litigation) and tortious interference. Autodata counterclaimed for
misappropriation of trade secrets. At trial, a jury found in favor of Autodata on its misappropriation
claim and granted damages.
Versata moved for a JMOL with respect to the jury's determination regarding the misappropriation of
trade secrets on the grounds that Autodata failed to prove that Versata misappropriated the
comparison algorithm that Autodata claimed as a trade secret. There were two trade secrets at issue,
the "ACE algorith" and the "database schema". Autodata alleged it shared both with Versata while the
companies were working together on a project for Ford and that Versata subsequently misappropriated
the information. Versata claimed that it did not misappropriate the algorithm because Versata's
algorithm contained different steps in a different order than Autodata's, and that the broad
characterization in its algorithm, not a "specific, defined trade secret", was the only thing the two
products have in common. Texas law defines a trade secret as “any formula, pattern, device, or
compilation of information which is used in one's business and presents an opportunity to obtain an
advantage over competitors who do not know or use it." Experts testified that despite certain
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differences in the combination and ordering of steps of the two algorithms, the Versata algorithm
embodied the essence of the Autodata algorithm. Due to testimony and evidence introduced at the
trial, the court determined that the jury was correct in their determination. Versata had been using
Autodata's algorithm while working together on the Ford project and applying it to its Toyota project.
Versata argued that it had used the trade secrets, but not misappropriated them, since it was working
with Autodata on the Ford project. However, evidence was introduced to show that there had been a
Master Services agreement that prohibited unauthorized use and disclosure of confidential information,
which the jury could reasonably have found included the ACE algorithm. Versata also argued that
damages in the full amount of the Toyota contract were improper because Autodata had not proven
that profits were entirely attributable to misappropriated trade secrets. The court held that Autodata's
expert had explained that the database schema (one of Autodata's trade secrets) was incorporated into
the vast majority of the software components sold by Versata and this was sufficient for a jury to find
that the amount of $2,000,000 was appropriate.
Vigo v. Reed, No. 3:11-CV-2044-G, 2012 WL 5363429 (N.D. Tex. Nov. 1, 2012). This case arises from a
contract dispute. Ariel Vigo, the plaintiff, was a concert promoter in Argentina. The defendant, Gabe
Reed, was also a promoter working out of Dallas, Texas. Reed had become aware that Vigo had
advertised a Motley Crue concert without contacting Reed regarding the date or venue. Vigo then sent
Reed a $150,000 deposit. There was a subsequent dispute regarding bids of other competitors which
led Reed to demand Vigo not advertise any more shows for which there was no agreement. Vigo
claimed that the $150,000 deposit gave her the right to advertise the show. In Vigo's letter, there was a
section addressed to unknown individuals telling the other promoters that, "they could shut down Mr.
Reed's shows" and accused Reed of, "sharp business practices." Reed claims that Vigo continued to
make statements to other individuals via email that subsequently made transactions concerning other
shows difficult and reduced their value. Reed eventually signed on with 4G Productions to promote two
Motley Crue concerts, but he ended up losing in excess of $150,000 due to Vigo's conduct and reduced
ticket sales that stemmed from that conduct. Vigo filed a complaint against Reed who then
counterclaimed for, "(1) tortious interference with an existing contract, (2) business disparagement, and
(3) trade secret misappropriation." Vigo then filed a FRCP 12 (b) (6) motion to dismiss the
counterclaims.
Under Texas law, a claim of trade secret misappropriation requires a showing that, "(a) a trade secret
existed; (b) the trade secret was acquired through a breach of confidential relationship or discovered by
improper means; and (c) use of the trade secret [was] without authorization from the plaintiff." Reed
asserted that his knowledge of Motley Crue's tour scheduled was protected marketing information; he
argued that this knowledge gave him a competitive edge by, "hindering competitors from booking
similar acts around the same time." As the existence of a trade secret is a question to be determined by
the finder of fact, the court looked to six different factors, “(1) the extent to which the information is
known outside the business; (2) the extent to which it is known by employees and others involved in the
business; (3) the extent of measures taken to safeguard the secrecy of the information; (4) the value of
the information to him and to his competitors; (5) the amount of effort or money expended in
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developing the information; and (6) the ease or difficulty with which the information could be properly
acquired or duplicated by others.” Since these factors could not be considered without pretrial
discovery, the court ruled that a 12 (b) (6) dismissal was not, "the proper vehicle to determine whether a
trade secret existed." Reed also alleged that, "Vigo acquired knowledge of Reed's trade secret through a
relationship of trust," making is plausible that Vigo obtained the knowledge through a confidential
relationship. Furthermore, by using the alleged trade secrets to advertise the concert to sell tickets,
"plausibly constitutes 'commercial use'."
Ultraflo Corp. v. Pelican Tank Parts, Inc. No. 4:09-CV-782, 2012 WL 3929821 (S.D. Tex. Sept. 7, 2012).
The court's opinion provided no factual background, instead just providing an analysis of the Plaintiff's
preempted state law claims as well as the claim for misappropriation of trade secrets.
The court established that the elements for a claim for misappropriation of trade secrets under Texas
law are, "that (1) a trade secret existed, (2) the trade secret was acquired through a breach of a
confidential relationship or discovered by improper means, and (3) the defendant used the trade secret
without authorization from the plaintiff." Defendant's argue that the valve in question was not a trade
secret since it was, "publicly available to the world and [could] be purchased by anyone." The court
cited the Restatement (Third) of Unfair Competition which states, "the theoretical ability of others to
ascertain the information through proper means [like difficult, costly, or time-consuming examination of
a publicly available product] does not necessarily preclude protection as a trade secret," but,
"information readily ascertainable from an examination of a product on public sale or display is not a
trade secret." In this case, the defendant's competing valve, ". . .matches [Plaintiff's] drawings better
than [Plaintiff's] own valve matches the drawings." The court goes on to state that, "even a statistical
analysis of the publicly available valve would fail to give the Defendants the information they sought to
obtain." For these reasons, the Court decided that Plaintiff had alleged sufficient questions of fact for
the misappropriation of trade secrets claim to survive Defendant's motion to dismiss.
6th Circuit
United States v. Howley, 2013 U.S. App. LEXIS 2397 (6th Cir. Feb. 4, 2013). Defendants appealed their
conviction of, among other charges, seven counts of stealing trade secrets. Defendants argued that the
district court erred when it found that the information in question constituted a trade secret because it
was not reasonably secured. The appeals court disagreed with the defendants and held that the trade
secrets were kept reasonably secret. Further, the appeals court held that the secrecy requirement did
not force a company to “keep its own employees and suppliers in the dark about machines they need to
do their work.” The government separately cross appealed the defendants’ sentencing, arguing that it
was procedurally unreasonable because the district court failed to compute the value of the trade
secrets. The appeals court agreed with the government and remanded the case for further sentencing
with the explanation that the district court should come to some “reasonable” estimate of actual or
intended loss from the theft of the trade secrets.
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Allied Erecting & Dismantling Co. v. Genesis Equip. & Mfg., 2013 U.S. App. LEXIS 697 (6th Cir. Jan. 8,
2013). Plaintiffs appealed the district court’s decision granting defendants’ renewed motion for
judgment as a matter of law that vacated the jury’s unjust-enrichment award. The lower court found
that the plaintiffs presented no evidence that would enable a jury to find that the defendants benefited
from the plaintiffs’ trade secrets. The appeals court disagreed and held the defendants made
unauthorized use of the plaintiff’s trade secrets and earned $14 million in gross revenue from that
information. Thus, there was measurable unjust enrichment. Further, damages could be estimated by
using a profit projection created by the defendants. Conversely, the appeals court upheld the district
court’s decision regarding lost profits, however, and held that the plaintiffs failed to establish a link
between a defendants’ misappropriation and plaintiffs’ loss.
Worldcare Intern. Inc. v Kay, 36 Misc 3d 1204(A) (Sup Ct 2012). Worldcare International, Inc. d/b/a
Medstock and Medstock Inc. (collectively “Plaintiffs”) filed suit against former employees, Scott Kay,
MFS Industries, Inc., Jason Bran, Superior Maintenance Supply LLC, Mariela Jimanez, and Robert
Ubracio. Amongst other claims, including the violation of the Racketeer Influenced and Corrupt
Organizations Act of 1970, Plaintiffs alleged defendants misappropriated trade secrets in the form of a
marketing and sales system which included developed techniques for successfully marketing and selling
Plaintiffs’ products as well as Plaintiffs’ client lists, vendor lists, pricing, product specification, as well as
other data. Plaintiffs further allege defendants used the alleged trade secrets in their new business
ventures, Superior Maintenance LLC and MFS Industries. Kay and MFS moved to dismiss 16 out of 20
claims contained in Plaintiffs’ 88-page Complaint and the remaining defendants moved to dismiss all
claims. Plaintiffs opposed both motions. The court granted the motion to dismiss in part for 11 of the
claims and denied in part as to the remaining claims. As to the misappropriation claim, the court denied
the motions concluding Plaintiffs properly asserted that the alleged trade secrets were kept confidential
and that Defendants stole such information to compete against Plaintiffs.
Kentucky
Liberty Corp. Capital Ltd. v. Sec. Safe Outlet, Inc., 2013 U.S. Dist. LEXIS 42975 (E.D. Ky. Mar. 27, 2013).
Plaintiff, an insurance company, moved for summary judgment on its declaratory judgment action.
Plaintiff argued that it did not have to indemnify its client, defendants, under a series of commercial
general liability coverage policies defendants purchased from plaintiff between 2008 and 2012. In 2011,
defendants filed a claim to cover itself and one of its employees under the policies it had purchased
from plaintiff regarding an underlying suit. The plaintiff in the underlying suit alleged that the defendant
corporation and its employee misappropriated trade secrets and breached the employee’s non-compete
agreement with the employee’s former employer. The insurance company argued, and the court
agreed, that it was not obliged to indemnify its client because the terms of the insurance policy
exempted “personal and advertising injury” caused by the defendant arising out of a breach of contract.
The court held that since the injury arose from the employee’s dissemination of proprietary and trade
secret information to the defendant the injury arose from a breach of the non-compete agreement.
Thus, the court determined that the insurance company was not obliged to indemnify the defendant.
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Michigan
Dana Ltd. V. Am. Axle & Mfg. Holdings, 2013 U.S. Dist. LEXIS 22042 (W.D. Mich. Feb. 19, 2013).
Defendants moved to limit testimony regarding trade secrets, confidential and proprietary information,
and expert testimony. The defendants argued that the plaintiff failed to identify clearly, unambiguously,
and with specificity the trade secrets at issue in the case. However, the defendants never requested its
expert to determine the scope of the trade secret claims in the plaintiff’s complaints. Further, the
defendants failed to determine which documents the plaintiff planned on using to support its trade
secrets claim. Finally, when the defendants moved for summary judgment on this issue the plaintiff
willingly produced a categorized list of all the trade secrets at issue with corresponding exhibit numbers.
Therefore, the court determined that the defendants willfully failed to use discovery to determine the
scope of plaintiffs claim as a strategic decision and could not claim that they lacked notice on the eve of
trial.
Tampone v. Richmond, 2013 U.S. Dist. LEXIS 3221 (E.D. Mich. Jan. 9, 2013). Defendants filed a motion
for summary judgment with respect to plaintiffs’ misappropriation of trade secrets claim. Defendants
argued that plaintiffs failed to identify what constituted its trade secret at plaintiffs’ deposition.
Plaintiffs, furthermore, could not identify what trade secrets were misappropriated from him after the
close of discovery. Thus, the court held that the plaintiffs failed to present sufficient evidence to support
their misappropriation of trade secrets claim.
NDSL, Inc. v. Patnoude, 2012 U.S. Dist. LEXIS 173694 (W.D. Mich. Dec. 7, 2012). Plaintiff filed a
preliminary injunction motion to enjoin its former employee, and defendant, from competing with
plaintiff in violation of a non-competition agreement. Plaintiff argued that defendant would inevitably
disclose trade secrets or other confidential information as part of his new employment. The district
court noted, however, that North Carolina law does not recognize the doctrine of inevitable disclosure.
Further, the district court held that not all client lists are automatically trade secrets and thus the
plaintiff failed to meet its burden to demonstrate strong likelihood of success on the merits. Finally, the
court held that the plaintiff failed to show that irreparable injury was likely because the defendant’s new
employment brought him to a new geographic region selling products to different customers.
MedSource, LLC v. DeRoyal Indus., 2012 U.S. Dist. LEXIS 165264 (E.D. Mich. Nov. 20, 2012). Plaintiff
sued defendants for unfair competition after defendants wrongly took information and resources such
as patient files and other products from plaintiff. Defendants contended that the plaintiff’s unfair
competition claim was based on misappropriation and thus displaced by the Michigan Uniform Trade
Secret Act. The court, partially agreeing with the defendant, held that to the extent the plaintiff’s claim
was based on misappropriation of trade secrets it was displaced. However, because the defendants only
raised the displacement issue in their reply brief the court denied their motion to dismiss on that issue
without prejudice.
New Jersey
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Luxus Aviation, LLC v Kerwin Media LLC, 91 AD3d 569 (1st Dept 2012). Luxus, a New Jersey limited
liability company specializing in advertising, and UMI, a 50% member of Luxus, filed suit against Roaring
Thunder Media and Kerwin Media related to UMI’s purchase of Kerwin’s 50% membership interest in
Luxus. Plaintiffs alleged, amongst other claims, that defendants misappropriated Luxus trade secrets in
the form of the Luxus business model, client information, and other purported confidential information,
to compete against Luxus. Defendants moved to dismiss all claims under New Jersey law. The court
granted defendants’ motion to dismiss and concluded that the claims all fell within the scope of a
release agreement under which plaintiffs and affiliates waived any claims against defendants related to
breach of fiduciary duties, confidentiality, or other obligations. Plaintiffs appealed. The court affirmed
the ruling, except as to the misappropriation claim because the alleged conduct occurred after the date
the release agreement was signed.
Pop Intern. Galleries Inc. v Swarts, 34 Misc 3d 1239(A) (Sup Ct 2012). Pop International Galleries, Inc.
(“Pop”) filed suit against Brian Swarts, former Pop art consultant and salesman, DJT Fine Art
International d/b/a/ Taglialatella Galleries, a similar pop-art related business, and Dominic Taglialatella.
Pop alleged Swarts misappropriated trade secrets in the form of Pop’s confidential customer, artist,
distributor, and vendor lists to compete against Pop. Pop sought an order granting a temporary
restraining order and preliminary injunction enjoining defendants from continuing to use such
information. The court denied the Pop’s motion because Pop did not sufficiently show that the alleged
trade secrets were confidential information or that Pop took reasonable efforts to maintain secrecy.
New York
Aon Risk Services v Cusack, 34 Misc 3d 1234(A) (Sup Ct 2012). Aon Corporation and Aon Risk Services
Northeast, Inc. (Aon Northeast) (collectively, “Plaintiffs”) sought damages and injunctive relief against
Michael Cusack, the former Aon Senior Vice President and Managing Director, and his new employer,
Alliant Insurance Services, Inc. Plaintiffs alleged, amongst other claims, defendants stole Plaintiffs’ client
and employee information. Defendants filed a motion to dismiss. Alliant’s motion to dismiss was
denied. The court denied Cusack’s motion, except as to Aon’s misappropriation claim. The court
concluded Aon did not establish the claim because Aon did not show that any information was taken,
disclosed to, or used by Alliant.
Kryman v Jalas, 35 Misc 3d 1218(A) (Sup Ct 2012). Jacob Kryman, J.C. Carter, Inc. (“J.C.Carter”), and
KCH Corporation (“KCH”) (collectively, “Plaintiffs”) moved for a preliminary injunction enjoining Sam
Jalas, Simon Rubinfeld, Fantastic Industries, Inc. (“Fantastic”), Everwin Enterprises Ltd. (“Everwin”), and
Leung Wing Cheong (collectively “Defendants”) from, amongst other actions, using and sharing
Plaintiffs’ proprietary information and trade secrets. Defendants Leung and Everwin moved to dismiss
Plaintiffs' complaint for lack of personal jurisdiction. The court held there was personal jurisdiction over
Leung and Everwin since the use of the alleged misappropriated trade secrets caused injury in New York,
and defendants were engaged in business in New York. Therefore, the court denied Leung and
Everwin’s motions to dismiss.
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MSCI Inc. v Jacob, 36 Misc 3d 211 (Sup Ct 2012). MSCI, a distributor of computer software to clients
who participate in the global financial market, filed suit against Philip Jacob, a former employer of MSCI,
and Axioma, Inc., Jacob’s new employer. MSCI alleged defendants misappropriated MSCI trade secrets
in the form of MSCI source codes. Defendants sought to compel MSCI to affirmatively identify its trade
secrets during discovery. MSCI sought to identify the trade secrets by identifying the components of the
source codes that were not claimed to be trade secrets. Defendants argued that if they exposed
Axioma’s trade secrets in full prior to MSCI revealing its source codes, MSCI could misappropriate
Axioma’s trade secrets. The court agreed with defendants and held that MSCI must identify, with
reasonable particularity, the portions of the source code that are trade secrets prior to seeking further
discovery from defendants.
Ohio
Kendall Holdings, LTD. v. Eden Cryogenics, LLC 2013 U.S. App. LEXIS 7274 (6th Cir. April 5, 2013).
Plaintiff appealed the district court’s decision granting defendants’ summary judgment motion on
plaintiff’s misappropriation claim. The district court found that the plaintiff’s Ohio Uniform Trade Secret
Act (OUSTA) claim was barred by the four-year statute of limitations because the plaintiff knew the
defendant had the trade secret in 1999, eight years before plaintiff instituted the suit. However, the
appeals court reverses on this point. Misappropriation, as defined by the OUSTA, requires a defendant
to acquire trade secrets through “improper means.” The plaintiff authorized the defendants to retain
the trade secrets upon the defendant’s termination. Thus, there was a genuine issue of material fact as
to whether, and if so when, the defendant acquired the trade secret improperly. Defendant-appellees
argued that even if the district court erred in its misappropriation holding, summary judgment was
proper because the plaintiffs failed to take reasonable steps to keep the information secret and thus it
was not a trade secret. The appeals court rejected this argument and held that the determination of
reasonableness is left to the trier of fact and not a reviewing court.
