Recent Hot Topics And Developments In Trade Secrets Law – Trade Secrets

There have been some noteworthy recent decisions in trade
secrets law. This blog post summarizes some of the significant
decisions grouped by the hot topics below.

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Sufficiency of Trade Secret Pleadings and Allegations of
Misappropriation

In Oakwood Lab’ys LLC v. Thanoo, 999 F.3d 892 (3d
Cir. 2021), the Third Circuit addressed the pleading requirements
to assert a claim under Defend Trade Secrets Act
(“DTSA”). In the case, a pharmaceutical company sued a
former product development employee and his new employer in the
District of New Jersey for misappropriation of trade secrets in
violation of the DTSA. The district court dismissed plaintiff’s
complaint for failure to state a claim. Shortly after hiring the
employee, plaintiff alleged that his new employer developed
products that were substantially similar to and competitive with
plaintiff’s product using its trade secrets.

The DTSA requires a plaintiff to demonstrate (1) the existence
of a trade secret, defined generally as information with
independent economic value that the owner has taken reasonable
measures to keep secret; (2) that the trade secret is related to a
product or service used in, or intended for use in, interstate or
foreign commerce; and (3) the misappropriation of that trade
secret, defined broadly as the knowing improper acquisition, or use
or disclosure of the secret. The district court held that plaintiff
“adequately pled the existence of its trade secrets” but
failed to identify which one or more of those trade secrets
defendants misappropriated. On appeal, plaintiff argued that the
district court did not correctly apply the plausibility standard
under the DTSA.

On appeal, defendants argued that the plaintiff’s
description of its trade secrets was inadequate because it did not
state which secrets it claimed that the defendant had
misappropriated. The court rejected defendants’ argument as an
“effort to blend together the identification-of-a-trade-secret
element and the misappropriation element, when “only discovery
will reveal exactly what the defendants are up to.”
Id. at 905 n.13. The Third Circuit held that plaintiff had
described its trade secret “with sufficient particularity to
separate it from matters of general knowledge in the trade or of
special knowledge of those persons who are skilled in the trade,
and to permit the defendant to ascertain at least the boundaries
within which the secret lies.” Id. at 906. The court
concluded that plaintiff adequately identified its trade secrets by
describing the product, process, and supporting documentation.

The district court also held below that plaintiff did not
establish an “improper acquisition, disclosure, or use of a
trade secret without consent.” The district court reasoned
that plaintiff needed to demonstrate that the corporate defendant
copied plaintiff’s project in order to satisfy the
“use” requirement under the DTSA. The Third Circuit found
otherwise, reasoning that the district court’s interpretation
of the word “use” was “inconsistent with the text of
the DTSA and the broad meaning that courts have attributed to the
term ‘use’ under state laws that address trade secret
misappropriation.” Id. at 908. The court held that
“the ‘use’ of a trade secret encompasses all the ways
one can take advantage of trade secret information to obtain an
economic benefit, competitive advantage, or other commercial value,
or to accomplish a similar exploitative purpose, such as
‘assist[ing] or accelerat[ing] research or
development.'” Id.

The Third Circuit also held that plaintiff sufficiently alleged
misappropriation based on circumstantial evidence. The court
reasoned that indirect use of trade secrets can be inferred from
the timing of a defendant employee’s hire, deception in the
employee’s departure, the corporate defendant’s lack of
experience in the industry, low financial investment, and quick
success. See id. at 912. Plaintiff’s complaint was
“sufficient to ‘raise a right to relief above the
speculative level on the assumption that the allegations in the
complaint are true.'” Id. Finally, the court held
that the corporate defendant’s misappropriation was an
actionable harm, despite not launching a competing product, because
plaintiff “lost the exclusive use of trade secret information,
which is a real and redressable harm,” and the
misappropriation provides the corporate defendant “a jumpstart
to an industry it would otherwise not have competitively joined for
another decade.” Id. at 914; see also ResMan, LLC
v. Karya Prop. Mgmt.
, LLC, Case No. 4:19-CV-00402, 2021 U.S.
Dist. LEXIS 145462 (E.D. Tex August 4, 2021)(injunction prohibiting
use or disclosure of trade secrets does not break causation
regarding defendant’s continuing benefit from the
misappropriation).

