In an order filed January 8, 2021, the U.S. District Court judge overseeing the case cut Motorola’s $760 million jury award against competitor Hytera Corp. by over $200 million. Judge Charles Norgle of the Northern District of Illinois noted that the he made the decision “[w]ith a cool head and a keen eye.” The court found that the $760 million award included a double recovery for Motorola, in that it improperly awarded Motorola “both the $135.8 million in disgorged profits and the $73.6 million in avoided research and development costs.” Continue Reading Motorola Solutions v. Hytera Commc’ns Corp. Ltd.
Marketing agency InnerWorkings, Inc. filed suit under the Illinois Trade Secrets Act against a former sales executive who left the company for one of its direct competitors, HALO Branded Solutions. InnerWorkings does not allege that the former sales executive, Brian Battaglia, absconded with or stole trade secrets when he left for HALO. Continue Reading InnerWorkings, Inc. v. Battaglia
On January 6, 2021, we learned that federal courts’ nationwide case management system was breached as part of the SolarWinds hack, potentially giving hackers access to sealed court documents that may include trade secret information. The AP reports that a federal court official said that the “potential reach is vast” and the “actual reach is probably significant.” At this stage, officials do not know the full extent of the breach, which documents hackers accessed, or whether officials can retrieve those documents.
In response, the federal judiciary has announced new procedures relating to “highly sensitive” documents; namely, that courts will now accept sealed highly sensitive documents only in paper form or via secure electronic device (such as a thumb drive) and that the sealed documents will no longer be uploaded to the court’s CM/ECF electronic court records system. Individual courts around the country have begun to issue orders or notices relating to that national directive, including specifying which document categories will count as “highly sensitive” documents warranting special protections. The federal directive says that “sealed filings in many civil cases likely would not be sufficiently sensitive” to require the new special treatment and can continue to be e-filed.
Many of us have had to get used to videoconferencing. But that communication platform comes with its own challenges in protecting trade secrets. The Delaware Court of Chancery in Smash Franchise Partners, LLC v. Kanda Holdings, Inc. denied a preliminary injunction motion because, among other reasons, the plaintiff failed to show a reasonable likelihood that it took reasonable efforts to protect its alleged trade secrets when it disclosed the information on a Zoom call. C.A. No. 2020-0302-JTL (Del. Ch. Aug. 13, 2020), vacated in part on other grounds. Smash used the same Zoom meeting code for all its meetings, did not require that participants enter a password, did not use the “waiting room” feature to screen meeting participants, and did not take roll of each person attending the meeting (some of whom could not be identified). In other words, anyone who had the Zoom meeting code could enter the meeting and receive the confidential information. Although Zoom offered these security measures, the plaintiff’s failure to use them showed a lack of reasonable efforts to protect the information.
This is a cautionary tale about ensuring that companies utilize appropriate protections while videoconferencing (or using other technological platforms more generally). Just as companies should not let strangers walk into in-person meetings about trade secrets, companies should adopt protections when those meetings occur remotely. Beyond videoconferencing, companies should also consider technological measures that help protect confidential information during remote work. Even apart from whether a court will find that the efforts were reasonable, a company never wants to lose its trade secrets when it could have safeguarded them by using readily available tools.
On November 30, 2020, the United States Supreme Court heard oral arguments in Van Buren v. United States, which may resolve a circuit split on the extent to which the Computer Fraud and Abuse Act (CFAA) covers an employee’s alleged misappropriation of the employer’s information. Enacted in 1986, the CFAA imposes criminal penalties on a person who intentionally accesses a protected computer and obtains information “without authorization” or in a way that “exceeds authorized access.” The CFAA also creates a civil cause of action. The CFAA does not define “without authorization,” but it does define “exceeds authorized access” as “access[ing] a computer with authorization and [using] such access to obtain or alter information in the computer that the accesser is not entitled so to obtain or alter.” 18 U.S.C. § 1030(e)(6). That definition is front and center in Van Buren, which involves a police officer who disclosed information he obtained through a confidential database; the officer had access to a confidential database but only for law enforcement purposes.
Two main approaches have emerged to deal with a situation where a person has the right to access computer files but not for the allegedly improper purpose. The First, Fifth, Seventh, and Eleventh Circuits broadly interpret the CFAA as prohibiting using information on a computer in violation of a confidentiality agreement or for a prohibited purpose, even if the person otherwise has permission to access that same information. By contrast, the Second, Fourth, and Ninth Circuits interpret the statute more narrowly, like an anti-hacking statute, holding that improper use of information validly accessed does not violate the CFAA. The Supreme Court’s decision to resolve this circuit split is expected by the end of June 2021.
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.
A Vermont-based soup company sued its Mexican supplier in the United States District Court for the Southern District of Texas, alleging that the supplier breached the parties’ contract and stole the soup company’s trade secrets. Continue Reading Vermont-Based Soup Company Claims Mexican Supplier Stole Its Trade Secrets
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
A company looking to protect its own trade secrets or manage risk involving others’ trade secrets must first consider whether company information qualifies as a trade secret. Often a threshold issue in litigation, this is also an important question for companies and people to consider when entrusted with access to the information of others. Continue Reading What Is a Trade Secret?
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