Cleveland Clinic Found. v. Studer, 2013 U.S. Dist. LEXIS 75235 (N.D. Ohio May 29, 2013). Plaintiff
brought an action against defendants for, among other things, trade secret misappropriation and
copyright infringement. A defendant argued that plaintiff’s misappropriation claim under the Ohio Trade
Secret Act was preempted by their second claim under the Copyright Act of 1976. The court held that
the misappropriation claim was not preempted by the copyright claim because each claim required
different elements. The misappropriation claim, unlike the copyright claim, required that the plaintiff
show that the trade secret was acquired as a result of a breach of a confidential relationship. The court
thus denied defendants’ motion to dismiss.
Kuvedina, LLC v. Cognizant Tech. Solutions, 2013 U.S. Dist. LEXIS 72057 (S.D. Ohio May 21, 2013).
Defendants moved to dismiss plaintiff’s misappropriation of trade secrets claim for failure to state a
claim. Defendants argued that no trade secret existed and it had no duty to keep information it learned
from plaintiff confidential. The court disagreed and held for plaintiff. The court found that the
information, consisting of customer and consultant lists, marketing strategies, and purchase histories all
constituted trade secrets. Further, the court held that the duty to keep information confidential does
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not only arise with a specific contractual promise. Thus, the court denied the defendants’ motion to
dismiss plaintiff’s misappropriation claim.
Dayton Superior Corp. v. Yan, 2013 U.S. Dist. LEXIS 55922 (S.D. Ohio April 18, 2013). Plaintiff filed a
preliminary injunction motion to enjoin defendants from misappropriating plaintiff’s trade secrets. The
plaintiff argued that the defendants acquired confidential information while working for the plaintiff and
would inevitably disclose that information while working for a competing corporation. Defendants
argued that the inevitable disclosure rule was not satisfied because the defendants had not actually
disclosed the information to anyone and because the plaintiff was not concerned with hiring someone
who would not inevitably disclose its trade secrets. The court rejected the defendants’ arguments on
both points because the inevitable disclosure rule is speculative. However, it found for defendants and
held that neither the misappropriation claim nor the inevitable disclosure claim warranted a preliminary
injunction. The court held that the inevitable disclosure rule was inapplicable because the parties did
not sign an enforceable noncompetition agreement. Further, because the information the defendants
had allegedly misappropriated was not “timely, sensitive, strategic, and/or technical information that . . .
pose[d] a serious threat” to the plaintiff’s business the defendants did not fall within the ambit of the
inevitable disclosure rule.
Devicor Med. Prods. v. Reed, 2013 U.S. Dist. LEXIS 45730 (S.D. Ohio Mar. 29, 2013). Plaintiff filed a
motion for a temporary restraining order and preliminary injunction to enforce a non-compete
agreement against defendant. Defendant argued, and the court agreed, that enforcement of the noncompete agreement was unlikely to succeed because the defendant’s role with his new company was
substantially different from his position with the plaintiff. Further, the information defendant had access
to, such as client identity, was not confidential because the overall market was specialized and narrow
and all the participants knew each other. Defendant further argued that the non-compete agreement
was unenforceable for over-breadth because it would prevent him from working with any customers of
the plaintiff, his former employer, unless he had a previous relationship with them. The court agreed
with the defendant at the preliminary injunction stage and held that the plaintiff had not demonstrated
a likelihood of success on the merits of its breach of contract claim. Finally, plaintiff argued that
defendant would inevitably use and disclose its proprietary confidential information. The court
disagreed and held that the inevitable disclosure doctrine was inapplicable because the defendant did
not have access to confidential information and because the defendant was not working in a
substantially similar position.
Kehoe Component Sales, Inc. v. Best Lighting Prods., 2013 U.S. Dist. LEXIS 38816 (S.D. Ohio Mar. 20,
2013). Plaintiffs and defendant cross motioned for summary judgment regarding a contract dispute
between the two companies. Defendant’s counterclaim, among other things, argued that plaintiffs
misappropriated trade secrets in violation of the Ohio Uniform Trade Secret Act (OUSTA). Plaintiffs
argued that the OUSTA counterclaim was barred by the four-year statute of limitations, which the court
disagreed with. The court held that the application of a statute of limitations is a mixed question of law
and fact and requires a trier of fact to determine when a cause of action accrues. Thus, the plaintiffs’
motion for summary judgment on this claim was denied because there was a genuine issue of material
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fact as to when the defendant should have known about the conduct forming the basis of its
misappropriation counterclaim.
Avery Dennison Corp. v. Juhasz, 2013 U.S. Dist. LEXIS 23079 (N.D. Ohio Feb. 20, 2013). Plaintiff filed a
motion for a preliminary injunction seeking to enjoin defendant from violating his non-compete
agreement by accepting employment with plaintiff’s competitor. The court first re-characterized the
provisions of the non-compete agreement and held that the agreement did not prohibit defendant from
accepting employment with a competitor unless he was providing services that were the same as those
he provided to the plaintiff. Thus, because the defendant’s role with his new company was entirely
different from those he performed for the plaintiff the non-compete agreement did not cover his
actions. The court further held that the defendant did not fall under the inevitable disclosure doctrine
because he was in a role at his new company that was not substantially similar to his role with the
plaintiff.
FirstEnergy Solutions Corp. v. Flerick, 2012 U.S. Dist. LEXIS 180237 (N.D. Ohio Dec. 20, 2012). Plaintiff
filed a preliminary injunction motion to enjoin defendant from violating his non-compete agreement
with plaintiff. The court first held that the non-compete agreement was reasonable because it was
limited in time and scope. Next, the court found that defendant possessed confidential information
gained form his employment with the plaintiff, such as his own book of contacts, pricing and strategy
information, and customer lists. Additionally, the court found that the defendant gained skills and
experience while working for plaintiff, he possessed other confidential information and trade secrets of
the plaintiff when he stopped working for the plaintiff, and contacted the plaintiff’s customers while at
his new company. The court concluded that the inevitable disclosure doctrine applied because any
harm, at the preliminary injunction stage, was still speculative. For these reasons, the court enjoined the
defendant from violating the remainder of his non-compete agreement.
Dayton Superior Corp. v. Yan, 2012 U.S. Dist. LEXIS 169564 (S.D. Ohio Nov. 29, 2012). Defendants
brought a motion to dismiss for lack of personal jurisdiction plaintiff’s claim for misappropriation of
trade secrets. Defendants were a former employee of the plaintiff corporation and the company the
former employee started. Both the former employee and his company were, for all relevant times,
located in Missouri. The court held that three sections of the Ohio Long Arm Statute conferred it with
personal jurisdiction over the defendants. First, the court found that section (A)(1) was satisfied because
the defendant received and accessed the plaintiff’s confidential information, which was located in Ohio,
while he was in Missouri. Further, the defendant communicated with individuals located in Ohio and
traveled to Ohio at least once. Thus, the court found that he had transacted business in Ohio and
satisfied Section (A)(1). Second, the court held that Section (A)(4) conferred jurisdiction over the former
employee defendant. Defendants fulfilled the first prong of (A)(4) by harming an Ohio entity, the
plaintiff, through actions from another forum. The court found that the defendant satisfied the second
prong of section (A)(4) because he was regularly paid by an Ohio corporation (the plaintiff), regularly
communicated with his Ohio employer, and routinely received sales reports from Ohio. Section (A)(4)
also conferred personal jurisdiction to the court over the defendant corporation because it’s agent, the
former employee, engaged in persistent course of conduct in Ohio. Third, section (A)(6) conferred
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jurisdiction over the defendants because they “might reasonably have expected [plaintiff] to be injured
in Ohio by their alleged tortious acts.”
The court next concluded that employing Ohio’s Long Arm Statute did not offend traditional notions of
due process. Defendants transacted business inside Ohio and thus purposefully availed themselves of
the protection of Ohio’s laws. Further, the injuries arose from the defendants acts with Ohio because
the former employee acquired the trade secrets from an Ohio company while in Ohio and the defendant
corporation ratified his actions. Finally, exercise of personal jurisdiction over the defendants was
reasonable because Ohio and the plaintiff had a valid interest in convenient and effective relief.
Aethra Sistemas Automotivos, S.A. v. Addison McKee, Inc., 2012 U.S. Dist. LEXIS 177437 (S.D. Ohio
Dec. 14, 2012). Plaintiffs moved to compel defendant to produce documents defendant termed
confidential under a proposed protective order. The proposed order provided that either party could file
under seal any document it designated as “confidential.” The court found that this proposed protective
order was inconsistent with Sixth Circuit law and modified the order to require the parties to submit
material to the court for review before it was placed under seal. Finally, the court modified the
definition of the term “confidential” in the order to include the words “trade secret.”
Altronic LLC v. Green, 2012 U.S. Dist. LEXIS 174526 (N.D. Ohio Dec. 10, 2012). Plaintiff filed a temporary
restraining order to enjoin defendant, its corporate business partner, from attending a trade show.
Plaintiff argued that the defendant had breached their patent licensing agreement by selling technology
without its permission. The licensing agreement prevented the defendant from improving the
underlying technology of the patent without sharing it with the plaintiff. However, the court found that
the defendant’s new technology was fundamentally different from the technology in the licensing
agreement and thus not covered as an “improvement.” The plaintiff also sought to enforce a noncompete agreement against its former employee to prevent him from working with the defendant
corporation. The court denied this motion as well because it found that the former employee did not
have confidential information or trade secrets. The court held that any information that belonged to the
plaintiff that the former employee possessed was already known to the defendant for two reasons. First,
because the defendant was the plaintiff’s distributor and second because the defendant corporation
had hired two other employees away from the plaintiff who had the same information as the employee
in question.
Penn, LLC v. Prosper Bus. Dev. Corp., 2012 U.S. Dist. LEXIS 168577 (S.D. Ohio Nov. 28, 2012). Plaintiffs
moved to lift the Attorneys’ Eyes Only (AEO) designation on documents provided by defendants.
Defendants provided 5,100 documents and classified them all as AEO pursuant to the parties agreed
upon protective order. Plaintiffs argued, and the court agreed, that such a designation was improper
because the plaintiffs could not view the materials to establish any legal claims. The court held that an
AEO designation is the most restrictive possible protective order and not justified by the mere presence
of a trade secret. The court went further and required that any party attempting to designate a
document as AEO had to justify why such designation was required.
Tennessee
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Wyndham Vacation Resorts, Inc. v. Timeshare Advocacy Int’l, LLC, 2013 U.S. Dist. LEXIS 4039 (M.D.
Tenn. Jan. 10, 2013). Plaintiff filed suit against defendants for, among other claims, violations of the
Tennessee Uniform Trade Secrets Act (TUTSA). The jury awarded judgment to defendants and the
defendants filed for attorneys’ fees and costs. Under the TUTSA, reasonable attorney’s fees could be
awarded to the prevailing party when a claim of misappropriation was made in bad faith. Defendants
argued that the plaintiff’s TUTSA claim was filed in bad faith because it relied on general categories of
allegedly misappropriated trade secrets in lieu of specific ones. The court held that the plaintiff did not
file its TUTSA claim in bad faith because there was testimony that supported its argument and because
defendants presented no clear evidence that the plaintiff acted in bad faith.
Smith & Nephew, Inc. v. Northwest Ortho Plus, Inc., 2012 U.S. Dist. LEXIS 178715 (W.D. Tenn. Dec. 18,
2012). Plaintiff filed a motion for a preliminary injunction seeking to enjoin defendants from violating
their non-compete agreements with plaintiff. In determining whether the plaintiff was likely to succeed
on the merits of its argument the court first analyzed whether it was protecting a legitimate business
interest. The court held that a legitimate business interest was present if, without a non-compete
agreement, “the employee [would] gain an unfair advantage in future competition with the employer.”
The court further held that the defendants were provided specialized training, had access to confidential
information, and were the face of the plaintiff’s business and therefore in a position to gain an unfair
advantage in future competition with the plaintiff. Thus, the plaintiffs were protecting a legitimate
business interest and the court granted the plaintiff’s preliminary injunction motion.
Direct Line Corp. v. Carrington, 2012 U.S. Dist. LEXIS 178114 (M.D. Tenn. Dec. 17, 2012). Plaintiff filed a
motion for a preliminary injunction against defendant to enjoin defendant from misappropriating
plaintiff’s trade secrets. The district court entered a default judgment against defendant and remanded
the action to the magistrate judge for determination of damages. The magistrate found that the
plaintiff’s calculations of damages was appropriate and also determined that the defendant willfully and
maliciously misappropriated plaintiff’s trade secrets. Because of the finding of willful and malicious
misappropriation, the magistrate found that the plaintiff was entitled to a doubling of its damages.
7TH Circuit
Fail-Safe, LLC v. A.O. Smith Corp., 674 F.3d 889 (7th Cir. 2012). The Seventh Circuit affirmed the grant
of summary judgment on trade secret misappropriation claims, holding that the plaintiff failed to take
reasonable steps to maintain the secrecy of its alleged trade secrets. Plaintiff claimed defendant had
misappropriated trade secrets regarding anti-entrapment devices for pool drains. Explaining that one
“who claims a trade secret must exercise eternal vigilance in protecting its confidentiality,” the court
found that the plaintiff freely shared its trade secret information with defendant. In particular, the court
noted that plaintiff did not enter a non-disclosure agreement with defendant, despite entering those
agreements with other entities.
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The court also rejected plaintiff’s argument that it believed it had entered a “confidential relationship”
with defendant by forming a joint venture, and therefore fact issues precluded summary judgment. The
court noted that plaintiff’s “mere subjective belief” that it had entered a joint venture did not “warrant
protection.” In light of those principles, the court found that plaintiff had not maintained the secrecy of
its information as a matter of law, and thus summary judgment was appropriate.
Illinois
Motorola, Inc. v. Lemko Corp., 08 C 5427, 2012 WL 74319 (N.D. Ill. Jan. 10, 2012) Plaintiff claimed that
defendants misappropriated plaintiff’s trade secrets, including source code, technological concepts
relating to a “seamless mobility” system, millions of electronic files, and other categories of information.
Defendant moved for summary judgment, arguing that plaintiff had not specifically identified its trade
secrets, or demonstrated that it had maintained the secrecy of the alleged trade secrets.
The court found that plaintiff had sufficiently identified its trade secrets, and that fact issues precluded
summary judgment based on plaintiff’s failure to maintain the secrecy of its trade secrets. In
considering whether plaintiff had properly identified its trade secrets, the court discussed recent
opinions that involved the dismissal of claims after a party repeatedly failed to identify its trade secrets.
In those cases, plaintiffs referred to huge swathes of data or files as potential evidence of
misappropriation. The court found that unlike the plaintiffs in those matters, the Motorola plaintiff had
done more than simply referencing “general methods or areas of its business.” Finally, the court noted
that the question of whether a plaintiff has taken proper measures to maintain the secrecy of its
information is a highly factual inquiry. The court found that the Motorola plaintiff had demonstrated
that a reasonable juror could find that it had taken sufficient measures to maintain the secrecy of the
alleged trade secrets.
Gallagher Bassett Servs., Inc. v. Vacala, 2012 IL App (2d) 111175-U (Ill. Ct. App. Aug. 29, 2012). After
finding that restrictive covenants relied on by the plaintiff were unenforceable as a matter of law, the
Illinois Appellate Court (Second District) affirmed the dismissal of “conclusory” trade secret claims at the
pleading stage. Plaintiff brought suit after two of its employees left and joined a competitor. The court
found that plaintiff had failed to allege that defendants misappropriated plaintiff’s confidential
information through “improper means.”
Notably, the court found that confidentiality and non-compete agreements entered by plaintiff and its
employees were not enforceable due to lack of consideration. The employees were asked to sign those
agreements after joining plaintiff – and left their employment with the plaintiff four or five months after
entering the agreements. The court found that “continued employment” after entering an agreement
containing restrictive covenants may provide sufficient consideration – but that “generally, two years of
continued employment is considered sufficient consideration.” As the former employees had only
worked for plaintiff for few months after entering the agreements, the agreements were not
enforceable as a matter of law. Accordingly, the court found that the employees were not contractually
obligated to maintain the confidentiality of plaintiff’s information.
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Those holdings doomed plaintiff’s trade secret claims. Plaintiff had argued that it had adequately
alleged that defendants used “improper means” to misappropriate plaintiff’s trade secrets because they
had breached their contracts with plaintiff. The court found that since plaintiff’s contractual claims
failed as a matter of law, plaintiff’s claim of misappropriation through “improper means” also failed.
The court found the remainder of plaintiff’s allegations supporting its trade secrets claims was
conclusory and thus insufficient.
Indiana
HDNet LLC v. N. Am. Boxing Council, 972 N.E.2d 920, 925 (Ind. Ct. App. 2012) transfer denied, 980
N.E.2d 322 (Ind. 2012). The Court of Appeals of Indiana reversed a trial court ruling that claims for “idea
misappropriation” and civil conversion were not preempted by the Indiana Uniform Trade Secrets Act
(IUTSA). The case involved claims by a mixed martial art sanctioning body against a cable television
channel. Plaintiff alleged that defendant used an idea for a MMA fight series that had been developed
by plaintiff.
The Court of Appeals agreed with defendant that claims for “idea misappropriation” and civil conversion
were preempted by the IUTSA. The court explained that claims for misappropriation that relate to
“trade secret” information are preempted by the express terms of the IUTSA. Claims for misuse of
information that do not qualify as trade secrets are not legally cognizable – as the Act establishes that
that information is unprotected, and misuse of that information cannot be the basis for tort actions.
(The court noted that contractual claims for idea misappropriation are not preempted by the IUTSA.)