Similarly, in Five Star Gourmet Foods, Inc. v. Fresh
Express, Inc.
, Case No. 19-cv-05611-PJH, 2020 WL 513287 (N.D.
Cal. Jan. 31, 2020), the district court found that plaintiff stated
a claim under the DTSA where the defendant was accused of
misappropriating plaintiff’s trade secrets and using them to
replicate the plaintiff’s salad production facility. The court
found that touring the plaintiff’s production facilities and
gathering information under a non-disclosure agreement sufficiently
alleged access to the trade secrets. Those allegations along with
allegations that defendant copied the plaintiff’s business
operations down to using the same tool set to create its packaging
was sufficient to allege misappropriation under the DTSA.
Id. at *8; see also Payward, Inc. v. Runyon, Case
No. 20-cv-02130-MMC, 2021 WL 242903, at *4 (N.D. Cal. Jan. 25,
2021) (misappropriation where defendant gave information to another
employee who did not otherwise have access to the document).

Assessing Misappropriation on Summary Judgment

In Precision Indus. Contractors Inc. v. Jack R. Gage
Refrigeration Inc.
, No. C19-5810 TSZ, 2021 WL 3472377 (W.D.
Wash. August 6, 2021), a district court found that there was not
sufficient evidence on summary judgment to establish
misappropriation by a former employee who submitted competing bids
for a competitor. The defendant former employee was provided access
to plaintiff’s confidential information during employment,
including strategies on how to secure winning bids and information
about plaintiff’s existing and potential clients.

In the past, plaintiff had won about 75 percent of the bids it
submitted for a specific client. Shortly after a client project was
announced, defendant employee abruptly quit. Following this,
plaintiff was only awarded one project for the client project even
though it submitted five or six bids. Though there were other
factors in play, plaintiff believed that part of the reason it lost
bids was because defendant used plaintiff’s confidential
information to submit bids to the client. Plaintiff eventually
moved for summary judgment on its federal and state trade secret
misappropriation claims, arguing that the defendant improperly took
plaintiff’s confidential information, including bidding sheets,
internal costs, manuals, and other techniques developed internally
and exclusively for plaintiff’s own use.

Despite this, the court found that while defendant may have had
access to some of plaintiff’s confidential information, that in
itself did not demonstrate that he misappropriated the information.
See id. at *4. Moreover, the court noted that it was
undisputed that defendant had decades of “know-how and
experience,” including with submitting bids for industrial
construction projects. See id. In addition, defendant
testified that he had no idea what plaintiff’s bids were going
to be on the client project. In sum, there was no evidence that
defendant misappropriated plaintiff’s trade secrets or acquired
them through improper means, that he disclosed the trade secrets to
his new company, or that he used the trade secrets in connection
with submitting bids for the client project. See id.
Accordingly, summary judgment was denied as to plaintiff’s
claims for trade secret misappropriation.

Disclosure of Trade Secrets in Patent Applications

In Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531
(7th Cir. 2021), the defendant argued that the alleged trade
secret—the exact dimensions of a patented spinal implant
device for treating degenerative disc disease—was disclosed
in a patent and marketing. The Seventh Circuit found that the
patent did not disclose the measurements of the component parts,
and prospective customers were only allowed to inspect the device
under close supervision. See id. at 542. Accordingly, the
court held that the dimensions qualified for trade secret
protection. As a result, the court affirmed the preliminary
injunction ruling of the magistrate judge that blocked defendant
from continuing to sell its line of spinal cages, which are
marketed to surgeons and hospitals for patients suffering from
degenerative disc disease and compete directly with a similar cage
plaintiff sells. See id. at 543-44.

