Identification of Trade Secrets

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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

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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

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The Southern District of New York denied defendant Lionbridge Technologies, Inc.’s (Lionbridge) motion to dismiss, holding that TransPerfect Global, Inc. (TransPerfect), sufficiently pleaded that information disclosed to potential bidders in an online auction constituted trade secrets and that Lionbridge misappropriated these trade secrets. In 2014, the Delaware Chancery Court ordered the dissolution through modified auction of TransPerfect, a translation, website localization, and litigation support company. The auction had three phases. At each phase the bidding pool narrowed, and the bidders received increasingly detailed and sensitive information about TransPerfect. HIG, an investment firm that had just submitted a bid to purchase Lionbridge (TransPerfect’s largest competitor), participated in the auction. According to TransPerfect’s complaint, HIG participated in all three phases, even though it never intended to purchase TransPerfect because TransPerfect would not agree to require its former owner to enter into a noncompetition agreement. During the final stages of the auction, HIG gained access to thousands of competitively sensitive documents, including detailed pricing and cost information. TransPerfect alleged that after the sale, HIG shared this confidential information with Lionbridge, which then used the information to undercut TransPerfect’s pricing.
Continue Reading Use of Information Outside Scope of Confidentiality Agreement as Misappropriation

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CleanFish LLC, a seafood wholesaler and importer, faced an early setback in its case against its founder who allegedly started a competing company by using CleanFish’s confidential customer lists and information. CleanFish alleged state and federal trade secret misappropriation claims and breach of contract based on confidentiality and proprietary-rights agreements.

In a March 17, 2020 ruling, the U.S. District Court for the Northern District of California dismissed CleanFish’s trade secret claims because it failed to identify any trade secret with sufficient particularity. CleanFish’s general descriptions of “customer lists, customer purchasing data, customer sales figures[,] and other related customer purchasing analysis and trends” were too broad and vague, making them indistinguishable from matters of general knowledge in the seafood-distribution business. On the other hand, the court allowed that the breach-of-contract claim could proceed because the contracts did not require CleanFish to allege a defined trade secret. (CleanFish has since amended its complaint, and defendants moved to dismiss).
Continue Reading CleanFish, LLC v. Sims

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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