The inevitable disclosure doctrine is a concept rooted in common law that allows a plaintiff to prove trade secret misappropriation by “demonstrating that defendant’s new employment will inevitably lead him [or her] to rely on plaintiff’s trade secrets.” PepsiCo., Inc. v. Redmond, 54 F.3d 1262, 1269 (7th Cir. 1995). Thus, the defendant threatens misappropriation merely by holding the trade secreted information in his or her head while working for a direct competitor. States take varying approaches to this doctrine either fully allowing its use, allowing its use with limitations, or prohibiting its use.Continue Reading Maine Magistrate Recommends Dismissal of Defense Against Trade Secrets Claim
At the height of the pandemic, companies and governments around the world scrambled to develop and distribute COVID-19 vaccines. One such relationship involving HDT Bio, a Seattle-based biotechnology company, and Emcure, one of India’s largest manufacturers and distributors of generic drugs, has resulted in a fight over ownership of the life-changing formula. According to HDT Bio, in early 2020, the head of an Emcure subsidiary, Gennova Biopharmaceuticals Ltd. (“Gennova”), visited the HDT Bio headquarters to discuss bringing HDT Bio’s then-incipient COVID-19 vaccine to market in India. The parties formalized this relationship with an exclusive license agreement, and Gennova received a limited license to use HDT Bio’s COVID-19 vaccine and delivery platform, while HDT Bio received payments and royalties along with data from Gennova’s distribution to enable the development and sale of vaccines around the world.Continue Reading Not Immune From Misappropriation: Companies Fight Over COVID-19 Vaccine Intellectual Property
In 1992, Elizabeth Elting and Philip R. Shawe founded TransPerfect Global, Inc. (“TransPerfect”), a provider of language and technology solutions for businesses around the globe. When Ms. Elting wanted to dissolve her relationship with TransPerfect, the company held an auction and a custodian made some of TransPerfect’s confidential information available to potential bidders. The custodian’s agent, however, mistakenly gave the bidders access to trade secreted materials, such as TransPerfect’s proprietary pricing methodology, the average rate of pay for linguists, and customer revenue averages.Continue Reading No Award of Attorneys’ Fees for Claims Filed Without Factual Support
A company claiming trade-secret misappropriation must show that it took reasonable measures to keep secret its information. The U.S. Court of Appeals for the Second Circuit’s recent decision in Turret Labs USA, Inc. v. CargoSprint, LLC, No. 21-952, 2022 WL 701161 (2d Cir. Mar. 9, 2022), confirms that licensing terms can directly affect the reasonable-measures analysis. Continue Reading Licensing Terms Can Undermine Efforts to Protect Trade Secrets
For better or for worse, virtual civil trials—a product necessitated by the pandemic—are likely here to stay. Proponents of virtual civil trials laud the virtual format, in part because it provides participants with opportunities for greater engagement. For example, jurors might be able to see and hear evidence better via their computer screens and headphones than they would in the courtroom. But litigants should beware that jurors are not the only ones with increased courtroom access. Continue Reading Virtual Trials Increase Courtroom Access but Also Risk Trade Secret Disclosures
Companies in highly competitive industries often consider trade secrets to be their crown jewels. It is essential that companies understand that, in order to succeed in litigation over trade secret information, they must be able to articulate “reasonable measures” taken to protect the company’s crown jewels. Not only is it required to meet the definition of a trade secret, but failing to point to specific protective steps taken to protect the alleged trade secret can lead to defeat at the outset of a case via a motion to dismiss, or at summary judgment or trial. When addressing issues pertaining to “reasonableness,” courts typically take a case-by-case approach. “Total silence,” “absolute secrecy,” and “all conceivable efforts” are not required. But to be “reasonable,” protective measures must be established and followed for the alleged trade secret. As illustrated in the recently filed cases below, the range of protection measures are broad. Trade secret plaintiffs are touting their computer use and security policies, IP policies, and non-disclosure agreements when possible. Continue Reading Recent Trade Secret Enforcement Cases Highlight Need to Specify Protective Measures Undertaken to Protect Trade Secrets
In 2016, Sanchez Oil and Gas Corporation, Sanchez Energy Corporation, and Sanchez Production Parts LP (collectively “Sanchez”) sued three former employees—B.J. Reynolds, Mark Mewsha, and Wes Hobbs—and their new employer, Terra Energy Partners, LLC (“Terra Energy”) (collectively “Defendants”) for misappropriation of trade secrets. For the past three years, the parties have been litigating whether Defendants could move to dismiss an amended petition. A recent decision by the Texas Supreme Court has again sent this case to the Texas Court of Appeals to review its December 2020 decision. Continue Reading Texas Supreme Court Gives New Life to Dismissal of Misappropriation Claim