RICO and Trade Secrets

In MD Helicopters, Inc. v. Aerometals, Inc.,
16-cv-02249, 2021 WL 978953, at *1 (E.D. Cal. Mar. 16, 2021), the
plaintiff alleged that the defendant used the plaintiff’s
manufacturer drawings to unfairly compete in the airplane parts
market. The plaintiff sought leave to amend its complaint to add
new claims under the DTSA and RICO, based on DTSA predicates.
Id. The defendant argued that the new claims would be
futile, in part, because the plaintiff purportedly failed to allege
a concrete financial loss. Id. at *2, 6. The court
disagreed, finding that the following allegations sufficiently pled
a concrete financial loss: 1) the defendant made sales that would
have otherwise been made by the plaintiff; and 2) the plaintiff had
been injured by price erosion. Id. at *6.

Generally Known and Readily Ascertainable Defenses to Trade
Secret Misappropriation

After a four-day bench trial in August 2021, a Texas federal
judge found in the defendant’s favor in a high stakes trade
secrets dispute between two energy companies. Plaintiff Vita
International Inc. filed the lawsuit, case number 4:18-cv-01663,
against competitor Foro Energy Inc. in the US District Court for
the Southern District of Texas.

The district court ruled that the plaintiff’s conceptual
drawings of a deployment wheel were “generally known” in
the oil and gas industries, and thus not a trade secret. The court
specifically found that plaintiff’s deployment wheel, which
guides lasers into a wellbore, is “not a novel or unique
concept” to qualify for trade secret protection.

Citing plaintiff’s own 1998 patent, the court reasoned that
the earlier patent “explicitly disclosed” the
side-loading process and any reasonably skilled artisan could have
developed plaintiff’s deployment wheel concept, which he said
was not a “complex” piece of equipment.

“Vita’s relatively simple deployment wheel concept was
disclosed in numerous prior art references and could have been
created by one with reasonable skill in the art,” the court
reasoned. “Accordingly, the concept was readily ascertainable
by proper means, and Vita cannot establish that its conceptual
design was a trade secret.” The court also found that a patent
filed by another company in November 2014, contained features
depicted in plaintiff’s conceptual drawings

The court concluded that plaintiff’s conceptual drawings
were not trade secrets because the “essential
characteristic” of the design was publicly disclosed by
plaintiff’s own expired patents, and they illustrate a
“generally known” concept in the oil and gas
industry.

The court also found that the side-loading process of
plaintiff’s deployment wheel cannot be a trade secret, as it
was explicitly disclosed in at least two patents. These features
appeared in defendant’s own patent and could be seen in a
variety of commercially available alternatives that were created
prior to plaintiff’s conceptual design.

The court reasoned that anyone reasonably skilled in the art
could have developed the deployment wheel concept that plaintiff
delivered. The court credited testimony that a deployment wheel is
not considered to be a sophisticated or complex piece of equipment.
The court also noted that engineers experienced with using similar
deployment mechanisms in the field testified that they did not
consider plaintiff’s conceptual design to be an involved
one.

Sealing and Access to the Courts in Trade Secret Cases

Courts continue to demand strict compliance with procedural
rules in connection with motions to seal confidential material even
in trade secrets cases. See Hebert v. Unum Group, Case No.
4:18-CV-00910-SDJ-KPJ, 2020 WL 4922117 (E.D. Tex. Aug. 21, 2020)
(“Ultimately, the decision whether to allow public access to
court records is left to the ‘sound discretion of the trial
court … to be exercised in light of the relevant facts and
circumstances of the particular case.'” (quoting Nixon
v. Warner Commc’ns, Inc.
, 435 U.S. 589, 599 (1978))). In
Binh Hoa Le v. Exeter Fin. Corp., 990 F.3d 410 (5th Cir.
March 5, 2021), the court found ”
parties agreeing to private discovery and presuming that whatever
satisfies the lenient protective-order standard will [not]
necessarily satisfy the stringent sealing-order standard,” and
the courts must still consider “whether the substantive
requirements for filing documents under seal have been met.”
In DePuy Synthes Prods. v. Veterinary Orthopedic Implants,
Inc.
, 990 F.3d 1364 (Fed. Cir. 2021), the court denied a
motion to seal to protect alleged confidential information about
the identity of a manufacturer. The court found that there was no
contract establishing confidentiality, despite arguments that
company policies protected the information from disclosure.