Bodemer v. Swanel Beverage, Inc., 884 F. Supp. 2d 717 (N.D. Ind. 2012). Plaintiff, a beverage
corporation that markets energy drinks, sued a former employee that formed a competing company.
Defendant moved for summary judgment on plaintiff’s trade secret misappropriation claims. The court
granted defendant’s motion in part, finding that plaintiff itself was not aware of the specific formula
used to flavor its drinks. The court found, however, that the following information may constitute trade
secrets: (i) the identities of plaintiff’s distributors; (ii) plaintiff’s distributors’ supply requirements; (iii)
plaintiff’s product recipe; (iv) plaintiff’s production techniques; (v) the identity of plaintiff’s “flavor
house” (that supplied the flavor for plaintiff’s drinks); and (vi) pricing arrangements with plaintiff’s
suppliers and distributors. The court did not rule on whether that information actually constituted trade
secrets, but found that a reasonable juror could conclude that they were trade secrets, and thus denied
summary judgment for defendant.
CDW LLC v. NETech Corp., 906 F. Supp. 2d 815 (S.D. Ind. 2012). Plaintiff alleged that defendant hired
plaintiff’s employees and encouraged them to use plaintiff’s trade secret information in their work for
defendant. Defendant filed a Daubert motion challenging the damages opinions of plaintiff’s expert.
With the exception of one category of damages, the court granted defendant’s motion, finding that
plaintiff’s damage claim was unreliable.
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Plaintiff’s expert used three damages methodologies: (1) a “yardstick” method that compared the
success of plaintiff’s Indianapolis office to plaintiff’s other offices, and calculated damages based on the
relative revenue growth in those offices; (2) lost profits for sales made by plaintiff’s former employees in
their work for defendant; and (3) predicted future lost profits. The court found that the “yardstick”
method was not reliable, as plaintiff’s expert did not account for general market circumstances, and
defendant’s actual sales were substantially less than the damages that plaintiff’s expert predicted under
the “yardstick” method. Similarly, the court found the expert’s opinion on future damages was
unreliable. The court noted that the expert did not test important assumptions underlying that opinion.
For example, the expert simply accepted the testimony of two of plaintiff’s employees that it would take
three to seven years for plaintiff’s reputation to recover from damage caused by the former employees.
The court allowed the expert to offer testimony regarding specific sales made by the departing
employees for the defendant. Even as to that damage theory, the expert’s testimony was limited to the
amount of those sales, and the expert was precluded from offering testimony regarding whether trade
secret misappropriation caused damage.
Wisconsin
Centrifugal Acquisition Corp., Inc. v. Moon, 09-C-327, 2012 WL 718999 (E.D. Wis. Mar. 5, 2012).
Plaintiff moved for emergency injunctive relief to prevent the publication of a patent application that
contained information about plaintiff’s trade secrets. The court had previously found that plaintiff had
established that a proprietary process was a trade secret, and entered an injunction precluding
defendant from using or disclosing that proprietary process.
Defendant allegedly violated that injunction by including information about the proprietary process in a
patent application. The court entered a preliminary injunction that directed the United States Patent
and Trademark Office to “temporarily cease all efforts to publish the subject patent application.” The
court also directed the defendant to submit the patent application for in camera inspection, and to file a
continuation application with a non-publication request with the USPTO, and also to file an express
abandonment of the patent application one day later.
Joyce v. Pepsico, Inc., 2012 WL 1033468, 813 N.W.2d 247 (Wis. Ct. App. 2012). Plaintiffs brought trade
secret claims against Pepsico and others based on defendants’ sale of “Aquafina” water. Plaintiffs
alleged that they had shared trade secrets regarding purified water products with Pepsico in 1981, but
did not learn their trade secrets had been used in the production of Aquafina products until 2007.
Plaintiffs filed suit in 2009, and after Pepsico failed to appear for three months, obtained a default
judgment against Pepsico in the amount of $1.26 billion in September 2009. Pepsico moved to vacate
the default judgment and dismiss plaintiffs’ claims on limitations grounds. The circuit court granted
both requests, and the Court of Appeals affirmed those decisions.
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The appellate court held that plaintiffs had failed to exercise reasonable diligence in monitoring whether
Pepsico was using their trade secrets, and thus their claims failed as a matter of law. The court rejected
plaintiffs’ argument that the discovery rule should be applied to save their claims. Plaintiffs asserted
they would have to be “persistently paranoid” to continue to investigate, over a period of decades,
whether defendants had stolen their ideas. The court noted that defendants began selling Aquafina in
1996, and thus plaintiffs let more than a decade elapse before investigating whether defendants had
used their trade secrets. The court thus found that the discovery rule did not apply.
8th Circuit
AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp, 663 F.3d 966; 101 U.S.P.Q.2D (BNA) 1069 (8th Cir.
December 13, 2011). The dispute relates to the classification of a compilation of information associated
with the overhaul of helicopter engines as trade secret. The FAA approval of helicopter engine overhaul
requires fulfillment of criteria contained in the pertinent Distributor Overhaul Information Letter
(DOILs). Beginning in about 1995 Rolls Royce initiated a concerted effort to retain all updated DOILs as a
trade secret. Accordingly, Rolls Royce restricted to the most updated DOIL distribution to its approved
agents. Efforts were made by Rolls Royce to protect the compilation of information as confidential and
each copy of the DOIL included proprietary information markings. AvidAir is not an approved agent for
the overhaul of Rolls Royce’s helicopter engines and disputes the characterization of the DOIL as trade
secret.
A principal issue on appeal is whether Rolls Royce’s DOIL fulfill the requirements for trade secret
protection. The Uniform Trade Secrets Act (UTSA) has been adopted by both Indiana and Missouri, the
applicable jurisdictions. The UTSA states that trade secret protection is applicable to information, …
that: (1) derives independent economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy. Mo. Rev. Stat. § 417.453(4).
The DOILs are compilations of secret and non-secret information providing a competitive advantage.
The value is not derived from the magnitude of the technical advance contained in the compilation, but
rather the expenditure of time, effort, and expense involved in the compilation. In contrast to patent
law, the effort of compiling the valuable information is protected, rather than the merit of the technical
advance or quantum of public available information contained in the compilation.
Rolls Royce fulfilled the first criteria with its DOIL. The DOIL criteria are required for FAA approval of the
overhaul. Even though the criteria may be ascertained from public information, AvidAir chose to use the
DOIL and did not independently develop its own criteria. AvidAir would require significant investment
of time, effort, and investment to independently develop its own DOIL. Accordingly, the 8th Circuit Court
affirmed that the first requirement is fulfilled by the DOIL.
The second factor is whether Rolls Royce took adequate steps to maintain the secrecy of the DOILs. It is
undisputed that Rolls Royce consistently used a proprietary information label on all DOIL documents.
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Further, any disclosure of the DOIL was covered by a confidentiality agreement with third parties. The
8th Circuit affirmed that Rolls Royce’s consistent effort to protect the secrecy of the DOIL is adequate.
Accordingly, the 8th Circuit Court of Appeals affirmed the judgment of the district court.
Eugene R. Robinson v. Janet Napolitano, 689 F.3d 888; No. 11-1834 (8th Cir. August 7, 2012). The case
relates to an employment dispute involving the TSA. The parties entered a protective order governing
the use and disclosure of SSI during the litigation. The protective order indicated that any materials
marked as SSI must be treated as confidential and placed under seal in the interest of national security.
Accordingly, Robinson was instructed to submit any SSI that he wished to use at trial to the TSA. TSA
was instructed to propose a workable substitute for the SSI; however, in the event that no alternative is
available, then testimony must be restricted to the TSA approved information. TSA issued at least two
Final Orders regarding the SSI information that Robinson may use at trial.
Robinson appeals the validity of the Final Orders by the TSA designating information as SSI.
The Court limited its review to the TSA’s final orders. The Court noted that its jurisdiction does not
extend to the interpretation and enforcement of protective orders or the admission or exclusion of
evidence during trial. The court of appeals deferred to the agency’s findings of fact, so long as the
findings were supported by substantial fact. The court of appeals stated that agency findings of fact may
only be overturned if they are arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law.'" Boca Airport, Inc. v. FAA,389 F.3d 185, 189, 363 U.S. App. D.C. 397 (D.C. Cir.2004).
Though the appeals court sympathized with Robinson’s concerns that TSA may have a conflict of
interest, the Court held that there were no signs of abuse of discretion by TSA. TSA’s redactions and
comments regarding SSI were consistent and reasonable, the redactions were minimally prejudicial, and
the appeals court quoted Wescott in stating that the district court “possesses inherent powers 'to
manage its affairs so as to achieve the orderly and expeditious disposition of cases,'" Wescott AgriProds., Inc. v. Sterling State Bank, Inc., 682 F.3d 1091, 1095 (8th Cir. 2012).
TSA also filed a request that the Court file its decision under seal so that TSA could review the decision
to ensure that it does not contain any SSI, and provide the public with a redacted copy that does not
contain SSI. The Court granted the request and the published opinion is free of any protected
information.
Robinson’s petitions were denied and TSA’s Second Final Order was affirmed.
Hallmark Cards, Incorporated v. Janet Murley, No 1-2855, 703 F.3d 456, (8th Cir. January 15, 2013).
Hallmark Cards sued a former employee for breach of the separation agreement, requiring protection of
Hallmark’s confidential information. At issue is an adverse jury verdict in the district court trial. The
Court may review the district court’s decision to give particular instructions for an abuse of discretion.
The Court citing Stevenson v. Union Pacific, found that a district court must make two findings to
support an adverse inference. 354 F.3d 739, 746, 748 (8th Cir. 2004). That is 1) there must be a finding of
an intentional destruction indicating a desire to suppress the truth, and 2) there must be a finding of
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prejudice to the opposing party. The evidence presented at trial strongly suggests that both prongs of
the test were met. Evidence at issue is reasonably suggested by the fact that she retained Hallmarkrelated documents for five years after her separation, but deleted them in the 48 hours prior to an
inspection of her personal computer.
The Court held that the district court is entitled to fashion appropriate sanctions for evasive litigation
tactics. Although the district court did not issue explicit findings of bad faith and prejudice, the decision
is strongly supported by the evidence.
Hallmark’s separation agreement clearly indicated its priority in preserving confidentiality. Accordingly,
the Court held that Hallmark presented ample evidence at trial to show that the former employee not
only retained, but also disclosed Hallmark’s confidential documents to a competitor, in violation of the
terms and primary purpose of the agreement. Thus the Court held that the jury verdict refunding
Hallmark’s full payment under the severance agreement is not against the weight of the evidence and
where the district court balances the evidence based on proper legal standards, the court’s denial of a
new trial is virtually unassailable.
The Court did find that the jury award to Hallmark of payment received from a competitor for work
done was improper. The law cannot elevate the non-breaching par;ty to a better position than she
would have enjoyed had the contract been completed on both sides. The award was vacated and
remanded to reduce the fee appropriately.
Iowa
Reg Seneca, LLC v. Phillip Harden, 4:13-cv-00121-JAJ, 2013 U.S. Dist. LEXIS 53441 (D. Iowa April 9,
2013). This case relates to the inevitable disclosure of trade secret information by a former employee.
Reg Seneca seeks preliminary injunctive relief to prevent irreparable harm through inevitable disclosure
and/or use of the trade secret information.
The Iowa Trade Secret Act (ITSA) is generally consistent with the Uniform Trade Secret Act definition for
trade secrets. The ITSA contemplates preliminary injunctive relief in appropriate circumstances. Iowa
Code § 550.3(1). Iowa Code section 550.2(4).
The District Court, granting the preliminary injunction, reasoned that the factors set forth in Dataphase
are applicable to the analysis. That is, 1) likelihood of success on the merits 2) threat of irreparable
harm to the plaintiff 3) balance between harm and potential harm to others if the relief is granted and 4)
whether an injunction serves the public interest. Dataphase Sys., Inc. v C L Sys., Inc. 640 F.2d109, 114
(8th Cir. 1981).
First, the Court reasoned that REG is likely to prevail on the threat that its trade secrets will be
misappropriated. Under Iowa Code, “misappropriated” broadly means disclosure of the trade secrets or
a breach of a duty to maintain secrecy. The District Court further reasoned that the defendant’s noncompete clause relating to the trade secrets is likely to be valid.
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Second, the Court found that there is sufficient threat of irreparable harm to enjoin the former
employee from both disclosing REG’s confidential information and continuing employment with a direct
competitor of REG. The Court held that the former employee would have great difficulty discerning
where his general knowledge ends and REG’s trade secrets begin. The threat of inadvertent or
inevitable disclosure of trade secrets creates a threat of irreparable harm.
Third, the balance of the harms, while difficult, favors enjoining the former employee from continuing
employment with the competitor. The conflict was completely foreseeable by the employee who chose
to leave his employ with REG, despite warnings that doing so would violate the non-compete clause of
his agreement. The balance of harm weighs in favor the injunction.
Finally, the Court considered whether the public interest would be served by granting the motion for
injunctive relief. In general, the Court reasoned that enforcement of a valid non-competition agreement
serves the public interest. Generally, the public has little interest in the outcome of the dispute. As
such, the public interest was found to weigh little in either parties favor.
The Court held that REG successfully presented the Dataphase factors weighing in favor of the
preliminary injunction. REG demonstrated that there is a likelihood of success on the merits, there is a
significant threat of irreparable harm, and the balance of harms weighs in REG’s favor. Further, the
Court held that the preliminary injunction is appropriate where the former employee is engaged in
exactly the same business as he was for the trade secret owner.
REG’s Motion for Preliminary Injunction is GRANTED.
9th Circuit
Arizona
Food Services of Amer. Inc. v. Carrington, 2012 WL 5465322, No. CV-12-00175-PHX-GMS (D. Ariz., Nov.
8, 2012). The Arizona district court held that (a) an employee who had the right to access his employer’s
confidential emails did not violate the federal Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030,
by downloading 300 such documents to his personal computer and sharing them with a recently
terminated employee; (b) tort claims based upon the misappropriation of information are preempted
under the Arizona Uniform Trade Secrets Act where an AUTSA claim is asserted in the action.
Moore v. Commercial Aircraft Interiors, 2012 WL 1947890 (Wash. Ct. App., May 29, 2012). A
Washington appellate court held that a former employee suing his former employer for tortious
interference with business expectancy must show actual evidence and not simply conclusory statements
of his alleged former employer’s improper purpose, in order to recover. Robert Moore (“Moore”)
worked for Commercial Aircraft Interiors (“CAI”) from 2003 until his voluntary resignation in 2008.
Moore never signed a non-compete agreement with the company, but did sign a non-disclosure
agreement intended to protect CAI’s confidential, proprietary, and trade secret information. A few
months after his resignation from CAI, CAI began merger negotiations with a competitor, Volant
Aerospace Holdings LLC (“Volant”). The companies hired Moore as an “independent consultant” to
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assist with negotiations. As part of his employment, Moore signed contracts with both companies
prohibiting the disclosure of trade secrets, finances or “other know-how” to third parties.
After a few months, negotiations between the parties broke down. Moore went back to work at CAI.,
but was laid off by about three months later. Later that year, Moore applied to Volant, which seriously
considered hiring him, but was hesitant to do so without CAI’s blessing. As a result, Volant’s president
wrote to CAI asking for the company’s acknowledgement that hiring Moore was not objectionable and
would not violate any legal agreement. CAI responded, via counsel, that the company opposed Moore’s
hiring, and that as a Volant employee, Moore could not “avoid the use of or disregard the infinite
knowledge he possesse[d] of CAI’s confidential information and trade secrets.” CAI threatened litigation
for unfair competition if Volant were to hire Moore.
As a result of the letter, Moore failed to obtain employment with Volant, and sued CAI, alleging tortious
interference with business expectancy and blacklisting. The trial court granted summary judgment for
CAI, finding Moore had failed to state sufficient evidence that CAI had acted in bad faith or with malice.
Moore appealed to the Court of Appeals, which affirmed the summary judgment. In affirming the trial
court’s ruling, the Court of Appeals found the burden was on Moore to establish the elements of
tortious interference. To do so, he would need to prove the existence of five elements: “(1)existence of
a valid contractual relationship or business expectancy, (2) that defendants had knowledge of that
relationship, (3) an intentional interference inducing or causing a breach or termination of the
relationship or expectancy, (4) that defendants interfered for an improper purpose or used improper
means, and (5) resultant damage.
Here, however, the court found Moore failed to show improper means or purpose. Although Moore
argues CAI’s threat of litigation provided sufficient proof, the court found “threatened lawsuits may
constitute an interference by improper means only where the interferor has no belief in the merit of the
litigation or threatens litigation only to harass the third parties and not to bring his claim to definitive
adjudication.” The burden of proof was on Moore to show the litigation was not in good faith, and the
two sworn declarations provided were merely conclusory, and as such, insufficient evidence.
Similarly, the court dismissed Moore’s argument that CAI failed to act in good faith, because their
reasons for legal action relied on the inevitable disclosure doctrine, rather than any actual threat of
trade secret disclosure. This doctrine, which, in some jurisdictions, prevents an employee from going to
work for a competitor by demonstrating the employee would inevitably disclose trade secrets, has never
been expressly adopted by the Washington courts. The court rejected Moore’s argument, finding the
inevitable disclosure irrelevant, since the case at issue did not allege trade secret misappropriation, and
neither party sought an injunction. Ultimately, the court found the evidence suggested CAI was simply
asserting in “good faith, an arguable interpretation of existing law” which did not make the company
liable for tortious interference or blacklisting. Here, no evidence showed threatened frivolous litigation
based on a desire to harass or harm Moore according to the court.
