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)
The U.S. Court of Appeals for the Seventh Circuit recently held that limited disclosures of a product, such as through patents and trade show displays, would not defeat a company’s reasonable efforts to protect its confidential information.
The case involves two competing medical device manufacturers: Life Spine, Inc. (Life Spine), which makes and sells surgically implanted medical devices to treat spine disorders; and AegisSpine, Inc. (Aegis), which sells similar medical devices created by its parent company L&K Biomed, Inc. (L&K). Life Spine spent more than three years of intensive study and exhaustive trial and error to design and develop its ProLift Expandable Spacer System (ProLift), an expandable cage used to treat degenerative disc disease. Eventually, it was FDA approved and Spine Life obtained a patent. Although the patent displays drawings and figures of the expandable cage, Life Spine considers the “precise dimensions and measurements of the ProLift components and subcomponents and their interconnectivity” to be confidential trade secrets. Continue Reading Not All or Nothing: Trade Secrets Survive Patents and Other Limited Disclosures
The United States District Court for the District of Oregon recently refused to dismiss antitrust counterclaims against a plaintiff who allegedly brought misappropriation of trade secrets claims against its competitor in bad faith.
The plaintiff, Edwards Vacuum, LLC (“Edwards”), sued its supplier and competitor, Hoffman Instrumentation Supply, Inc. (“HIS”), and five former employees of Edwards for misappropriation of trade secrets, breach of contract, and several related claims.
On May 11, 2021, former Toronto Blue Jays pitcher Michael Bolsinger filed suit in Harris County (Texas) District Court, alleging the Houston Astros violated the Texas Uniform Trade Secrets Act (TUTSA) when they stole the Blue Jays’ catcher’s hand signals. The catcher uses these closely guarded hand signals to relay to the pitcher the next desired throw. Bolsinger claims the theft cost him his major league baseball career and is seeking $1 million in damages. On July 12, 2021, the Astros filed a motion to dismiss, claiming the plaintiff‘s trade secret legal theory defied common sense, arguing any spectator with the right seat and binoculars could easily steal the pitch signals. The court has not yet decided the motion.
The U.S. District Court for the Eastern District of Texas recently denied a challenge to its subject-matter jurisdiction over a misappropriation of trade secrets claim under the Defend Trade Secrets Act (DTSA), rejecting the defendants’ argument that the DTSA’s interstate commerce requirement limits the jurisdiction of federal courts.
The Oregon Court of Appeals recently held that while certain customer data could be protected by a trade secret claim, basic information such as customer identities and email addresses, without more, did not give rise to a trade secret. Rather, the employer had to present evidence that the information derived economic value from not being generally known and was subject to reasonable efforts to maintain its secrecy.
Peterson Machinery Co. (Peterson) was engaged in the business of renting and selling heavy machinery in Oregon, Washington, and California. Modern Machinery (Modern) was one of Peterson’s primary competitors in Oregon. Heavy machinery sales is a “niche” market in Oregon, and only a handful of companies are engaged in this business. Bryan R. May (May) was a former rental and sales consultant who began working for Peterson in 2006. In October 2017, May accepted a job offer from Modern as the territory manager in Eugene, Oregon. As a territory manager, May’s primary job duty was to call on prospective purchasers of heavy machinery in his assigned territory and negotiate potential sales. Continue Reading Oregon Court of Appeals Clarifies When Customer Information Constitutes Protectible Trade Secrets
In an order dated April 20, 2021, U.S. District Judge Lorna G. Schofield granted Syntel Inc.’s request for a new trial or remittitur on the $569,710,384 punitive damage award issued against Syntel following an October 2020 jury trial.
In October 2020, a New York federal jury found that Syntel had misappropriated the TriZetto Group, Inc.’s trade secrets in violation of the Defend Trade Secrets Act and New York law. The jury also found that Syntel infringed one or more of TriZetto’s copyrights. The jury awarded $284,855,192 million in compensatory damages and $569,710,384 million in punitive damages. Continue Reading New York Federal Judge Finds Punitive Damages Award Excessive Following Trade Secrets Trial