In HouseCanary, Inc. v. Title Source, 622 S.W.3d 254
(Tex), the Texas Supreme Court held that state procedural rules are
not displaced by the Texas Uniform Trade Secrets Act provision
requiring courts to protect alleged trade secrets. In Bader
Farms v. Monsanto Co.
, Case No. 1:16-cv-00299-SNLJ, 2021 U.S.
Dist. LEXIS 16308 (E.D. Mo January 28, 2021), the court denied a
sealing request after plaintiff failed to comply with a pretrial
order requiring document-by-document review of confidentiality of
the trial exhibits.

Reasonable Secrecy Efforts/Confidentiality to Protect Trade
Secrets

In MBS Engineering Inc. et al. v. Black Hemp Box LLC et
al.
, case number 3:20-cv-02825 (N.D. Cal. June 16, 2021), the
court ruled that plaintiff’s DTSA claim could proceed despite
the defendants’ assertions that the company did not do enough
to secure the technology’s secrecy when it sold the hemp dryers
at issue without prohibiting buyers from reverse-engineering them.
“It may be that the ease of reverse engineering bears on the
question of what secrecy efforts were reasonable under the
circumstances, but defendants cite no authority indicating that the
mere possibility of reverse engineering by a third-party purchaser
necessarily invalidates a trade secret,” the court stated.
Id. at 3. The court concluded, “[a]t most, this
raises a fact question that should be resolved at summary judgment
or trial.” Id.

In EMC Outdoor, LLC v. Stuart, Civil Action No.
17-5172, 2021 U.S. Dist. LEXIS 63438 (E.D. Pa March 31, 2021),
summary judgment entered for defendant where the nondisclosure
agreement made defendant’s confidentiality provisions
applicable post-employment only if she resigned. Because she was
fired from the position, the district court held that plaintiff
could not state a claim for misappropriation.

In Bladeroom Group, Ltd. v. Emerson Elec. Co., 11 F.4th
1010 (9th Cir. 2021), the Ninth Circuit reversed a $60 million
verdict on the grounds that the district court should not have
ignored the plain language in an NDA providing that confidentiality
obligations would terminate after two years. The court rejected the
district court’s reasoning that the two-year limit controlled
because it was contrary to the parties’ intent and would lead
to an absurd result.

Personal Jurisdiction in Trade Secret Cases

In M3 USA Corp. v. Hart, No. 20-cv-5736, 2021 WL 308162
(E.D. Pa. Jan. 29, 2021), plaintiff employer sued its former
employee and her new employer for misappropriation of trade
secrets. The employee was a New Jersey resident who worked for
plaintiff remotely. Her new employer was based in Georgia.
Plaintiff’s principle place of business was in
Pennsylvania.

Defendants moved to dismiss for lack of personal jurisdiction.
The district court concluded that it could exercise specific
personal jurisdiction over the employee and new employer for
misappropriation of trade secrets. To establish specific personal
jurisdiction, the court must consider the totality of the
circumstances, “[i]n short, all of the essential functions
that allowed [the employees] to earn a living were channeled
through Pennsylvania … underscoring [the employees’]
connection to the Commonwealth is more than incidental.”
Id. at 493. “Though a close call,” the court
found that the defendant employee directed purposeful contacts at
Pennsylvania, in part because she visited the Pennsylvania office
several times a year, requested key fob access to the Pennsylvania
office, and even “marketed herself as a Pennsylvania
resident.” Id. at 494.

When applying the “effects test” set forth in
Calder v. Jones, 465 U.S. 783 (1984), the court determined
that: (i) the employee committed an intentional tort
(misappropriation of trade secrets); (ii) plaintiff “felt the
brunt of the harm” in Pennsylvania; and (iii) employee
“expressly aimed h[er] tortious conduct at” Pennsylvania
(for example, by using her employer-issued “devices to access
confidential customer data after resigning”). Id. at
499. The court held that it also could exercise specific personal
jurisdiction over the corporate defendant because it “has
clients in Pennsylvania,” including the new clients from the
employee. The corporate defendant also met the requirements of the
“effect test” from Calder for similar reasons
set out for the employee.