B2B CFO Partners, LLC v. Kaufman, 856 F. Supp. 2d 1084 (D. Ariz. Mar. 5, 2012). Partnership and its
managing partner brought action against former partner for misappropriation of trade secret, and
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breach of fiduciary duty. Former partner filed motion for partial summary judgment arguing that the
alleged trade secret monetary distribution plan was initially disclosed to him without requiring him to
first sign a confidentiality agreement. The Arizona federal district court held that, inter alia, genuine
issues of material fact existed as to facts bearing on determination of whether a portion of a monetary
distribution plan for partners was entitled to trade secret protection under Arizona law. Specifically, the
Court noted that the monetary distribution plan at issue was disclosed only to the former partner and
no other parties. Additionally, the Court highlighted that while the plaintiffs and defendant did not have
a confidential relationship, the cover letter accompanying their partnership agreement made it clear
that plaintiffs considered the partnership agreement confidential and requested its return in the event
that defendant turned down the offer to join the partnership. Thus, plaintiffs’ disclosure certainly did
not constitute a public announcement, but rather was for a restricted purpose and limited to only one
individual. Moreover, the Court reasoned that the plaintiffs’ did not relinquish the secrecy of their trade
secret information because the limited publication to defendant was for the restricted purpose of their
partnership offer. Accordingly, the court denied defendant’s motion for partial summary judgment.
Calisi v. Unified Financial Services, LLC, No. 1 CA-CV 11-0812, 2013 WL 1490465 (Ariz. App., Apr. 11,
2013). Former employee Calisi brought action for unpaid wages against his former employer UFS; UFS
counterclaimed, alleging misappropriation of trade secrets. The Superior Court granted Calisi’s claim for
unpaid wages and UFS’ counterclaim for misappropriation of trade secrets, leaving a net judgment in
Calisi’s favor. Calisi appealed and UFS cross-appealed. The Arizona Court of Appeals held that, inter alia,
UFS’ customer list was not a legally enforceable trade secret. The Court reasoned that at trial UFS did
not present evidence actually describing the confidential customer information it argued constituted a
trade secret. Although it presented testimony that it attempted to cross-sell financial products to its tax
clients by using information gleaned from their tax returns, UFS failed to present any evidence it had
actually acquired any specialized, valuable information about its customers, such as information
concerning their financial requirements, tax strategies, investment objectives, and risk and investment
preferences that could constitute a protectable trade secret. Moreover, although UFS argued on appeal
it “knows the nature” of the professional services required by the individuals identified in the Calisi list,
it failed to present any evidence at trial that in providing services to these individuals, it actually
developed, compiled, or captured any information regarding these individuals and their particular
needs, preferences, strategies, or characteristics worthy of trade secret protection.
The Court further explained that UFS failed to show it had made substantial efforts to develop its
customers and their personal information (assuming it had any such in-formation), and this information
would be difficult for a competitor to duplicate or acquire. The Court stressed that the record was
completely silent regarding the cost, time, frequency, and success rate of UFS's direct mail advertising or
its use of any other marketing method, such as “cold calling,” tax seminars, or financial planning
programs. Simply put, UFS failed to present any evidence that it had expended substantial effort to
develop its customers and any personal information about them in a way that its competitors could not
duplicate. The Court also noted that UFS failed to demonstrate it had actually treated its customer lists
as a secret. Specifically, the Court cited testimony where a mortgage firm and UFS had shared a mutual
referral arrangement for years, thus resulting in an overlap in clientele. Accordingly, the Court
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remanded the case and directed the Superior Court to enter judgment in Calisi's favor on the
misappropriation of trade secrets claim.
W.L. Gore & Assocs. V. GI Dynamics, 872 F. Supp. 2d 883 (D. Ariz. May 30, 2012). Competitor brought
action against developer of intestinal sleeve device anchored in the gastro-intestinal tract that would
treat patients suffering from morbid obesity and/or Type II diabetes, alleging that competitor had
shared interest in development of device, and that competitor's personnel should be declared coinventors of various patents. Developer filed counterclaims alleging misappropriation of trade secrets,
breach of confidence, unjust enrichment, misrepresentation, and violations of Massachusetts law.
Competitor moved for summary judgment on counterclaims. The Arizona federal district court held that,
inter alia, the claim alleged under Massachusetts unfair or deceptive business practices law was not
preempted by Arizona Uniform Trade Secrets Act (AUTSA). The court rejected defendant’s claims that its
breach of confidence claim was not preempted because it was “grounded on an implied-in-law or quasicontractual theory” The court stated that the AUTSA preemption clause does not contain an exception
for claims grounded in quasi-contractual theory; it contains an exception for “contractual remedies.”
The court also rejected defendant’s argument that if the allegedly misappropriated information were to
eventually be found not to be a trade secret, the preemption provision would not apply, and that
preemption was therefore premature. The court explained that the AUTSA preempts common-law
claims “to the extent they are based on an allegation that Defendants misappropriated trade secrets.”
(emphasis added). Finally, the court rejected defendant’s argument that plaintiff did not raise the issue
of preemption in its answer. Accordingly, the court found that defendant’s counterclaims for breach of
confidence and unjust enrichment were preempted, but not its claims for deceptive or unfair business
practices.
California
U.S. v Nosal, 676 F.3d 854 (9th Cir 2012). In U.S. v. Nosal, a Ninth Circuit en banc panel affirmed the
judgment of the district court that dismissed certain criminal counts against a former employee of a
headhunter firm accused of violating the CFAA. The court acknowledged that the Eleventh, Fifth, and
Seventh Circuits permit employers to pursue CFAA claims against employees who violate computer use
policies or violate duties of loyalty to their employer. The court, however, reversed its prior threemember panel ruling and reaffirmed the holding in Brekka that the CFAA prohibits improper access of
computer information whether it is “without authorization” or “exceed[ing] authorized access,” but not
misuse or misappropriation. The court concluded that because Nosal’s alleged accomplices had
permission to access the company database, they did not “exceed authorized access” under the CFAA.
The court stated that the statute was meant to punish hacking, not the misappropriation of trade
secrets. To find otherwise, Chief Judge Alex Kozinski reasoned, would “criminalize any unauthorized use
of information obtained from a computer” and “make criminals of large groups of people who would
have little reason to suspect they are committing a federal crime.” In a powerful dissent, Judge Barry
Silverman criticized the majority’s “far-fetched hypotheticals” and “straw men” that “playing sudoku,
checking email, [and] fibbing on dating sites” would render employees criminals under the CFAA. Judge
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Silverman stressed that the case “has everything to do with stealing an employer’s valuable information
to set up a competing business with the purloined data, siphoned away from the victim, knowing such
access and use were prohibited in the defendants’ employment contracts.”
A California federal jury ultimately convicted Nosal in April 2013 for other violations of the CFAA and
theft of trade secrets from his former employer. Nosal is scheduled for sentencing on September 4,
2013. He faces penalties up to five years’ imprisonment and $250,000 for the computer offenses, and up
to 10 years’ imprisonment and $250,000 for the trade secret offenses.
The Art of Living Foundation v. Doe, 2012 U.S. Dist. LEXIS 61582 (N.D. Cal., May 1, 2012). A foundation
which teaches wellness, spiritual lessons, breathing, meditation and yoga brought a suit for copyright
infringement and trade secret misappropriation against anonymous bloggers who had posted about the
organization. Defendants argued that the alleged trade secrets are Hindu mystical claims, and that
deciding their trade secret status would violate the free exercise clause. The court held otherwise,
finding it could decide the trade secret claims without being required to interpret Hindu beliefs or other
religious teachings. In doing so, the court would simply compare the material to what is generally
known to the public, consider whether plaintiff derived economic value from the nondisclosure, and
evaluate whether plaintiff took reasonable measures to maintain the secrecy of the information. The
court granted one of the blogger’s motions to strike the trade secrets misappropriation claim while
denying the motion in regards to another. The court found that one of the bloggers conceded that there
was at least some overlap between his blog postings and the materials plaintiff designated as trade
secret, but also found with respect to the other defendant that there was no evidence that blogger
misappropriated any of those materials.
Skyline Zipline Global, L.L.C. v. Domeck et al., Case No. 12-00450 JMS-BMK, 2013 WL 1103084 (D.
Hawaii Mar. 15, 2013). In Skyline Zipline, Cougar Mountain allegedly began negotiating with Experiential
Resources, Inc. (“ERI”), a subcontractor that would assist in some of Cougar Mountain’s zipline course
installations and projects. On September 13, 2006, Cougar Mountain and ERI executed a Confidentiality
Agreement, after which Cougar Mountain allegedly shared with ERI its confidential and proprietary
zipline technology and trained ERI on how to install and operate its zipline courses. In September 2009,
a Cougar Mountain executive allegedly saw photos of one his former partner’s zipline course and
allegedly immediately recognized Cougar Mountain’s proprietary braking system and patent-pending
trolleys. Around this same time, the executive allegedly also learned from another former alleged
prospective partner’s website that ERI was involved in the construction of its zipline. With this
information, Skyline Zipline Global, LLC (a previously uninvolved fourth party that had assumed Cougar
Mountain’s intellectual property rights) filed a complaint against ERI and two business partners, on
August 28, 2012, asserting patent infringement, breach of contract, trade secret misappropriation,
fraudulent concealment, and tortious interference.
On October 31, a motion to dismiss was filed asserting that (1) Cougar Mountain did not take reasonable
steps to keep its proprietary information secret and (2) Cougar Mountain’s claim was time-barred
because they should have discovered the alleged misappropriation in 2007. Defendants’ argument was
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based on the claim that Cougar Mountain’s technology does not constitute a trade secret because they
revealed their supposedly proprietary information to the alleged business prospective partners without
obligating them to keep the information confidential. However, in its reply, Cougar Mountain disavowed
that its misappropriation claim against the prospective business partners was based on the theory that
Cougar Mountain disclosed trade secret information directly to them prior to having them sign a
confidentiality agreement. Rather, it stated that it provided only general information and the basis of its
trade secrets claim against them is that the alleged prospective business partners knew of Cougar
Mountain’s confidential relationship with ERI and used ERI as their vendor knowing that ERI was
allegedly using Cougar Mountain’s trade secrets. The court accepted this argument, and denied the
motion with respect to the trade secret misappropriation claim. The court, however, narrowed the trade
secret misappropriation claim to the allegation that the alleged prospective business partners obtained
trade secret information through ERI and/or that one of the business partners obtained trade secret
information after it signed a confidentiality agreement in connection with its letter of intent.
The court then turned to the statute of limitations argument. The Hawaii Uniform Trade Secrets Act
states that all actions for misappropriation “must be brought within three years after [it] is discovered or
by the exercise of reasonable diligence should have been discovered” (HRS §482B-7). More than three
years had lapsed since Cougar Mountain questioned ERI about its involvement with the alleged
prospective business partners, and thus, the court had to decide whether Cougar Mountain executive’s
inquiry to ERI and ERI’s subsequent denial of any involvement with defendants’ ziplines constituted
“reasonable diligence.” Although the Hawaii Supreme Court had never directly decided this issue, the
court looked to other Hawaii and California court decisions and found it “plausible (at least at this
pleadings stage) that ERI Defendants’ assurances that they were not involved with [one of the business
partners] would end a reasonable investigation.” Accordingly, the court denied the motion to dismiss
with respect to the misappropriation of trade secrets claims.
SunPower Corp. v. Solarcity Corp., Case No. 12-CV-00694-LHK (N.D. Cal., Dec. 11, 2012). A federal
district court dismissed claims for misappropriation of non-trade secret proprietary information as
preempted by the California Uniform Trade Secrets Act (CUTSA) because they arose out of the same
operative facts as the plaintiff’s trade secret misappropriation cause of action. The court further held
that claims for misappropriation of proprietary non-trade secret information would be superseded by
CUTSA unless (1) such information was “made property by some provision of positive law”, or (2) the
non-trade secret claims allege “wrongdoing that is materiall[y] distinct” from the wrongdoing alleged in
a CUTSA claim.”
Mattel, Inc. v. MGA Entertainment, Inc., Case No. 11-56357 (9th Cir. Jan. 24, 2013). After more than
eight years of litigation and two jury trials over the Bratz doll line, rival toy makers Mattel, Inc. and MGA
Entertainment, Inc. saw another jury award overturned. A Ninth Circuit panel overturned an award of
$172 million in damages (including attorneys’ fees) to MGA for alleged trade secret misappropriation,
holding that MGA’s respective counterclaim-in-reply was not compulsory and should not have reached
the jury. In 2006, Mattel sought leave to amend its complaint by adding a claim against MGA for alleged
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misappropriation of trade secrets. Then, in 2010, after the Ninth Circuit had decided the first appeal,
MGA filed a counterclaim against Mattel for misappropriating its trade secrets.
Mattel moved to dismiss MGA’s claim, arguing that the statute of limitations had run because the events
at issue happened more than three years earlier. Mattel argued that MGA’s trade secrets claim did not
arise out of the transaction or occurrence that was the subject of Mattel’s trade secrets claim. Mattel
argued that each party’s claims involved different trade secrets that were allegedly stolen at different
places and times; by different actors; and through different means. The district court denied Mattel’s
motion and instead found that that MGA’s counterclaim-in-reply for trade secret theft was compulsory
because it was “logically related” to Mattel’s trade secret theft claim. Specifically, the district court ruled
that it was “more than reasonable to conclude at least some of the trade secret information allegedly
misappropriated by [MGA] incorporated trade secret information” that Mattel had allegedly stolen from
MGA.
MGA’s trade claim proceeded to trial. The jury found for MGA, and awarded more than $80 million in
damages. The district court then awarded MGA an equal amount in exemplary damages under the
California Uniform Trade Secrets Act, which authorizes exemplary damages if the misappropriation was
“willful and malicious.” Cal. Civ. Code § 3426.3(c). The court also awarded trade secret attorneys’ fees
and costs. In addition, because the jury found for MGA on Mattel’s copyright claim, the district court
awarded attorneys’ fees and costs to MGA under the Copyright Act. Mattel appealed the trade secret
award and the award of fees and costs on the Copyright claim.
On appeal, the Ninth Circuit panel affirmed the award of fees and costs on the copyright claim but
reversed on the trade secret award. Relying on In re Pegasus Gold, 394 F.3d 1189 (9th Cir. 2005), the
panel held that MGA’s counterclaim-in-reply was not “logically related” to Mattel’s counterclaim
because it “did not rest on the same ‘aggregate core of facts.’” The panel explained that opposing claims
of trade secret theft are not enough to render a counterclaim compulsory: “[w]hat matters is not the
legal theory but the facts.” Specifically, the Court reasoned that MGA’s claim did not rest on the same
“aggregate core of facts” as Mattel’s claim. Accordingly, the Court vacated the jury’s verdict in favor of
MGA because the claim was not compulsory and, thus should not have reached the jury. The Court
instructed the district court to dismiss MGA’s trade secret claim without prejudice.
United States v. Zhang , No. CR-05-00812-RMW (N.D. Cal. 2012). Former Silicon Valley engineer Zhang
was convicted on criminal counts for stealing trade secrets from his former employer.
Aqua Connect, Inc. v. Code Rebel LLC, No. 2:11-cv-05764-RSWL-MAN (C.D. Cal. Feb. 15, 2012). A
remote-access software company claimed one of its customers violated the California Uniform Trade
Secrets Act by downloading a trial version of plaintiff’s Mac-environment remote-access software and
“reverse engineering” its own program in violation of the user agreement terms. The court held that
mere reverse engineering of a trade secret, without any further evidence of improper access or
acquisition, was not enough to prove misappropriation under the Act. Thus, Aqua Connect’s online
offering of free 14-day trials of its program, even though accompanied by a license agreement not to
reverse engineer and subsequently sell such programs, precluded Aqua Connect’s claim of improper
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acquisition. Furthermore, there was no misappropriation, as this was not a situation where Code Rebel
had either a fiduciary or an employee duty to maintain the secrecy of the information.
Amron Diving Supply v. Hydrolinx Diving Communications, No. 3:11-cv-01890 (S.D. Cal. 2012). A diving
supply company sued its former employee, after he left the company and set up a competing business.
The former employee signed a non-disclosure agreement during his employment with Amron, but after
being fired, set up a competing business and allegedly used Amron’s trade secret information to do so.
After the lawsuit was filed, the parties were ordered to preserve all evidence, however, the defendant
allegedly “destroyed computer data by using wiping software and destroyed and threw away hard
drives.” The court ordered the defendant to pay sanctions and held him in contempt of court.
PhoneDog v. Noah Kravitz No. C11-03474 MEJ, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal., 2012). This case
called into question the ownership of Twitter followers on an employee’s professional account following
the employee’s departure from the company. In November 2011, the district court held that the
employer’s claims for trade secret misappropriation against the employee for the taking of the twitter
followers and account passwords could withstand a motion to dismiss. In early 2012, the court denied a
subsequent motion to dismiss tortious interference with prospective economic advantage and negligent
interference with prospective economic advantage claims. After over a year and a half of litigation, the
parties reached a settlement agreement providing the former employee with sole custody of the social
media account in exchange for the payment of an undisclosed sum.
Burroughs Payment Sys., Inc. v. Symco Group, Inc., 2012 WL 1670163 (N.D. Cal. , May 14, 2012).
Burroughs sued Symco for trade secret misappropriation and copyright infringement after Symco
allegedly accessed and used Burrough’s software without authorization while servicing the equipment of
a Burroughs customer. The court denied a motion to dismiss the copyright infringement claim, finding
that the question of whether the copying of a program was an “essential step in the utilization of the
computer program.” With respect to the trade secret misappropriation claim, the court found that
Symco allegedly used the secret information improperly to service equipment, rather than simply
executing the source code, and as such, the claim could survive dismissal.
GLT Technovations, LLC v. Fownes Brothers & Co., 2012 WL 1380338 (N.D. Cal. 2012). Plaintiff
developed a capacitive leather technology which allows glove-wearers to control devices with touch
screens. Defendants expressed interest in licensing the product, and the parties entered into an NDA.
After purchasing the technology from the plaintiff, the defendant announced development of its own
similar technology. Defendant filed a complaint in the southern district of New York for
misappropriation of trade secrets, and violations of the Lanham Act, along with other causes of action.
Plaintiff then filed a complaint in U.S. District Court for the Northern District of California seeking
declaratory relief. Defendant then filed a motion to transfer the suit to the Southern District of New
York, which was granted pursuant to 28 U.S.C. § 1404(a) based on “the convenience to the witnesses,
the ease of access to evidence, and the possibility of consolidation with other litigation.”
