Definition of Trade Secret

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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

In the early 2000s, New York City experienced a surging bedbug epidemic. In response, the company FabriClear created a spray to treat bedbug infestations, which it called “FabriClear” (“the FabriClear Product”). In 2013, FabriClear approached Harvest Direct, a company that markets and sells “As Seen on TV” products, to discuss bringing the FabriClear Product to market. The two companies executed a confidentiality agreement, which specified that Harvest Direct could not reproduce, use, alter, or modify the FabriClear Product formula without FabriClear’s written permission. The parties later negotiated a licensing agreement, giving Harvest Direct the right to the exclusive license to market and sell the FabriClear Product and to use FabriClear’s “trademarks, trade names, copyrights, trade secrets, technical data, information, know-how, formulas, and other intellectual property rights.” The FabriClear Product sold very well for approximately five years, but toward the end of 2018, sales started to decline. It turned out that Harvest Direct had started marketing its own competing bedbug product (the “X-Out Product”). Harvest Direct started working on its product in 2015, and its product was indistinguishable from the FabriClear Product, including very similar packaging. Indeed, there was evidence presented that, at some point, Harvest Direct just repackaged existing bottles of the FabriClear Product. One of the bottles investigated by the FBI revealed a FabriClear Product label under the X-Out Product label. FabriClear then filed suit against Harvest Direct for misappropriation of trade secrets, among other claims.
Continue Reading Battling Bedbugs: Massachusetts District Court Allows Case Against Distributor that Created a Competing Product to Move Forward

The court in Planner 5D v. Facebook, one of the first cases about trade secrets in artificial intelligence datasets, has granted the motion to dismiss on the copyright claims and denied the motion on the trade secret claims.

Trade secrets. The court held that the amended complaint sufficiently pleaded that the Planner 5D data files were trade secrets and that the defendants used improper means to acquire those trade secrets.

Defendants first argued that the Planner 5D files were not trade secrets. Princeton contended that Planner 5D designed its website to transmit object or scene data files to users’ browsers, where they were automatically stored in the browser’s cache, which enabled any user to access and reproduce those files. While the terms of use prohibited downloading material generally and prohibited using scraping tools, the terms of use expressly excluded “page caching” from the list of prohibited activities. Princeton relied on multiple exhibits and a declaration purportedly showing these technical details, but the court rejected much of that evidence because courts typically do not consider extrinsic evidence (e.g., exhibits not attached to the complaint) to resolve a motion to dismiss.
Continue Reading Planner 5D v. Facebook: Trade Secrets and Copyright Update

One of the ways trade secret disputes differ from other IP litigation is that in a trade secret dispute it is not always clear what the intellectual property actually is. Trade secrets aren’t disclosed to the patent office or registered like trademarks. Nor are they as clearly defined as copyrights. Thus, a threshold question in every trade secret case is what the trade secrets actually are. This creates a natural tension, as the very definition of a trade secret includes that it be kept secret. Nonetheless, litigation cannot proceed in the dark and there must be some disclosure at some time before a case can be meaningfully resolved. Courts vary widely in their approach to the what and the when of these disclosures. Some require detailed specificity before any discovery can occur, sometimes even at the pleading stage. Other courts are more lenient and will allow discovery to proceed without first requiring early and detailed disclosures.
Continue Reading Sedona Conference Lists Principles for Identification of Trade Secrets

Judge William Orrick of the Northern District of California held a hearing last week to address 12(b)(6) motions to dismiss by Facebook and Princeton University in UAB “Planner5D” v. Facebook, Inc., et al., Case No. 19-CV-03132 (N.D. Cal.). This appears to be one of the first trade secret misappropriation and copyright cases relating to artificial intelligence datasets.

Plaintiff Planner 5D has a website with a home design tool to allow customers to digitally design their own home, office, or landscape. As alleged by Planner 5D, the tool uses thousands of object and scene files as seed data sets to train machine learning algorithms. The complaint alleges that Princeton used software tools to obtain secret internet addresses where the object and scene files were hidden and then scraped the website to obtain the files, ultimately making the data available to Princeton researchers. Princeton then allegedly shared that data with Facebook. Planner 5D contends that, although the images themselves are viewable on the internet, the underlying datafiles and secret internet addresses that were scraped by Princeton, as well as the file locations, are trade secrets.
Continue Reading Planner 5D v. Facebook: Trade Secrets and Artificial Intelligence Hearing

In an April 16, 2020 ruling, the District Court for the District of Massachusetts re-affirmed that a plaintiff bringing a claim under the Defend Trade Secrets Act (DTSA) must allege “ownership of confidential information” to survive a motion to dismiss. The court in Focused Impressions, Inc. v. Sourcing Grp., LLC, No. 19-CV-11307-ADB, 2020 WL 1892062 (D. Mass. Apr. 16, 2020) granted a motion to dismiss a third-party complaint against a Plaintiff’s former COO where the third-party complaint failed to adequately allege ownership of confidential information.

Plaintiffs Focused Impressions, Inc. (FII) and Focused Impressions Technology, LLC (FIT) sued (among others) Lynn Smith, the former chief operating officer of FII and a former member of FIT, for violation of the DTSA. The third-party complaint alleged that Smith used confidential pricing information about FII’s clients, the Regal Press (Regal) and Wright Business Graphics, LLC (Wright). Smith moved to dismiss the complaint, arguing that Plaintiffs failed to allege ownership of confidential information, as required by the DTSA. The court agreed.
Continue Reading Federal District Court in Massachusetts Dismisses DTSA Complaint that Failed to Allege Ownership of Confidential Information

Determining when a plaintiff must disclose and describe the trade secrets it alleges were misappropriated is often a hard-fought battle between the parties.

On the one hand, some plaintiffs want to fully discover the scope of the misappropriation before limiting their claims to only a subset of their trade secrets. Given the often-surreptitious nature of trade secret misappropriation, plaintiffs are sometimes concerned that they do not even know which trade secrets were misappropriated, so they could not reasonably identify their trade secrets early in the case. Defendants, on the other hand, often advocate for early disclosure of the trade secrets to narrow the case, limit discovery, and mitigate the risk that the plaintiff will belatedly craft its definition of what constitutes its “trade secret” from what it finds in discovery.
Continue Reading Courts Differ on Timing and Scope of Trade Secret Identification