On October 15, 2021, Judge Charles Ronald Norgle, of the United States District Court for the Northern District of Illinois, awarded Motorola Solutions, Inc., and Motorola Solutions Malaysia SDN (collectively “Motorola”) $34,244,385.50 in attorneys’ fees from defendant Hytera Communications Corporation Ltd. ( “Hytera”). Motorola prevailed over Hytera on its trade secret misappropriation and copyright infringement claims, with the jury awarding $760 million on the trade secret misappropriation claim. The Court later reduced the award to $543.7 million, plus future royalties for Hytera’s continued use of the infringing radios. Motorola was entitled to reasonable attorneys’ fees under federal and Illinois trade secret acts because Hytera was found to have willfully and maliciously misappropriated Motorola’s trade secrets. Continue Reading The Cost of Litigating “the Largest and Most Complex Case”: The Northern District of Illinois Awards over $34 Million in Attorneys’ Fees to Motorola
The U.S. District Court for the Eastern District of California recently dismissed a conspiracy claim under the federal Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030(b), even while finding a likelihood of success on the merits of plaintiff’s trade secret claims. The court found the CFAA conspiracy claim was barred by the intra-corporate conspiracy doctrine, which provides that “concerted action by officers within a single corporate entity cannot give rise to liability for conspiracy.” Cool Runnings International Inc. v. Gonzalez, et al., No. 1:21-cv-00974-DAD-HBK, 2021 WL 5331453, at *14 (E.D. Cal. Nov. 16, 2021) (citations omitted).
Plaintiff Cool Runnings International Inc. (CRI) sued three former employees and their new employer for trade secret misappropriation, breach of contract, and violations of the CFAA following the departure of the employees to a newly created company, DRC Contracting, LLC (“DRC”). CRI submitted evidence that at least one of the former employees deliberately transferred a large quantity of electronic information from his CRI laptop to an external drive around the time he left the company, and that DRC used at least some of CRI’s trade secrets to its competitive advantage. Continue Reading Court Dismisses Computer Fraud and Abuse Act Conspiracy Claim in Trade Secrets Case under the Intra-Corporate Conspiracy Doctrine
The U.S. District Court for the District of Minnesota recently denied a former employer’s motion for a preliminary injunction seeking to restrict a former employee’s ability to work for a direct competitor, in part on the grounds that soliciting customers from memory does not constitute statutory misappropriation of trade secrets.
The former employee had resigned his position at an asset management company, Honkamp Krueger Financial Services, Inc. (HKFS), to work for Mariner, LLC (Mariner), a direct competitor. That same day he filed an action for declaratory judgment that HKFS’s restrictive covenants were unenforceable. HKFS filed counterclaims against the former employee and Mariner alleging breach of contract, violation of Iowa’s Uniform Trade Secrets Act (IUTSA), and tortious interference with contractual relations.
In addition to seeking declaratory relief, on the day the former employee resigned, he retained a forensic expert to image his cell phone and laptop and deleted all business-related contacts on his cell phone. He later called former clients based on publicly available information or phone numbers he had committed to memory. HKFS reported that the former employee took clients with $11 million of assets under management to Mariner.
In defending against HKFS’s trade secrets claims, the former employee submitted an affidavit stating that he deleted all business contacts at the time of his resignation and that he hired a forensic expert to ensure he did not have protected information on his personal devices. The purported misappropriated trade secrets, therefore, existed solely in the memory of the former employee.
The District Court, relying on a decision from the Iowa Supreme Court, Lemmon v. Hendrickson, 559 N.W.2d 278 (Iowa 1997), found that Iowa courts do not consider the names of customers retained in a former employee’s memory to be trade secrets, but rather general information. The Lemmon case was decided based on common-law claims for misappropriation of trade secrets, but the District of Minnesota found compelling reasons to extend the holding to the statutory IUTSA claims as well.
However, the District Court did find that although the former employee did not misappropriate any trade secrets in violation of IUTSA, HKFS had established a likelihood of success on the claim that the former employee breached an agreement prohibiting his “mak[ing] any use” of HKFS’s client contacts. Despite this holding, the court denied HKFS’s motion for a preliminary injunction on the grounds that HKFS failed to establish irreparable harm.
Although injunctive relief was denied, the District of Minnesota’s decision stands as a reminder to former employees that even if forensics can show that personal devices are clean as a whistle, using client information from memory might still run afoul of an enforceable contract.
Moeschler v. Honkamp Krueger Financial Services, Inc., No. 21-CV-0416 (PJS/DTS), 2021 WL 4273481 (D. Minn. Sept. 21, 2021)