VasoNovo v. Grunwald, No. C 12-02422 WHA (N.D. Cal. 2012). A recent California court found no merit
to a claim that a plaintiff had failed to adequately identified the trade secrets at issue in the suit. The
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court found that at the pleading stage, the “trade secret designation is to be liberally construed, and
reasonable doubts regarding its adequacy are to be resolved in favor of allowing discovery to go
forward.”
SASCO v. Rosendin Electric, Inc., G045229 (Cal. App. Ct., July 11, 2012). SASCO sued three former senior
managers who joined a competitor, claiming that they had misappropriated trade secrets, but were
unable to come forward with evidence that the former employees misappropriated any trade secrets
and it dismissed its claims rather than respond to a motion for summary judgment by the former
employees. The trial court found that SASCO had brought the case in bad faith under California's version
of the Uniform Trade Secret Act, and its suspicions were an insufficient basis for asserting a claim, when
they should have conducted a thorough investigation before filing the lawsuit. The Court of Appeal
affirmed, finding that the trade secret claims were objectively specious, and rejected SASCO’s claims
that the suit was not “frivolous,” instead, finding there was ample evidence of bad faith.
Steele v. American Mortgage Solutions d/b/a Pinnacle, 2012 WL 5349511 (E.D. Cal., Oct. 26, 2012). In
Steele, a California federal court found that an arbitration agreement’s exclusion of injunctive relief for
trade secrets and unfair competition claims is not unconscionable. As a prerequisite to employment,
Pinnacle required its employees to sign a binding arbitration agreement. Like most arbitration
agreements, this agreement covered nearly all claims that could arise between Pinnacle and its
employees and required that any disputes be settled “exclusively by final and binding arbitration before
a neutral Arbitrator.” Plaintiffs, all of whom signed such an agreement, brought a class action suit under
various California and federal laws alleging that Pinnacle required them to work more than forty hours a
week without providing timely overtime compensation. After receiving the Complaint, defendant’s
attorney sent a letter to opposing counsel stating that Plaintiffs were bound by arbitration agreements.
Plaintiffs, however, did not withdraw their complaint, and Pinnacle subsequently filed a motion to
compel arbitration.
In analyzing the enforceability of the arbitration agreement, the court noted that the agreement
excluded injunctive relief for trade secret and/or unfair competition claims, which could potentially
impact the fairness of the agreement and render it substantively unconscionable. Yet, the court made
clear that such carve-outs for trade secret protection do not necessarily inspire the same level of
suspicion that other types of exclusions do. As the district court saw it, Pinnacle had “valid reasons,
entirely independent from any intent to place the employees at a relative disadvantage or to generate
one sided results, for excluding claims of unfair competition or trade secret violations from the
mandatory arbitration agreement provisions of the Agreement.” Accordingly, the court granted
Pinnacle’s motion to compel arbitration and to dismiss plaintiffs’ claims without prejudice, thereby
denying plaintiffs class relief.
Idaho
Saint Alphonsus Med. Ctr. v. St. Luke’s Health System, No. 1:12-cv-00560-BLW-RE, 2013 WL 139324 (D.
Idaho Jan. 10, 2013). Saint Alphonsus involved, inter alia, a dispute over whether in-house counsel
should have access to attorney’s eyes only materials that may contain trade secret information. The
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plaintiff sought to limit AEO material access to experts and the parties' outside counsel because it was
concerned about the potential for in-house counsel’s “advertent disclosure.” The plaintiff argued that it
and third parties “could very likely suffer severe financial harm and competitive disadvantage if their
main competitor is granted access” to information about strategies, managed care rates and
negotiations, and physician contracting. The Court weighed the potential harm of any inadvertent
disclosure against prejudice to the defendant from denial of access. The Court acknowledged that some
prejudice to the defendant would flow from any restriction upon the ability of in-house counsel to assist
in the defense of this lawsuit. Yet the Court noted that the defendant had experienced outside counsel
at the helm of this case and that counsel was well versed in antitrust litigation and representing medical
entities. Moreover, the court emphasized that if the defendant believed such an AEO designation was
unjustified, the protective order allows that designation to be challenged.
Accordingly, the Court ordered that the protective order include the prohibition requested by plaintiff,
prohibiting in-house counsel from access to information in documents designated by an opposing party
as “Attorney's Eyes Only.” The court reasoned that the balance of the competing interests in this
particular case, on these particular facts, weighed in favor or restricting such access to in-house counsel.
The court further explained that protections against misuse of such a designation, and the other means
available to outside counsel experienced in such disputes to understand and handle such documents,
sufficiently protect the defendant’s ability to fairly defend itself in this lawsuit.
Montana
Montana Silversmiths, Inc. v. Taylor Brands, LLC, 850 F. Supp. 2d 1172 (D. Montana Feb. 8, 2012).
Silversmiths, a Western-style jewelry and belt buckles designer, filed suit against its competitor and two
of Silversmiths' former employees who had left to work for competitor, alleging copyright infringement
and misappropriation of trade secrets. Silversmiths moved for preliminary injunction and defendants
moved to dismiss. The Montana federal district court held, inter alia, that the complaint stated claim for
misappropriation of trade secrets. In particular, the Complaint identified Montana Silversmiths' trade
secrets as “information regarding Montana Silversmiths' products, product packaging, relationships with
its foreign and domestic vendors, product pricing, costs, design, marketing and, most importantly, the
sales history of Montana Silversmiths' products, including which products were particularly successful.
Defendants argued many of these things, such as what products Montana Silversmiths sells, how they
are packaged, how they market their products, and the prices they charge are not trade secrets because
they are generally known or readily ascertainable. In response to these arguments, Montana
Silversmiths only defended the sales history of its best-selling products as a trade secret. In the Court's
view, Montana Silversmiths sufficiently alleged that it has a trade secret in the sales history of its bestselling products. The Court also noted that the Complaint alleged that Montana Silversmiths took steps
to maintain the secrecy of this trade secrets. Specifically, the Complaint plainly alleged that both
defendant former employees were required to sign Non–Disclosure Agreements and that Montana
Silversmiths had a section in its Employee Handbook reminding employees of this obligation.
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The Court also explained that is well-settled that one of the implied covenants of employment is that an
employee will hold sacred trade secrets acquired during employment. And even after employment
terminates, employees have an implied obligation to not use trade secrets for the benefit of a rival and
to the detriment of the former employer. The court highlighted that at least one Montana district court
has held that the covenant of good faith and fair dealing that is implied in every employment
relationship, and when combined with Montana Code § 39–2–102's rule that everything gained by way
of employment except the employee's compensation belongs to the employer during and after
employment, this imposes on employees a legal duty to protect trade secrets and confidential
information beyond the term of employment. Accordingly, the Court found that the Complaint plead a
plausible claim for misappropriation of Montana Silversmiths' trade secrets.
Nevada
Switch Communications Group v. Ballard, Case No. 2:11-cv-00285-KJD-GWF (D. Nev. 2012). Former
employee of a company which owned computer data center began a competing business, allegedly
using confidential information acquired during his prior employment. As the case progressed, the
defendant served interrogatories on the plaintiff, requesting more specific information about the trade
secrets at issue. The plaintiff’s initial answer to the interrogatory simply stated categories of trade
secrets, but not a description of the trade secrets themselves. The court found this was insufficient, and
defendant argued that he should not be required to respond to discovery since the plaintiff had not yet
described the trade secrets with sufficient particularity. The court held that a plaintiff must identify
trade secrets with specificity prior to seeking discovery from the defendant regarding that claim, adding
Nevada to the growing number of jurisdictions with that requirement.
Wanke, Indus., Commercial, Residential, Inc. v. Superior Court (Keck), 209 Cal. App. 4th 1151 (2012). In
Wanke, the Court of Appeal held that since the trial court could not conclude, based on the language of
the stipulated injunction, that it does not protect the plaintiff’s trade secrets, the court erred in
concluding that it was an unlawful business restraint. Plaintiff Wanke is a company that installs
waterproofing systems, and defendants Scott Keck and Jacob Bozarth are former employees of Wanke
that left the company to start their own competing waterproofing company, WP Solutions. Wanke
brought action in late 2008 against Keck and Bozarth alleging that they misappropriated and misused
Wanke’s trade secrets and confidential information, and used that information to actively target and
recruit Wanke’s customers. The parties ultimately resolved the action in 2009 by entering into a
settlement agreement that included a stipulated injunction with a customer non-solicitation provision
and corresponding “off-limits” customer list.
A dispute arose the following year when the defendants allegedly contacted and/or supplied labor and
materials to a customer on the prohibited customer list, Con Am Management. Wanke subsequently
filed an application for an order to show cause requesting the trial court to hold the defendants in
contempt for having violated the stipulated injunction. Wanke also filed a motion to enforce the
settlement agreement related to Con Am Management and requested the court order defendants to
pay liquidated damages as provided in the stipulated injunction. The trial ultimately court found that
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Wanke failed to establish the “existence of a lawful order,” which is required before a party may be held
in contempt of that order. Specifically, the trial court determined that the stipulated injunction was
invalid to the extent it prohibited defendants from soliciting any entity merely because the entity
appeared on the customer list attached to the stipulated injunction. Citing Business and Professions
Code section 16600, the trial court viewed the stipulated injunction as a non-compete agreement, which
could only prohibit customer solicitation if the employee was utilizing trade secret information to solicit
those customers. A few months later, Wanke filed second motion to enforce the stipulated injunction
with respect to a different customer identified in the customer list, AV Builders. This time, the trial court
found the defendants violated the stipulated injunction because the AV Builders work involved jobs
undertaken or proposed to be undertaken when defendants were employed by Wanke.
The Court of Appeal analyzed whether the trial court erred in determining the stipulated injunction was
invalid and unenforceable. The court held that party may not defend against enforcement of a court
order by contending merely that the order is legally erroneous. The Court noted that under existing
authority an injunctive order enforcing an invalid contract, the invalidity of which is not apparent on its
face, is not an injunction issued in excess of jurisdiction. The Court then reasoned that the courts have
repeatedly held a former employee may be barred from soliciting existing customers to redirect their
business away from the former employer and to the employee’s new business if the employee is
utilizing trade secret information to solicit those customers. The Court held that Keck and WP failed to
make a showing against the enforcement of the injunction on the ground that the injunction was
beyond the trial court’s jurisdiction to issue. The Court highlighted the fact that defendants failed to
oppose the existence of the so called “trade secret exception” to California’s prohibition on the
enforcement of non-compete agreements.
The Court of Appeal held that, because the stipulated injunction was valid to the extent that it protects
Wanke’s trade secrets, and one cannot conclude from the face of the stipulated injunction that it does
not protect Wanke’s trade secrets, the stipulated injunction was facially valid. Finally, the Court
recognized that common sense and fundamental fairness support its ruling. The Court explained that
parties cannot stipulate to injunctions that identify certain customers whom they will not solicit in order
to resolve claims that they misappropriated trade secrets, and then proceed to violate the injunction
and claim that the customer list is not a trade secret. In short, since the trial court could not conclude,
based on the language of the stipulated injunction, that it does not protect Wanke’s trade secrets, the
court erred in concluding that the stipulated injunction was an unlawful business restraint.
Fillpoint, LLC v Maas, 208 Cal. App. 4th 1170 (2012). In Fillpoint, the California Court of Appeal found
that two separate agreements–a stock purchase agreement and employment agreement–executed
pursuant to the sale of a business, must be read together when analyzing the restrictive covenants
contained in each agreement. The Court then held that the non-competition covenant in the
employment agreement, whose terms differed from the non-competition covenant in the purchase
agreement, did not fall under the “sale of business” exception, and thus was unenforceable. Defendant
Michael Maas sold his company stock in his employer Crave Entertainment and signed a stock purchase
agreement pursuant to that sale. The purchase agreement contained a three-year covenant not to
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compete, which restricted Maas from engaging in the business he sold. In the purchase agreement,
Crave also agreed to ensure that Maas would execute an employment agreement at closing.
A month after the purchase agreement was signed, Maas entered into an employment agreement with
Crave by which he agreed to work for Crave for three years. The employment agreement contained a
covenant not to compete or solicit paragraph. The non-compete provision contained therein was
different than the covenant not to compete in the purchase agreement. It prevented Maas from
participating, engaging or having an interest in any competitive business in any county in which Crave
does business. In addition to the covenant not to compete provision, the paragraph contained a
covenant not to sell competitive products to customers and prospective customers of Crave, and a
covenant not to employ or solicit employees or consultants of Crave (“nonsolicitation provision”). Both
the non-competition and the non-solicitation provisions lasted for one year after the expiration of the
employment agreement or after the earlier termination of his employment. The employment
agreement contained an integration clause specifying that the employment agreement and purchase
agreement constituted the sole and entire agreements between the parties, that any prior agreements
were of no force and effect, and that to the extent that there was any conflict between the two
agreements, the purchase agreement shall prevail.
Maas resigned exactly three years after executing the purchase agreement, purportedly satisfying the
three-year non-competition covenant contained within the purchase agreement. Shortly thereafter,
Maas became the President and CEO of competing company. Plaintiff filed suit against Maas for breach
of the employment agreement The trial court ultimately granted the defendants’ motion for nonsuit and
found the following: (1) Maas’ non-competition covenants were assignable to Fillpoint, (2) the
covenants were contained in separate agreements and should not be read together, and (3) the
covenant not to compete or solicit in the employment agreement was unenforceable under section
16600. The Court of Appeal reversed the trial court’s decision that held that the purchase agreement
and employment agreement must be read together, adopting Fillpoint’s argument. The Court, however,
affirmed the trial court’s judgment that the covenant not to compete or solicit in the employment
agreement was void and unenforceable under California law. The Court reasoned that the covenant not
to compete or solicit did not fall under the “sale of business” exception (Business and Professions Code
section 16601) because it was overly broad and not designed to protect the acquired company’s
goodwill. The Court explained that “the purchase agreement’s covenant was focused on protecting the
acquired goodwill of Crave for a limited time” and “[t]he employment agreement’s covenant targeted
an employee’s fundamental right to pursue his or her profession.” In fact, the Court reiterated that the
non-competition covenant in the purchase agreement was fully satisfied and expired when Maas
resigned three years later.
Hartstein v. Rembrandt IP Solutions, LLC, 2012 U.S. Dist. LEXIS 105984 (N.D. Ca. July 30, 2012). A
federal court in the Northern District of California weighed in on the validity a forum selection clause
contained in an employment agreement in connection with a California employee’s declaratory relief
action to invalidate his non-compete provision with his former employer. The court found for the
Pennsylvania-based employer and both denied the employee’s motion to remand the case to California
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state court and granted the employer’s motion to dismiss for improper venue. In Hartstein, the plaintiff,
a California resident, and Rembrandt entered into an employment agreement that contained a noncompete clause. When the plaintiff resigned from Rembrandt and began working for its competitor, he
requested that the court invalidate the non-compete clause on the grounds that it violated California
law. However, the employment agreement contained a mandatory forum selection clause which
provides for exclusive jurisdiction in Pennsylvania (Rembrandt's principal place of business) for all
actions and proceedings relating in any way to the agreement and/or the plaintiff's relationship with
Rembrandt. Despite the plaintiff's arguments that the forum selection was unreasonable because
California has a strong public policy against covenants not to compete and that he would succeed there
as opposed to Pennsylvania which generally enforces non-competes, the court found that the forum
selection clause was valid and enforceable. In doing so, the court rejected the employee’s argument that
the effect of enforcing the forum selection clause would permit a Pennsylvania court to enforce the noncompete provision against him and thus “deprive [Plaintiff] of the protection of his own jurisdiction’s
laws and remedies.”
Management & Eng’r’g Tech. Int’l, Inc. v. Information Sys. Support, Inc., No. 10-17784 (9th Cir., July
23, 2012). In Management & Eng’r’g Tech. Int’l, employer METI guarded its confidential financial
information by, among other methods, locking printed versions in a corporate vault and passwordprotecting the information with the password provided only to those who signed non-disclosure
agreements. Shortly before departing METI’s employ, employee Romeo allegedly downloaded
thousands of his employer’s confidential financial documents onto multiple flash drives. After he was
employed by METI competitor ISS, he allegedly used the information in a PowerPoint presentation to ISS
staff. ISS saved the presentation and referred to it in subsequent strategy meetings.
The trial jury’s verdict that METI’s financial information constituted trade secrets under the Arizona
Trade Secrets Act, and that Romeo and ISS misappropriated them, was held to be supported by the
evidence. Although ISS claimed that the proof showed possession but not use of the misappropriated
property, the appellate court declined to second-guess the jury’s verdict regarding liability. Expert
witness testimony at trial concerning the value of METI’s financial information withstood ISS’ challenge
to its admissibility. The expert was CEO of his own intellectual property consulting company, and he had
more than 20 years of experience valuing such property for use in damages litigation and licensing
transactions. The Ninth Circuit quoted from its own 2010 decision in Primiano v. Cook, 598 F.3d 558,
564: “Shaky but admissible evidence is to be attacked by cross examination, contrary evidence, and
attention to the burden of proof, not exclusion.”
But METI was not entirely successful on appeal. At trial, METI also claimed trade secret protection for its
employee roster and its ranking in a non-party’s industry-wide “process improvement” program. All of
this information was held to be publicly available and, thus, not a trade secret. Moreover, METI’s expert
witness testified to the lump sum a hypothetical buyer would have paid for all of the claimed
confidential information but failed to show the value of just the information held on appeal to
constitute trade secrets. So, the damages award was vacated and the case was remanded for further
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proceedings. Lastly, the appellate tribunal rejected METI’s challenge to the trial court’s denial of METI’s
motions for awards of exemplary damages and attorneys’ fees.
Weingand v. Harland Financial Solutions, 2012 U.S. Dist. LEXIS 84844 (N.D. Cal. June 19, 2012). In
Weingand, a district court for the Northern District of California distinguished the Ninth Circuit’s recent
U.S. v. Nosal decision and allowed an employer to bring a claim under the Computer Fraud and Abuse
Act (“CFAA”) against a former employee for alleged violations of a verbal computer access restriction.
