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The Ninth Circuit recently reaffirmed that the federal Defend Trade Secrets Act requires a plaintiff to describe its alleged trade secret with sufficient particularity. But the Ninth Circuit opened the door to allowing a plaintiff to modify its trade secret identification after discovery. It held that a district court abused its discretion in granting summary judgment to a defendant when a plaintiff identified only “some” of its alleged trade secrets before discovery, reasoning that it was not fatal to the plaintiff’s claim that it included “hedging language” to leave open the “possibility of expanding its identifications later” because the plaintiff’s burden before discovery was “only to identify at least one trade secret with sufficient particularity to create a triable issue.”

InteliClear, LLC (InteliClear) developed a comprehensive securities trading tracking system and licensed that system to ETC Global Holdings, Inc. (ETC). The license agreement acknowledged that “all information InteliClear provided was confidential, proprietary, and copyrighted, and through the agreement, ETC agreed to maintain that information in confidence ‘during and after’ the terms of the agreement.” ETC later terminated the license agreement and built its own securities clearing software. InteliClear suspected that ETC had improperly used InteliClear’s system to develop the competing system. A third party inspected both systems and found “abundant evidence” that parts of ETC’s system were “identical” to parts of InteliClear’s system. InteliClear sued ETC in federal court, alleging that ETC misappropriated its trade secrets under the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act.

The district court denied ETC’s motion to dismiss InteliClear’s trade secret misappropriation claims, but then granted ETC’s motion for summary judgment just one day after discovery had begun. At that time, no discovery had occurred. The District Court held that InteliClear had failed to “sufficiently identify” the elements of its system that were allegedly trade secrets. The district court also denied InteliClear’s motion to defer ruling on ETC’s motion for summary judgment until after discovery because “discovery would not resolve the underlying deficiencies—i.e., the failure to state the alleged trade secrets with sufficient particularity.”

InteliClear appealed, and the Ninth Circuit reversed. The Ninth Circuit confirmed that, under both the federal Defend Trade Secrets Act and the California Uniform Trade Secrets Act, a plaintiff must prove that it owns a trade secret by identifying the alleged trade secret with “sufficient particularity.” InteliClear had identified “some of the features” of InteliClear’s securities system that it alleged were trade secrets, including “its uniquely-designed tables, columns, account number structures, and methods of populating table data.” The district court held that, by identifying only “some” of its alleged trade secrets, InteliClear had impermissibly left open the possibility that “it might later argue that other unnamed elements” of its system were trade secrets as well. The Ninth Circuit disagreed: “At this stage, particularly where no discovery whatsoever had occurred, it is not fatal to InteliClear’s claim that its hedging language left open the possibility of expanding its identifications later.” The Ninth Circuit held that InteliClear’s burden at this point was “only to identify at least one trade secret with sufficient particularity to create a triable issue,” which it had done. Thus, the Ninth Circuit reversed and remanded to the district court to allow InteliClear to conduct discovery.

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On September 30, 2020, a Texas federal jury found that San Francisco-based billing technology company Hint Health did not misappropriate the trade secrets of its former partner, Accresa. The jury also rejected Hint Health’s defamation counterclaim and awarded no damages on its breach of contract counterclaim. Continue Reading Texas Jury Finds Billing Technology Company Did Not Steal 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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In June 2020, we wrote about a Texas appellate court overturning a $740 million judgment for real estate analytics company HouseCanary because the jury instructions included theories of liability for which there was no evidence and allowed recovery on claims that were preempted by the Texas Uniform Trade Secrets Act.

On June 18, 2020, the appellant, Title Source, Inc., filed a motion for reconsideration of the appellate court’s June 3 decision. In response, the Fourth Court of Appeals of Texas withdrew the June 3, 2020, opinion and issued a subsequent opinion on August 26, 2020. The court maintained its June 3 decision to reverse based on the jury instructions, remanding for a new trial. It noted that, even though it was reasonably certain that the jury did not base its findings on bribery or espionage—because HouseCanary did not assert those theories of liability—the court was reasonably certain that the jury was “significantly influenced” by the erroneous inclusion of the “breach or inducement of a breach of duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret” instruction. HouseCanary argued throughout the trial that TSI breached a duty to limit its use of HouseCanary’s trade secret. But TSI did not actually acquire the trade secrets through those breaches, rather the evidence shoes those breaches occurred after House Canary willingly turned over the trade secrets for collaborative business pursuits under the parties’ non-disclosure agreement and House Canary elected to recover only on the misappropriation and fraud claims. A verdict on this theory of liability would have been contrary to the evidence. Because HouseCanary did not elect to recover on the breach of contract claim, that claim was not considered in the first appeal. On reconsideration, Title Source argued that a partial remand was not appropriate because all of the claims relied on interrelated facts and overlapping measures of damages. The court agreed, holding that because the claims relied on the same facts, a retrial could result in a verdict that conflicted with the jury’s contract findings. Thus, if HouseCanary wants to retry its trade secret and fraud claims, it must also retry its breach of contract claim. Alternatively, it could recover on the jury’s contract findings that were not successfully challenged in the original appeal.