Plaintiff Michael Weingand worked as a Senior Field Engineer at Defendant Harland Financial Solutions.
On November 4, 2010, Harland notified Weingand that it was terminating his employment. The next
day, after learning of the termination of his employment, Weingand allegedly emailed Harland’s H.R.
Manager, requesting permission to copy his “personal files” on his Harland laptop to a USB flash drive.
Harland agreed and let him access his Harland laptop at Harland’s offices on November 6, 2010 at
approximately 1:00 p.m. Weingand later brought action against his former employer Harland for
wrongful termination and employment retaliation.
During discovery, Harland learned through computer forensic analysis that Weingand allegedly accessed
and copied over 2,700 business files belonging to Harland, its clients, and third-party software vendors;
some files containing confidential, proprietary, and copyrighted information. Harland also discovered
that Weingand’s alleged unauthorized access of these files allegedly occurred on November 6, 2010
between 1:11 p.m. and 1:41 p.m.–the same date and time Harland gave Weingand permission to copy
his personal files from his old work computer. In light of these alleged facts, Harland moved to amend its
answer to add counterclaims against Weingand for, inter alia, violations of the CFAA. Weingand opposed
Harland’s motion on grounds that, inter alia, Harland’s CFAA counterclaim would be futile and subject to
a motion to dismiss. In particular, Weingand contended that Harland handed the computer to Weingand
without restriction. Moreover, Weingand contended that Harland’s proposed CFAA counterclaim
contained no allegations as to what directions, limitations, or restricted authorization were stated to
Weingand when we was handed the computer. Further, Weingand argued that Harland’s “verbal
authorization” regarding access to only personal files was irrelevant because the only authorization
which the statute speaks is “code” authorization (i.e. whether someone is literally blocked from certain
files by some security measure such as a password).
The Court rejected Weingand’s arguments, granted Harland’s motion, and allowed Harland to amend its
answer to add the CFAA counterclaim. The Court reasoned that “[Weingand] received permission to
access Harland’s computer system based on his representations that he wanted to get his ‘personal files’
after his termination, but he had no authority with respect to the additional files he accessed.” “Thus,
the counterclaim creates at least a reasonable inference that his authorization extended only to
accessing and copying said ‘personal files’ and that he exceeded that authorization.”
Vance’s Foods, Inc. v. Special Diets Europe Limited, et al., No. 2:11-cv-02943-MCE-GGH (E.D. Cal. April
16, 2013). In Vance’s Foods the U.S. District Court for the Eastern District of California examined the
issue of personal jurisdiction in an international trade secret misappropriation and breach of contract
dispute. The Plaintiff, Vance’s Foods, Inc. (“VF”), is an Alaskan corporation with its principal place of
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business in Sacramento, CA. VF produces and distributes a non-dairy milk substitute called DariFree™.
According to the court’s order, in October 2007, VF entered into two written agreements with the
Defendants, Special Diets Europe Limited (“SDE”). The first contract, referred to as the “Distribution
Agreement,” made SDE the exclusive distributor for DariFree™ in a specified area of Europe. The second
contract, known as the “Product Development Agreement” gave SDE permission to use VF’s product
formula, manufacturing process, and list of ingredient suppliers to develop and distribute a liquid stable
version of DariFree™ in Europe. VF gave SDE this information with the caveat that they keep it
confidential, use it only for the stated purpose of the contract (successful development of the liquid
stable version within 8 months), and return the information upon VF’s request or the termination of the
agreement. In its initial complaint, VF claims that SDE, along with its owners and directors Eamon and
Mariel Cotter, entered into this agreement with the sole intention of misappropriating and using VF’s
confidential information. In response, SDE and the Cotters filed a Motion to Dismiss for Lack of Personal
Jurisdiction pursuant to Federal Rule of Procedure 12(b)(2). SDE is an Irish corporation with its offices
located in Ireland. Individual defendants Eamon Cotter and Mariel Cotter are citizens and residents of
Ireland. The Cotters are the sole owners and directors of SDE.
The Defendants did not challenge general jurisdiction over them, so the Court employed the “three
prong test to determine whether a court can exercise specific jurisdiction over a defendant.” After
evaluating each defendant against the Ninth Circuit’s three prong test, the Court denied the motion to
dismiss in the case of both SDE and Mr. Cotter, and granted the motion to dismiss with leave to amend
in the case of Ms. Cotter. Because both of Plaintiff’s claims, including the claim for misappropriation of
trade secrets, arise out of the parties’ contractual relationship, the court reasoned that it was not
necessary for the court to conduct the “purposeful direction” analysis which is typically analyzed in tort
suits. However, the court found that were it to consider the “purposeful direction” prong, it would
conclude that Plaintiff has sufficiently demonstrated that SDE purposefully directed its alleged tortious
actions at California under the “effects” test. The court reasoned that the Plaintiff has alleged that SDE
engaged in intentional tortious acts of trade secret misappropriation, thus satisfying the first prong of
the “effects” test. The court further found that the second prong is also satisfied because SDE allegedly
“engaged in wrongful conduct targeted at a plaintiff whom [SDE] knows to be a resident of the forum
state.” Finally, if SDE misappropriated Plaintiff’s trade secrets, it should have known that Plaintiff would
likely suffer harm in California, which is where Plaintiff’s principal place of business is located.
In the end, the court refused to grant the motion to dismiss because the court was convinced that SDE
initiated a long-term business arrangement with a company it knew to be principally located in
Sacramento, CA. In addition, according to the court, Mr. Cotter’s intertwined existence with SDE as its
founder, owner, director and alter ego made him equally susceptible to personal jurisdiction in
California federal court. Ms. Cotter’s lack of identifiable involvement in the business relationship
between VF and SDE led the Court to rule that Plaintiff “failed to allege sufficient personal conduct
directed at California that would justify hailing [her] into this Court.”
Hegwer v. American Hearing Aid Associates, No. C 11-04942 (N. D. Cal. Feb. 24, 2012). In Hegwer, a
federal court for the Northern District of California found that the alleged illegality of a non-compete
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clause in an employment agreement involving a California employee has no bearing on a legal forum
selection clause. Plaintiff Jay Hegwer filed suit in California state court against his former employer,
Defendant American Hearing and Associates for declaratory relief, fraud, and unfair business practices
based on his former employer’s alleged use of a non-compete provision in his employment agreement.
The agreement also contained an arbitration clause, a non-solicitation/non-competition clause, and a
choice of law clause specifying the agreement was governed by Pennsylvania law.
AHAA removed the case to federal court on the basis of diversity jurisdiction, and then moved to have
the case dismissed for improper venue, or to be transferred to Pennsylvania. Hegwer argued that the
forum selection clause should not be enforced because the other provisions of the employment
agreement, including the arbitration, non-compete and non-solicitation clauses, were unenforceable
under California law. The court dismissed this argument, finding that whether other provisions of the
agreement were unenforceable was irrelevant to the enforceability of the forum selection clause.
Hegwer also argued that the enforcement of the forum selection clause would prevent him from having
his day in court, since the case would be sent to arbitration. The court found this argument speculative
and unpersuasive.
Finally, Hegwer argued that he would not be able to pursue the case if it took place in Pennsylvania,
because of the extensive travel costs. The court found that given Hegwer currently resides in Wyoming,
the cost would be similar to travel to either Pennsylvania or California, and as a result, Hegwer had
failed to show that enforcement would deprive him of his day in court. Ultimately, the court found the
forum selection clause was enforceable, and venue was improper in California. The court relied on M/S
Bremen v. Spata Off-Shore Co., where a forum selection clause is considered unreasonable, and thus,
unenforceable if: the inclusion of the clause was a product of fraud, undue influence, or an imbalance of
power, (2) the forum is so gravely difficult and inconvenient that the party challenging the clause will for
all practical purposes be deprived of its day in court, or (3) the clause would contravene a strong public
policy of the forum where the suit was brought. 407 U.S. 1, 15 (1972). Here, Hegwer failed to show the
clause was gravely inconvenient, and therefore the case was transferred to the Eastern District of
Pennsylvania.
Oregon
Gordon v. Kleinfelder West, Inc., No. 03:11-CV-00245-HU, 2012 WL 844200 (D. Or. Mar. 12, 2012).
Plaintiff John Allen Gordon brought suit against his former employer defendant Kleinfelder West, Inc. for
damages arising from Gordon's termination by Kleinfelder, and events occurring immediately thereafter.
Kleinfelder is a nationally-based science, architecture, and engineering consulting firm that hired Gordon
as a Civil Design Specialist. A dispute arose when Gordon allegedly failed to return confidential and
proprietary information after his termination from the company. In the case, Gordon moved for
summary judgment on Kleinfelder's counterclaim asserting a violation of the Oregon Uniform Trade
Secrets Act. Kleinfelder claimed the project map Gordon allegedly took from his former office, and
information Gordon disclosed to its client EverPower concerning Gordon's work on the EverPower
Project, constituted trade secrets under the Act. Kleinfelder claimed it “employed reason-able measures
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to maintain the secrecy of the information located on the project map and other trade secret
information wrongfully disclosed by [Gordon], and expressly instructed [Gordon] not to remove the
project map from [Kleinfelder's] offices.”
The parties dispute whether Gordon misappropriated the project map or other information, as well as
whether the document Gordon took with him had any “independent economic value.” In addition,
Gordon claimed the document he took with him was a portion of a map that already had been recorded
in the public record. The court held that if that was the case, then the document likely did not meet the
definition of a “trade secret” under the Act. Yet, the parties also disputed whether Gordon disclosed any
information to EverPower about the work it paid Kleinfelder to perform that could be considered a trade
secret. As a result, Gordon's motion for summary judgment on this counterclaim was denied.
K.F. Jacobsen & Co., Inc. v. Gaylor, No. 3:12-CV-2062-AC, 2013 WL 2318853 (D. Or. May 28, 2013).
Employer brought action against its former employee, seeking damages and an injunction in connection
with, inter alia, employee's alleged violation of the Stored Communications Act (SCA) and conversion of
confidential documents and other property. Employee moved to dismiss. The Oregon federal district
court held that, inter alia, the employer stated a claim for conversion under Oregon law and the
conversion claim was not preempted by the Oregon Trade Secrets Act. In particular, the Court reasoned
that Oregon courts have not addressed the extent to which the Trade Secrets Act preempts civil
remedies but a number of courts in other states have extended the preemptive effect of the language
found in OR. REV. STAT. 646.473 to claims that are based on the same operative facts as a claim for
trade secret misappropriation under the Trade Secrets Act. The Court also stated that where the
essence of the claim relates primarily to the alleged misappropriation of a trade secret, the claim is
displaced by the preemptive language of the Trade Secrets Act. The Court highlighted that its federal
district has specifically held that the Trade Secrets Act preempts conversion claims based on alleged
misappropriation of trade secrets.
Analyzing plaintiff’s claim, the Court noted that plaintiff alleged that the defendant “misappropriated
and converted to his own use the confidential and proprietary information of plaintiff.” Plaintiff also
alleged that a large number of misappropriated documents, “some of which may be additional
misappropriated trade secrets of plaintiff or confidential and proprietary information of plaintiff” remain in defendant’s possession and control. Accordingly, the Court found that the term “confidential
and proprietary information” could be construed broadly enough to include information that does not
fall with the definition of “trade secret” under the Trade Secrets Act. Thus, the court found that to the
extent plaintiff’s conversion claim sought damages for the conversion of information other than trade
secrets, it was not preempted by the Trade Secrets Act.
GiftTango, LLC v. Rosenberg, No. 03:13-cv-31-AC, 2013 WL 596138 (D. Or. Feb. 15, 2013). Employer,
which was in the electronic gift card industry, brought action against two former executive employees
for breach of confidentiality agreements, tortious interference with employer's contracts with its
customers, and violation of Oregon's Uniform Trade Secrets Act, relating to former employees'
prospective consulting relationship with employer's competitor. The employer also brought claims
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against the competitor for tortious interference with employer's contracts with the two employees and
with employer's customers, and for violation of Oregon's Uniform Trade Secrets Act. After removal, and
after entry of temporary re-straining order (TRO), employer filed motion for preliminary injunction. The
Oregon federal district court denied the employer’s motion and held that, inter alia, the employer failed
to show a likelihood of success on the merits and the employer failed to show a likelihood of irreparable
harm.
Specifically, the Court found insufficient evidence in the record that defendants misappropriated a trade
secret. The Court explained that Oregon's trade secrets statute allows enjoinment of threatened as well
as actual misappropriation, and at the time the TRO motion was filed, one of the former employee’s
emails established the threat of misappropriation. The court highlighted that there was no evidence that
a misappropriation has actually occurred, and given that there is no active relationship between the
individual defendants and the defendant competitor, the threat of misappropriation had substantially
diminished. Thus, the employer failed to show a likelihood of success on the merits. Additionally, the
Court found that neither of the individual defendants misappropriated any trade secrets and the record
showed that neither of the individual defendants were presently employed by the defendant competitor
in any capacity. Thus, the employer failed to show a likelihood of irreparable harm. Accordingly, the
Court denied the employer’s motion for preliminary injunction.
Washington
International Paper Co. v. Stuit, No. C11–2139JLR, 2012 WL 1857143 (W.D.Wash. May 21, 2012)
Defendants brought a motion to dismiss Plaintiff’s claims for, among other things, breach of contract,
tortious interference with contract and prospective business relations, and violation of Washington
Consumer Protection Act. On the contract claim, the federal district court granted the motion with leave
to amend on the grounds that it was barred because the contract was not supported by independent
consideration as the agreement was presented to the employee for execution well after the inception of
employment without any additional consideration provided to the employee. The court found that
neither continued at will employment nor promising to pay an employee his or her current salary
constitute independent consideration.
Plaintiff also alleged in its complaint that Defendants used confidential information, as defined in the
Confidentiality Agreement, to interfere with plaintiff’s valid contractual relationships with its customers
and prospective customers, thereby damaging plaintiff. Defendants argued that these claims must be
dismissed because they are preempted by the UTSA. The court found that Washington courts have
interpreted these provisions of the UTSA to mean that a plaintiff “may not rely on acts that constitute
trade secret misappropriation to support other causes of action.” Based on a comparison of the
allegations in the complaint supporting Plaintiff’s UTSA claim and interference with business relations
claims, the court concluded that the common law claims were not factually independent from Plaintiff’s
UTSA claim and were therefore preempted as currently plead. The court’s conclusion stemmed from the
fact that “UTSA's preemption provision has generally been interpreted to abolish all free-standing
alternative causes of action for theft or misuse of confidential, proprietary, or otherwise secret
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information falling short of trade-secret status....” The court also dismissed Plaintiff’s claim based upon
violation of the Washington Consumer Protection Act on preemption grounds because it was also based
on Defendants alleged misuse of Plaintiff’s confidential information and trade secrets.
Amazon.com, Inc. v. Powers, 2012 WL 6726538, Case No. C12-1911RAJ, (W.D. Wash 2012). A district
court denied Amazon.com, Inc.'s motion for a preliminary injunction to enforce its 18 month covenant
not to compete against former cloud computing manager, Daniel Powers, who had joined Google as its
director of cloud platform sales. The court did grant a limited preliminary injunction preventing Powers
from directly or indirectly assist in providing cloud computing services to any current, former, or
prospective customer of Amazon about whom he learned confidential information while working at
Amazon. “Confidential information” has the definition the parties gave it in the Agreement. Before
joining Google, he and Google agreed that Powers would not (1) use any of the trade secrets or
confidential information of Amazon; (2) perform any cloud computing work for his first 6 months with
Google; and (3) contact any of his former customers from Amazon. There was no evidence that Powers
took any Amazon property or that he used any Amazon trade secrets or confidential information. The
protections put in place and the absence of any misappropriation undermined Amazon's ability to
demonstrate irreparable injury necessary to obtain injunctive relief. The court found that the
Agreement's general noncompetition clause, in contrast to the clause targeting Amazon customers, was
not reasonable, particularly Amazon’s request that the court prevent Powers from working in a
competitive capacity anywhere in the world. As a result, the court denied the majority of the requested
injunctive relief requested, apart from enjoining Powers from any assistance with current, former, or
prospective customers about whom he learned confidential information.
National Football Scouting, Inc. v. Rang, Case No. 11-cv-5762-RBL, 2012 WL 6444226 (W.D. Wash.,
Dec. 13, 2012). In National Football Scouting, a Washington federal court found that the assignment of
specific grades to NFL prospects could constitute trade secrets. Plaintiff National Football Scouting
compiles yearly scouting reports for twenty-one National Football League clubs to use during the NFL
Draft. In the reports, National assigns each player an overall player grade, which is a numerical
expression representing National’s opinion of the player’s likelihood of success in the NFL. Defendant
Robert Rang is a part-time sports writer who writes about the NFL Draft. From 2010 to 2011, Rang
published eight articles discussing player grades for eighteen college players. National sent Rang a series
of cease and desist letters that went largely ignored before it sued for copyright infringement and
misappropriation of trade secrets. Rang moved for summary judgment on grounds that, inter alia, the
player grades were subjective opinions and not entitled to trade secret protection. The court rejected
Rang’s argument and found that National’s player grades were “information” under the Washington
UTSA. The court held, however, that whether such information was protectable as a trade secret was a
question for the trier of fact. Accordingly, the court denied Rang’s motion for summary judgment on the
trade secret claim.
Wisconsin
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Illumination Management Solutions, Inc. v. Ruud, No. 10–C–1120, 2012 WL 4069315 (E.D. Wis. Sept.
14 2012). Illumination Management highlights that claimants who merely assert, in the alternative to
their trade secret claim or otherwise, that misappropriation of information not qualifying as a trade
secret can nevertheless give rise to non-trade secret claims, risk dismissal of those claims on preemption
grounds. The dispute arose out of the one-time collaboration of two businesses in the lighting industry.
The plaintiff, a company specializing in the development of light emitting diode technology, partnered
with the Wisconsin based defendants to incorporate its technology into defendants’ products. The
collaboration led to the defendants becoming shareholders in the plaintiff and obtaining a seat on the
plaintiff’s board. Because of the relationship, the plaintiff freely shared information and technology with
the defendants. The defendants are alleged to have thereafter introduced their own competing
products using the light emitting diode technology. And the defendants’ entry into the market,
according to the plaintiffs, was due to various wrongs perpetrated by the defendants, including
misappropriation of the plaintiff’s trade secrets and breach of common law duties owed to the plaintiff.
After the case was transferred to the Eastern District of Wisconsin, the defendants moved to dismiss the
plaintiff’s second amended complaint, which alleged eleven claims, including misappropriation under
CUTSA and several common law claims. The court dismissed plaintiff’s common law claims for breach of
fiduciary duty, civil conspiracy, aiding and abetting breach of fiduciary duty, and negligent breach of the
duty of care finding that the claims arose from the same nucleus of facts as the CUTSA claim and were
thus preempted. The court stated that claims based on the misappropriation of information that does
not qualify as a trade secret are preempted by CUTSA. The court later denied the plaintiff’s motion for
reconsideration of the dismissal order. Illumination Management Solutions, Inc. v. Ruud, No. 10–C–1120,
2012 WL 6060967, *1-2 (E.D. Wis. Dec. 6, 2012). The court, however, did grant the plaintiff’s alternative
request to amend its complaint to attempt to allege common law claims that “do not involve the misuse
of trade secrets or confidential information.”
10th Circuit
Colorado
Christou v. Beatport, LLC, 849 F. Supp. 2d 1055 (D. Colo. Mar. 14, 2012) In Christou, a club owner
brought an action alleging, inter alia, misappropriation of trade secrets by a former employee who
allegedly utilized login information for profiles on MySpace, associated “friends” listings, and other lists
of contact information for individuals in the industry. The defendants moved to dismiss the trade secret
claim because the MySpace profile and friends listings were publicly available on the internet. The
plaintiffs argued that the information constituted a trade secret, falling under the Colorado statute’s
definition “listings of names, addresses, or telephone numbers, or other information relating to any
business . . . which is secret and of value.” C.R.S. § 7-74-102(4).
The district court analyzed the seven factors in trade secret determinations from Hertz v. Luzenac Grp.,
576 F.3d 1103 (10th Cir. 2009), and denied the defendants’ motion to dismiss. Importantly, the court
noted that the “ancillary information connected to” the friends listings and the additional “ability to
notify them and promote directly to them via their MySpace accounts” cannot be obtained from public
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directories and is not readily ascertainable from outside sources. Additionally, the plaintiff had restricted
access to the profiles and passwords to the personnel who required them for promotional activities. The
court held that the ultimate determination was a question of fact, but that the plaintiffs had alleged
sufficient facts to maintain the claim.
Mentor Worldwide LLC v. Craigo, Civil Case No. 12-cv-00776-REB-MJW (D. Colo. April 26, 2012) In
Craigo, the district court denied the plaintiff’s motion for a preliminary injunction against a former
employee, who allegedly continued to use trade secret customer list and sales information regarding
plastic surgery implants. In the case, the defendant joined a direct competitor, who supplied her with
contact information for surgeons to call with sales pitches. Some of these surgeons were among those
the defendant had called while working for Mentor. The defendant contended that the contact
information for the surgeons was available from public sources, and that she had deleted and returned
all confidential information she had received from Mentor. The evidence also indicated that the new
employer had repeatedly instructed the defendant not to use any information she acquired while
working for Mentor.
The court noted that the parties had disagreed over whether California or Colorado’s version of the
Uniform Trade Secrets Act was applicable to the case—but stated that the relevant portions of the two
acts were substantively similar enough for the injunction analysis of whether or not the plaintiff had “a
substantial likelihood of eventual success on the merits” of the trade secret claim. Based on the
available evidence, the plaintiff did not demonstrate that it was likely to prove that the defendant
improperly possessed, disclosed, or used Mentor’s trade secret information. The court briefly noted that
“irreparable harm” is presumed if the evidence shows threatened or actual misappropriation of a trade
secret, but held that because the plaintiff had not demonstrated any threatened or actual
misappropriation it had not demonstrated irreparable injury.
In addition to denying the motion for preliminary injunction, the court lifted a previously issued
temporary restraining order based on the “more complete evidentiary presentation” available.
Richfield Hospitality, Inc. v. Charter One Hotels & Resorts, Inc., Case 1:12-cv-01937-REB (D. Colo. Feb.
21, 2012) In this case, the court denied motions to dismiss for lack of personal jurisdiction filed by three
defendants (the Charter One hotel operation services company and two individuals) accused of, inter
alia, trade secret misappropriation. Each defendant claimed to lack sufficient minimum contacts with
Colorado. While the defendants had varying degrees of contacts with Colorado, the court held,
regarding each defendant, that “because the alleged injury from [the trade secret misappropriation]
occurred in Colorado, the court has personal jurisdiction over [the defendant].” This holding was based
on the application of Colorado’s long-arm statute outlined in Classic Auto Sales, Inc. v. Schocket, 832
P.2d 233 (Colo. 1992), in which the court held that “it is not necessary that both the tortious conduct
constituting the cause and the injury constituting the effect take place in Colorado . . . the statute [is]
satisfied when only the resulting injury occurs in this state.”
Kansas
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ICE Corp. v. Hamilton Sundstrand Corp., Case No. 05-4135-JAR (D. Kan. Feb. 13, 2012) The district court
here considered the issue of punitive damages under the Kansas Uniform Trade Secrets Act—specifically
whether to award damages in excess of the $5 million cap in Kansas’s general punitive damages statute.
This decision came after remand from the 10th Circuit opinion in 2011 (432 F. App'x 732), in which the
10th Circuit directed the district court to “apply § 60-3702 and to consider whether the $5 million cap
under § 60-3072(e) or the larger cap under § 60-3702(f) applies” based on whether or not “the
profitability of Ratier’s misconduct . . . exceeds or is expected to exceed $5 million.”
The court held that there was insufficient evidence in the record to determine the profitability properly
attributed to the specific misconduct of trade secret misappropriation—as compared to the profitability
of the defendant’s entire commercial project which incorporated the trade secret information. The
court ruled that the plaintiff had the burden of proof, as “it is Plaintiff that moves for application of the
larger punitive damages cap” and the plain language of the statute, K.S.A. § 60-3702(c), “squarely places
a clear and convincing burden of proof on the Plaintiff.” The court ordered Plaintiff to submit a
supplemental affidavit from its damages expert offering a calculation of profitability based on the
existing raw data from discovery, and explained that the defendant will be allowed to file ten pages of
objections and rebuttals.
Aeroflex Wichita, Inc. v. Filardo, 275 P. 3d 869 (Kan. Apr. 27, 2012) Here the Supreme Court of Kansas
reviewed the district court decision to grant defendant Tel-Instrument Electronics Corporation’s (“TIC”)
motion to dismiss for lack of personal jurisdiction. TIC had competed with the plaintiff in a bid for a
United States Army contract for high-technology radar-transponder test systems and had been awarded
the contract. TIC had hired two key Aeroflex employees at the beginning of the contract process, and
Aeroflex alleged, inter alia, that those employees had misappropriated its trade secrets and that TIC had
won the contract award because of the stolen information. TIC specially appeared and challenged
personal jurisdiction by filing under K.S.A. 2011 Supp. 60-212(b)(2). The district court allowed limited
discovery on the issue and found, among other facts, that TIC had virtually no revenue generated from
Kansas, no business operations in Kansas, and had only two Kansas shareholders accounting for less
than 1% of all outstanding publicly traded shares. Under the facts, the district court granted the motion
to dismiss as to TIC, while the two former employees remained as defendants.
The Supreme Court held that Aeroflex had “presented a prima facie case of jurisdiction based on a
conspiracy” between TIC and the former employees. First, the Court explained the standard and burden
on Aeroflex in this instance. “[E]ven though there was discovery, when a defendant's K.S.A. 2011 Supp.
60-212(b)(2) motion to dismiss for lack of personal jurisdiction is decided before trial on the basis of the
pleadings, affidavits, and other written materials and without an evidentiary hearing, any factual
disputes must be resolved in the plaintiff's favor and the plaintiff need only make a prima facie showing
of jurisdiction.” The court stressed that a “preponderance of the evidence” standard was only
appropriate “when the court conducts an evidentiary hearing,” following federal jurisprudence and the
majority of states.
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Next, the court analyzed the application of Kansas’ long-arm statute, under which Aeroflex had claimed
that Kansas had specific jurisdiction over TIC for “transacting any business in this state,” “committing a
tortious act in this state,” or “entering into an express or implied contract” with a resident of Kansas
performed in whole or in part in Kansas. Here, “TIC’s tortious contacts were through an agent and
alleged coconspirator who performed tortious acts in Kansas” and therefore personal jurisdiction could
be exercised through the “agent or instrumentality” language of the Kansas long-arm statute. Further,
“if Aeroflex’s allegations are true, TIC sought out Aeroflex’s employees to interfere with TIC’s Kansas
competition knowing one of them, Filardo, was a Kansas resident and remained a Kansas resident. It was
foreseeable that this alleged purposeful contact by TIC with a Kansas resident and the alleged
agreement to use Aeroflex’s trade secrets would cause harm to Aeroflex in Kansas and give rise to TIC
being forced to defend itself in a Kansas forum.” The Court found that “knowledge of and voluntary
participation in a conspiracy with other individuals who have a physical, in-state presence does not
offend due process and allows the court to extend personal jurisdiction over a nonresident who may
otherwise lack specific, individualized contacts with the forum state.”
Accordingly, the Supreme Court reversed the dismissal for lack of personal jurisdiction and remanded to
the district court.
Gov’t Benefits Analysts, Inc. v. Gradient Ins. Brokerage, Inc., Civil Act. No. 10-2558-KHV (D. Kan. May
23, 2012) Here, the district court considered a motion to dismiss for lack of personal jurisdiction filed by
American Military Benefits Group (“AMBG”), a third-party defendant which allegedly misappropriated
trade secrets under the Kansas Uniform Trade Secrets Act. AMBG is a Nevada limited liability company
that was allegedly created at the request of Jones, another third-party defendant who was formerly an
exclusive consultant of the third-party plaintiff. Jones is a Kansas resident and allegedly conspired with
AMBG and related entities including a Kansas corporation.
The court applied the Kansas long-arm statute to evaluate specific personal jurisdiction over AMBG. The
court found that the long-arm statute provided jurisdiction “over a non-resident defendant alleged to
have engaged with an in-state actor in a scheme or conspiracy that causes damages within the state.”
Based on the allegations of conspiracy between AMBG and various Kansas entities, the court held that
the “agent of instrumentality” provision of the long-arm statute applied and AMBG was subject to
jurisdiction for “committing a tortious act” in Kansas. The court then held that due process was not
violated because, among other things, the third-party plaintiff, a Kansas corporation with offices in
Topeka, Kansas, was allegedly harmed by AMBG’s tortious conduct.
New Mexico
General Protecht Grp., Inc. v. Leviton Mfg. Co., Inc., No. CIV 10-1020 JB/LFG (D.N.M. May 12, 2012)The
district court in Leviton granted a motion to dismiss regarding a claim for misappropriation of trade
secrets for lack of subject matter jurisdiction. The court held original jurisdiction over the suit because it
was a patent dispute, but the plaintiffs also made a state-law claim for trade secret misappropriation.
The court analyzed whether or not a “common nucleus of operative fact” existed such that the court
could exercise supplemental jurisdiction. The court found no evidence of any geographical or product
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overlaps between the claims and the court noted that the “broad rule” that “all claims between two
companies can be tried in one case” was not the law. Even if the interests of judicial economy supported
the consolidation of the claims, the court found no evidence to support supplemental jurisdiction in this
instance.
Oklahoma
Skycam, LLC v. Bennett, No. 09-CV-294-GKF-FHM (N.D. Okla. Sept. 27, 2012) In Skycam, an aerial
broadcast camera maker prevailed at trial in 2011 in its claim for misappropriation of trade secrets
under the Oklahoma Uniform Trade Secrets Act (“OUTSA”) against a former employee and his company.
Skycam sought injunctive relief to prohibit the defendants from utilizing Skycam’s trade secrets or to
award a reasonable royalty for future use if exceptional circumstances made a prohibitive injunction
inappropriate.
As a preliminary matter, the court applied the 10th Circuit standards for granting a permanent injunction.
The court found that injunctive relief was appropriate because “the threatened injury to Skycam of
continued trade secret misappropriation outweighs the harm that the injunction may cause Actioncam”
and a properly tailored injunction would not adversely affect the public interest. The court then
determined the type and duration of the proper injunctive relief.
The court looked to the OUTSA’s injunction provisions and comments to the Uniform Trade Secrets Act
(“UTSA”) and determined that “exceptional circumstances” warranted the imposition of an on-going
royalty rather than a prohibitory injunction. Section 87(B) of the OUTSA states that in “exceptional
circumstances, an injunction may condition future use upon payment of a reasonable royalty.” The court
also looked to section 2 of the UTSA, and its comment, which states that exceptional circumstances
“include the existence of an overriding public interest which requires the denial of a prohibitory
injunction.”
Looking to the facts of the case, the court found that “exceptional circumstances” existed. A prohibitory
injunction would put the defendant out of business—eliminating competition and technological
innovation in a market with few competitors—which would harm the public interest. Based on expert
testimony in the record, the court found that it would have taken three to four years for independent
development of the technology and imposed a per-event royalty applicable through 3.5 years of
commercial use.
Utah
CDC Restoration & Construction, LC v. Tradesmen Contractors, LLC, 2012 UT App 60, 274 P.3d 317
(Utah Ct. App. Feb. 24, 2012). In CDC Restoration, the plaintiff (“CDC”) alleged that the defendants, one
of which was a former employee of the plaintiff, misappropriated confidential labor and equipment rate
information and improperly used it to compete against CDC in a contract bidding process. CDC brought
claims for misappropriation of trade secrets, breach of fiduciary duty, intentional interference with
prospective economic relations, and civil conspiracy. The trial court had entered summary judgment in
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favor of the defendants on all claims—ruling that CDC had failed to demonstrate a genuine issue of
material fact regarding the existence of a trade secret under the Utah Uniform Trade Secrets Act (the
“Utah Act”) and whether the former employee owed CDC a fiduciary duty. The trial court also ruled that
the Utah Act preempted the claims for conspiracy and interference with economic relations. CDC
appealed.
First, the Court of Appeals affirmed the trial court’s ruling that the pricing information was not a trade
secret. The court noted that a compilation or combination of generally known elements can qualify as a
trade secret in some instances—but that CDC had failed to point to record evidence sufficient to
demonstrate that the pricing information was not generally known and not readily ascertainable by
proper means. Importantly, the court explained that the standard of “readily ascertainable by proper
means” takes into account the relevant experience and knowledge of the specific defendants.
Second, the court interpreted the preemption clause in the Utah Act. The Utah Act “displaces conflicting
tort, restitutionary, and other law of this state providing civil remedies for misappropriation of a trade
secret,” with exceptions for contractual remedies, other civil remedies “that are not based upon
misappropriation of a trade secret,” and criminal remedies. Utah Code Ann. § 13-24-8 (2009). Given the
court’s first holding above, it analyzed “whether the [Utah Act] preempts claims based on the
misappropriation of information that does not meet the [Utah Act]’s definition of ‘trade secret.’” The
court first noted that the Utah Act contains a mandate that courts apply and construe the statute so as
to make trade secret law uniform among states enacting the UTSA. The court then found that the
majority view among the courts was for a broad view of the preemption clause, and concluded that the
Utah Act “preempts claims based on the unauthorized use of information, irrespective of whether that
information meets the statutory definition of a trade secret.”
Third, the court provided some further guidance as to the “scope of the preemption provision.” It
explained that “a claim is preempted to the extent that it is based on factual allegations supporting a
misappropriation of trade secrets or otherwise confidential information.” Importantly, the mere fact
that a claim requires surplus elements of proof beyond misappropriation will not prevent preemption,
so long as proof of the overall claim “would also simultaneously establish a claim for misappropriation of
trade secrets.” But the court recognized that “to whatever extent that a claim is based upon wrongful
conduct independent of the misappropriation of trade secrets or otherwise confidential information, it
is not preempted.” This approach preserves other causes of action caused “by separate conduct” than
the misappropriation of information.
Applying the standards explained above, the Court of Appeals found that the claims for breach of
fiduciary duty, intentional interference with prospective economic relations, and civil conspiracy were all
preempted because the factual allegations underlying each claim were solely based upon
misappropriation or misuse of information. The court concluded that CDC lacked evidence that the
pricing information allegedly misappropriated qualified as a trade secret, but that the information was
enough like a trade secret for preemption by the Utah Act to apply.
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Brigham Young Univ. v. Pfizer, Inc., Case No. 2:06-CV-890 TS, 861 F. Supp. 2d 1320 (D. Utah Mar. 20,
2012) In this case, BYU alleged, inter alia, that Pfizer misappropriated trade secrets arising out of a
contractual collaboration between BYU, Dr. Daniel Simmons (a professor of biochemistry at BYU), and
Pfizer’s predecessor company Monsanto. Here, the court denied Pfizer’s motion for partial summary
judgment of BYU’s claims of misappropriation of “project” and “compilation” trade secrets.
Pfizer’s motion contended that the trade secret claims failed because (i) BYU failed to identify the trade
secrets with the requisite particularity, (ii) BYU failed to allege that each element of the trade secret was
misappropriated, and (iii) BYU failed to make reasonable efforts to maintain the secrecy of the
information. The court found that BYU had identified the compilations it alleged were trade secrets, and
concluded that “BYU has communicated to Pfizer that it would claim a compilation trade secret,
complete as of March 20, 1992, that is based on Simmons’s vision to find a COX-2 selective NSAID and
accompanied by the tools that Simmons had developed up to that point.”