The case is Title Source, Inc. v. HouseCanary, Inc., ___S.W.3d___, No. 04-19-00044-CV, 2020 WL 5027667 (Tex. App. Aug. 26, 2020). [In June 2020, we wrote “Texas Court Orders New Trial After $740M Judgment“]

A recent court case from the Eastern District of Louisiana provides some useful guidance for parties seeking fee shifting in trade secrets litigation.

In December 2016, plaintiffs Source Production & Equipment Co., Inc. (SPEC) and affiliates filed an action in which they alleged violations of the Defend Trade Secrets Act (DTSA), the Louisiana Uniform Trade Secrets Act (LUTSA), and the Louisiana Unfair Trade Practices Act (LUTPA) against defendants Isoflex USA (IUSA) and Richard McKannay, Jr. (collectively, the IUSA defendants). After more than three years of litigation that “involved extensive discovery and motion practice,” the IUSA defendants brought a motion for attorneys’ fees and costs because they argued that plaintiffs’ DTSA and LUTSA claims were brought and maintained in bad faith.

Continue Reading Court Awards Attorneys’ Fees to End “Long and Torturous Litigation”

On appeal from the U.S. District Court for the District of Nebraska, the U.S. Court of Appeals for the Eighth Circuit affirmed a denial of summary judgment holding that there was no misappropriation of trade secrets.

The conflict arose when three former employees of Crop Ventures, Inc., left to co-found Farmobile, LLC. Farmers Edge Inc. (the successor in interest of Crop Ventures) subsequently sued the three former employees and Farmobile for breach of contract, breach of duty of loyalty, and misappropriation of trade secrets. Farmers Edge filed a motion for summary judgment on all claims in its First Amended Complaint, which was denied in full by the district court. Farmers Edge appealed.

Continue Reading Eighth Circuit Affirms Rejection of Trade Secret Claim: Information Freely Shared with a Single Third Party Without a Confidentiality Agreement Was Not Subject to Reasonable Efforts to Protect

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A former part owner of a failed venture sued the venture’s former CEO, Paul Smith, alleging he misappropriated trade-secret hemp strains, selling them to a Canadian cannabis company for nearly $4 million.

In its September 21, 2020 complaint, Big Wuf Enterprises, LLC and its principal, W. John Short, allege their former venture, YCG Holdings LLC, owned the trade-secret hemp strain “Relief Now” as well as its trademark, equipment, and other assets. Big Wuf asserts that YCG was formed by Big Wuf, JP Consulting, and the non-party Kelly Martin.

According to the complaint, the venture failed after less than a year and JP Consulting and Smith were “tasked with liquidating the assets, paying off the creditors, and distributing the remaining proceeds.” Instead, JP Consulting and Smith allegedly transferred YCG’s assets, including the Relief Now genetics and intellectual property, to new a venture, Go Farm Hemp, LLC. Go Farm Hemp then sold the Relief Now seeds to a Canadian cannabis company, Canopy Growth, for $3,825,000 as part of a $13 million growing contract, said the complaint.

Big Wuf claims it is owed 45 percent of the proceeds from the sale of Relief Now seeds and seeks an additional $5 million dollars in punitive damages under the Defend Trade Secrets Act “to deter like conduct in the future.”

As of the date of this post, the defendants have not yet filed any response to the complaint.

The case is Big Wuf Enterprises, LLC et al. v. Go Farm Hemp LLC et al., 6:20-cv-01634, in the U.S. District Court for the District of Oregon. For more information on the budding topic of cannabis law, see Perkins Coie’s Cannabis page.

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On September 10, 2020, San Diego law firm Slate Law Group filed suit after a former associate left the firm to become in-house counsel for a firm client, ClickUp.  Slate alleged that attorney Derek Dahlin misappropriated Slate’s trade secrets by providing ClickUp with confidential business information including Slate’s contract templates and work product.

According to the complaint, Dahlin was brought on as an independent contractor for Slate in March 2020 and was hired as a full-time associate on April 21.  The complaint further states that shortly after Dahlin began working on ClickUp matters, ClickUp solicited Dahlin to become its in-house counsel. Continue Reading Law Firm Accuses Departing Associate of Taking Firm Trade Secrets to In-House Position with Firm Client