Next, the court analyzed whether that compilation was “unique and therefore worthy of trade secret
protection.” The court denied summary judgment, finding that the parties disputed the facts essential to
the “generally known” analysis laid out in USA Power, LLC v. PacifiCorp, 235 P.3d 749 (Utah 2010)—
crucial to determining whether the Dr. Simmons’ “vision” would have been generally known or
ascertainable to Pfizer.
The court then addressed Pfizer’s contention that, even if Dr. Simmons’ vision is a trade secret, BYU
failed to show that every element of the claimed trade secret was misappropriated. The court found a
dispute of fact existed, mainly because the fact-finder “can infer misappropriation under the Utah Trade
Secrets Act if presented with circumstantial evidence.” The court held that a reasonable juror could infer
that Pfizer had used the alleged compilation trade secret because BYU had presented facts showing that
Pfizer did not have an active COX-2 program before the BYU contract, Pfizer then had access to the
information comprising the alleged trade secret, and then Pfizer ended up with a COX-2 selective
product. This chain of events provided the necessary circumstantial evidence to defeat summary
judgment.
Pfizer’s final argument regarding BYU’s failure to maintain secrecy also failed. Dr. Simmons admitted
that he continued to provide Pfizer with information, even after the collaboration agreement contract
period had terminated—when the secrecy of information was no longer protected by any contractual
provisions. The court found that this was irrelevant, as the compilation trade secret was already
complete prior to termination, and the only effect was that any additions to the compilation after the
termination were not protected. This was insufficient to defeat the overall trade secret claim.
Brigham Young Univ. v. Pfizer, Inc., Case No. 2:06-CV-890 TS, (D. Utah Mar. 22, 2012) The court
granted Pfizer’s motion for partial summary judgment as to the University’s unjust enrichment, fraud,
and negligent misrepresentation claims for preemption under the rule outlined in CDC Restoration
because they were all “premised on the contention that Pfizer wrongfully acquired and used BYU's
confidential information.” The unjust enrichment claim was preempted because it was “clearly
predicated on facts showing a purported misuse of confidential information.” The fraud and negligent
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misrepresentation claims were preempted because they were “based on facts that would support a
claim alleging misappropriation of a trade secret or confidential information.”
Brigham Young Univ. v. Pfizer, Inc., Case No. 2:06-CV-890 TS, (D. Utah Mar. 26, 2012) The court
granted in part and denied in part Pfizer’s motion for partial summary judgment regarding BYU’s trade
secret claims directed toward mouse COX-1 DNA and amino acid sequences, restriction map for the
mouse COX-1 DNA sequence, and a mouse COX-1 cDNA clone. Pfizer argued that the information was
not a trade secret because it had been published in a scientific journal prior to its receipt by Pfizer from
BYU, and therefore “readily ascertainable by other means.” The court found that the publication
contained “functionally identical” sequences as those given to Pfizer, so the sequences were therefore
not trade secrets. Next, the court found that the restriction map, which was “derivative of [the] DNA
sequence,” was also “functionally identical” and therefore also not a trade secret.
The court denied summary judgment as to the COX-1 clone, holding that a factual question existed as to
whether or not the clone would qualify as a trade secret based on the amount of time, money, and
effort needed to create it. A COX-1 clone could have been created from publicly available information—
the DNA sequence and known molecular biology techniques—but the plaintiffs argued that it could still
be considered a compilation trade secret because it was a “valuable integration of known components.”
The court deemed that to be a dispute of fact based on the difficulty entailed in making a clone, and left
the question for the jury.
MonaVie, LLC v. FVA Ventures, Inc., Case No. 2:12-CV-152 TS (D. Utah May 30, 2012) In this case,
MonaVie sued its competitor for allegedly using information about its health supplement distribution
network, which MonaVie contends is a trade secret under the Utah Trade Secrets Act (the “Utah Act”).
In addition to the claim for misappropriation of trade secrets, MonaVie brought claims for conversion
and intentional interference with economic relations. The defendant filed a motion to dismiss the latter
claims as being preempted by the Utah Act.
The district court applied the preemption analysis outlined in CDC Restoration, and looked to “the facts
underlying the non-UTSA claim” to determine whether the claims were preempted. Based on the
pleadings, all of the allegations supporting the conversion claim were “based solely on the
misappropriation and/or misuse of MonaVie’s Distributor Information.” The plaintiff argued that the
motion to dismiss was premature, and that the conversion claim was plead as an alternative to the trade
secret claim and the court should first determine whether or not the information constituted a trade
secret under the Utah Act. The court explicitly held that it did not need to determine the trade secret
status before determining preemption—because, under the holding in CDC Restoration, preemption
applies regardless of whether or not the statutory definition is satisfied. The claim for intentional
interference with economic relations was also preempted as the “improper purpose or means” element
of the claim was ultimately “premised on the alleged use of [MonaVie’s] confidential information” by
the defendants.
StorageCraft Tech. Corp. v. Kirby, Case no. 2:08-cv-00921 (D. Utah Sept. 27, 2012) StorageCraft alleged
that Kirby had misappropriated trade secrets, infringed copyright, and had breached a 2005 settlement
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agreement, in which Kirby agreed “not to use or disclose the trade secrets of StorageCraft, or to
otherwise infringe or misappropriate the Intellectual Property of StorageCraft,” including source code
for StorageCraft’s VSnap software. On August 9, 2012 a jury returned a verdict in favor of StorageCraft
on each of its claims and awarded the company $2.92 million, finding Kirby had willfully and maliciously
misappropriated StorageCraft trade secrets.
Following the jury verdict, StorageCraft requested exemplary damages under the Utah Uniform Trade
Secrets Act, Utah Code Ann. § 13-24-4(2). The Act authorizes exemplary damages “if willful and
malicious misappropriation exists.” The district court analyzed the factors explained in its own opinion,
ClearOne Commc’ns, Inc. v. Chiang, No. 2:08-cv-37-TC (D. Utah Apr. 20, 2009), and specifically noted
that after the jury finds willful and malicious misappropriation, “a court may refuse to enhance damages
only if it can do so without second guessing the jury or contradicting its findings.” After weighing the
evidence, the court awarded $1.46 million in exemplary damages “to accomplish the public objective of
punishing and deterring malicious conduct.”
StorageCraft Tech. Corp. v. Kirby, Case no. 2:08-cv-00921 (D. Utah) (various post-trial motions).
Following the August 9 jury verdict, StorageCraft filed a motion for attorneys’ fees and costs under the
Utah Uniform Trade Secrets Act, Utah Code Ann. § 13-24-5 (“[i]f willful and malicious misappropriation
exists, the court may award reasonable attorneys' fees to the prevailing party”). On September 27, the
court granted the motion, noting that awards for attorneys’ fees and for exemplary damages (awarded
on the same day in a separate order) are distinguishable from each other and serve different purposes—
attorneys’ fees are compensatory while exemplary damages are punitive.
Kirby filed post-trial motions for judgment as a matter of law under Rule 50(b) and for a new trial under
Rule 59(a). These motions were based on Kirby’s assertions that StorageCraft had not provided evidence
of damages from Kirby’s disclosures or that the disclosures had caused actual “loss or injury.” The court
denied both motions. The court explained that Kirby’s disclosure had constituted a “use of a trade
secret,” for which StorageCraft was entitled to a reasonable royalty under Utah Code Ann. § 13-24-4 (“In
lieu of damages measured by any other methods, the damages caused by misappropriation may be
measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized
disclosure or use of a trade secret.”). Such “use” can be shown by a disclosure of a trade secret “with
actual or constructive knowledge” that there is “a duty to maintain its secrecy.” Further, the court
explained that StorageCraft’s expert had opined as to the cost of a “reasonable royalty” and the jury had
actually awarded a lesser amount—so the award did not “shock the judicial conscience” and warrant a
new trial.
QSG, Inc. v. Schlittler, Case No. 2:11-CV-871-TC (D. Utah Apr. 26, 2012) In QSG the plaintiff alleged
copyright infringement, trade secret misappropriation, and five other related causes of action stemming
out of the development of health IT software by former employees who formed a competitor company.
The defendant company filed a motion to dismiss for lack of personal jurisdiction. The court recognized
that the complaint “read in a light most favorable to QSG, does not establish any contact to Utah other
than an injury suffered by QSG, a Utah corporation.” The court held that “such injury by itself is not
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enough to establish the minimum contacts necessary” for personal jurisdiction over the defendant—
even under the Utah long-arm provision, which extends to the fullest extent permitted by the due
process clause.
11th Circuit
Alabama
Molex Co., LLC v. Andress, 887 F.Supp.2d 1189 (N.D. Ala. Aug. 10, 2012). Employer filed suit in
Alabama state court against a former consultant alleging misappropriation of trade secrets under the
Alabama Trade Secrets Act (the “ATSA”). Consultant removed the case to federal court based on
diversity jurisdiction, and the employer filed a motion for remand arguing that the diversity statute’s
$75,000 “amount in controversy” requirement was not satisfied. Because the misappropriation claim
did not specify damages, the consultant bore the burden of proving that the amount in controversy was
satisfied. The District Court rejected the consultants’ compensation and cost of developing the products
at issue as appropriate measures of the amount in controversy. Instead, the Court relied on the
potential income lost, as well as potential lost profits and exemplary damages available under the ATSA
in concluding that the employer’s claim more likely than not exceeded the $75,000 threshold.
Therefore, the employer’s motion for remand was denied.
Madison Oslin, Inc. v. Interstate Resources, Inc., 2012 WL 4730877 (N.D. Ala. Sept. 30, 2012). Plaintiffs
sued alleging that Defendants wrongfully used or disclosed Plaintiffs’ trade secrets, novel ideas, and
confidential information in violation of the Alabama Trade Secrets Act (the “ATSA”) and common law.
Plaintiffs had shared confidential information with Defendants after the two parties agreed to a joint
venture. Defendants signed a confidentiality agreement and were permitted to observe Plaintiffs’
confidential processes and tour its facilities. However, the proposed joint venture agreement was never
signed. Thereafter, Defendants allegedly began advertising and manufacturing products based on
Plaintiffs’ confidential information. Plaintiffs therefore filed this suit in federal district court to recover
lost income. Defendants moved to dismiss the common law claims, arguing that those claims were
preempted by the ATSA. Because there was little Alabama case law on point, the District Court
considered both the comments to the ATSA and similar statutes enacted in other states. The Court
interpreted the ATSA’a preemption clause broadly, holding that the ATSA preempts any common law
claims arising from the same underlying facts. Because the majority of the Plaintiffs’ claims were based
on the same factual allegations, the District Court dismissed all but one of the common law claims. The
Court allowed the Plaintiffs to proceed on the ATSA and breach of contract claims.
Florida
Heiderich v. Florida Equine Veterinary Services, Inc., 2012 WL 1057631 (Fla. Dist. Ct. App. March 30,
2012). Veterinary clinic filed suit against a former employee seeking to enforce a noncompetition
agreement. The non-compete prohibited the former employee from owning, operating, or participating
in a veterinary business “located within a thirty (30) mile radius” of the employer’s practice. The former
employee established a competing veterinary practice nearby her former employer just outside the area
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prohibited under the agreement. However, she made frequent “house calls” to clients in the area. The
trial court granted a temporary injunction enforcing the agreement, but the District Court of Appeal
reversed. Because the agreement did not specifically prohibit the employee from “providing veterinary
services,” the employee was permitted to make “house calls” within the prohibited area. As long as her
practice remained based outside of the prohibited area, she was not found to be in violation of the
employment agreement.
Duchame v. TissueNet Distribution Services, LLC, 2012 WL 1231049 (Fla. Dist. Ct. App. April 13, 2012).
Tissue transplant firm sued a former employee and his current employer seeking injunctive relief based
on the alleged misappropriation of trade secrets. The employer’s claim was based on a chemical
cleaning protocol developed by the former employee during his employment. After the employee
resigned, he began working for a competitor and developed a similar product. The employer alleged
that the product was a trade secret and that development of the product for a competitor constituted
misappropriation. Although the trial court granted the injunction, the District Court of Appeal reversed.
The employer failed to allege that the current employer’s cleaning protocol contained the same “time,
temperatures and concentrations of chemicals” as the protocol the former employee developed for
Plaintiff. Because the former employee developed the new protocol using his own education,
knowledge, skill and chemicals common in the industry, the Court was not persuaded that the employee
misappropriated any actual trade secret.
VAS Aero Services, LLC v. Arroyo, 860 F.Supp.2d 1349 (S.D. Fla. May 18, 2012). Employer sued a former
employee in federal court alleging misappropriation of trade secrets. The employer believed that the
employee improperly removed confidential documents, including a customer agreement, before leaving
to work for a competitor. Due to the proprietary nature of the employer’s business, the employee was
required to sign the employer’s confidentiality policy before beginning his employment. The employer’s
policies also prohibited removal or disclosure of any company-related information. After the employee
did not respond to the employer’s requests to return the information, the employer moved for a
temporary restraining order and also sought a preliminary injunction. The District Court held that the
misappropriated information—specifically the customer agreement—qualified as a trade secret under
the Florida Uniform Trade Secrets Act. The Court granted the employer’s temporary injunction and held
the employer had successfully established a substantial likelihood of success in demonstrating that the
former employee knowingly acquired the company’s trade secrets by improper means.
DePuy Orthopaedics, Inc. v. Waxman, 2012 WL 3138681 (Fla. Dist. Ct. App. Aug. 3, 2012). Employer
sought a temporary injunction to enforce restrictive covenants against several former employees. The
former employees originally entered into the agreements with employer’s distributor. The distributor
later assigned all of its intangible assets to employer, including the employment agreements at issue.
The employment agreements contained a clause stating the Agreement would “inure” to the benefit of
the distributor’s assigns. The trial court denied the employer’s motion for a temporary injunction,
finding that assignment of the specific employment agreements was prohibited, and the employer
lacked standing to enforce the covenants. However, the District Court of Appeal reversed, holding the
employment agreements entered into with the distributor were properly assigned, because the
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“inurement” clause provided an unqualified right to assign the distributors interests to successors. The
employer therefore was permitted to enforce the agreements, a conclusion supported by Florida
statute, which expressly permits enforcement of restrictive covenants by assignees.
AAR Manufacturing Inc. v. Matrix Composites, Inc., 2012 WL 3870419 (Fla. Dist. Ct. App. Sept. 7,
2012). Company sued a competitor in Florida state court alleging misappropriation of trade secrets.
During discovery, the company requested production of certain documents relating to the competitor’s
trade secrets. The competitor filed a motion for protective order in response, seeking to prevent
discovery of its own trade secrets until the company could identify with reasonable particularity the
trade secrets allegedly misappropriated by the competitor and prove the existence of these trade
secrets. Finding that the company satisfied its burden, the trial court denied the competitor’s motion
and ordered production of the requested documents. The District Court of Appeal agreed that the
company had identified the misappropriated trade secrets with reasonable particularity as required
under Florida law. However, the Court rejected the competitor’s argument that claimants must also
prove the existence of those trade secrets as a threshold matter before proceeding with discovery.
Georgia
Robbins v. Supermarket Equipment Sales, LLC, 722 S.E.2d 55 (Ga. Feb. 6, 2012). Employer brought a
claim for injunctive relief against former employees under the Georgia Trade Secrets Act (the “GTSA”)
for misappropriation of the employer’s trade secrets. The employer was unable to establish that the
information at issue qualified as a trade secret under the GTSA. However, the trial court concluded that
the employer was entitled to general equitable relief and granted an injunction preventing the
employees from using the misappropriated information. The Supreme Court reversed, finding the trial
court’s award of equitable relief to be an abuse of discretion. Even though the employer’s information
did not qualify as a trade secret, the GTSA precludes remedies outside of the statute based on the same
conduct. Therefore, the trial court impermissibly relied on the employer’s misappropriation claim in
granting an injunction on common law grounds.
Contract Furniture Refinishing & Maintenance Corp. v. Remanufacturing & Design Group, LLC, 730
S.E.2d 708 (Ga. App. July 16, 2012). Employer sued a former employee and his new employer for
violations of the Georgia Trade Secrets Act (the “GTSA”). The employer alleged that the former
employee had misappropriated trade secrets and unfairly competed with the employer. The trial court
granted summary judgment for the former employee which was affirmed by the Court of Appeals
because the employer failed to demonstrate a genuine issue of material fact for the misappropriation
element of its claim under the GTSA. The employer was only able to produce circumstantial evidence
that the former employee had used or disclosed trade secrets. Because there was direct evidence that
contradicted those allegations, the circumstantial evidence lacked any probative value.
Becham, et al. v. Synthes USA, et al., 482 Fed. Appx. 387 (11th Cir. June 4, 2012). Employee signed an
employment contract containing restrictive covenants when he began working for the employer in 2000.
The employee resigned from his position in November 2010, and allegedly agreed to comply with the
restrictive covenants contained in the employment agreement. The employer also alleged that the
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employee promised to honor the restrictive covenants again in January 2011, before beginning his
employment with a competitor. The employee filed suit seeking a declaration that the restrictive
covenants were unenforceable. The District Court granted summary judgment for the employee, finding
that the restrictive covenants were unenforceable under Georgia law. The Eleventh Circuit affirmed
summary judgment and also found the restrictive covenants void. Here, the Court based its findings on
the applicability of Georgia’s new Restrictive Covenants Act (the “Act”) to the employee’s restrictive
covenants. While there was some confusion regarding the effective date of the Act – originally enacted
in November, 2010, but reenacted on May 11, 2011 following the effective date of a required state
constitutional amendment – the Eleventh Circuit clarified that the first iteration of the Act was
unconstitutional, and therefore only restrictive covenants entered into on or after May 11, 2011 are
subject to the Act. Any agreements signed prior to May 11, 2011 remain subject to the more stringent
common law standards established prior to the Act. Because the restrictive covenants at issue were
clearly entered into before May 11, 2011, the Eleventh Circuit applied the common law’s strict scrutiny
to the restrictive covenants, and declared them unenforceable as a matter of law.
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