Forum Non Conveniens of Foreign Defendants in Trade
Secret Cases

In Inventus Power, Inc. v. Shenzhen Ace Battery Co.,
Ltd.
, Case No. 20-cv-3375, 2021 WL 1978342, (N.D. Ill. May 18,
2021), an Illinois federal court addressed the burden faced by a
trade secret defendant requesting dismissal on forum non
conveniens
grounds in favor of a Chinese court. The plaintiff
brought claims for trade secret misappropriation under the Defend
Trade Secrets Act and the Illinois Trade Secrets Act in the
Northern District of Illinois. Plaintiff is headquartered in the
district and the defendants are Chinese corporations.

The defendant moved to dismiss based on forum non
conveniens
, arguing that China was the more appropriate forum.
The district court denied the motion. In its decision, the court
analyzed whether “an alternative and adequate forum is
available and then go on to balance the interests of the various
participants, as well as the public.”

As to availability and adequacy, the district court found that
the defendant had failed to show that China was an available and
adequate forum for the plaintiffs’ trade secret claims. The
court questioned whether Chinese trade secret law provided an
adequate remedy. The court found that defendants failed to provide
any evidence, such as affidavits or expert testimony, concerning
the significance or operation of Chinese civil procedure law.

The court remarked that while Chinese law authorizes conduct
preservation measures that are “functionally equivalent (or at
least similar to) injunctive relief in the United States,” the
court observed that the defendant had only identified one Chinese
case in which such a measure had been implemented. Id. at
*5. The court was “not particularly convinced as to the
availability of injunctive relief to the plaintiffs in China.”
Id. Lastly, the court stated that it could not conclude
“with any confidence that the plaintiffs would have a viable
avenue of relief in China were the Court to dismiss this
action.” Id.

Remedies for Trade Secret Misappropriation: Disgorgement

In AMS Sensors USA Inc. v. Renesas Electronics America
Inc.
, case number 4:08-cv-00451, (E.D. Tex. December 14,
2021), a Texas federal judge found that light sensor maker Renesas
Electronics America Inc. is liable for approximately $8.5 million
in disgorgement to AMS Sensors USA Inc. in a trade secret and
contract suit.

The jury initially found that $8.55 million of Renesas’
profits should be disgorged and paid to AMS for the use of the
trade secret, although that had been just an advisory verdict. The
Federal Circuit ruled disgorgement was an issue for the judge, so
US District Judge Amos L. Mazzant III was tasked with determining
the final amount.

Judge Mazzant ruled that “the record supports the inclusion
of all profits attributable to” Renesas’ sales of its
ISL29003 product, an integrated light sensor” for smartphones
and other devices and the
calculation of defendant’s profits.” The court reasoned
that Texas courts apply a “flexible and imaginative”
approach to the calculation of monetary relief for trade secret
misappropriation. Id. at 36. Texas’s approach imposes
no specific burden on a plaintiff to apportion a misappropriating
defendant’s profits. A trade secret plaintiff “need only
prove misappropriation of its valuable trade secret and that it was
put to some commercial use.” “Whether the full amount of
the defendant’s profits is attributable to the misappropriation
of trade secrets is for the [fact-finder] to decide.” However,
the court agreed with the advisory jury’s implied rejection of
defendant’s apportionment arguments.

The court found that the nature of defendant’s
“commercial use” of plaintiff’s trade secret entitled
plaintiff to recover the benefits defendant received from that
commercial use. Id. at 38. The record confirmed that
plaintiff’s trade secret was valuable to customers and critical
to the performance of the ISL29003. Defendant’s own internal
documents confirmed the value of plaintiff’s trade secrets. The
court found that it was necessary and equitable to include in
plaintiff’s disgorgement remedy sales arising from design wins
achieved by defendant during the head-start period—even if
sales arising from those design wins continued beyond March 2008
[after the use allegedly stopped]. Id. at 43.

In an early decision in the case, Judge Mazzant ruled that under
Texas law, AMS could only seek $17 million of the $64 million in
exemplary damages a jury awarded it following a retrial on damages
in the case.

A jury in a previous trial in 2015 found that Renesas
misappropriated AMS trade secrets and breached a confidentiality
agreement after the two companies, which have both made light
sensors for a smartphone, met to discuss a merger but never reached
a deal. The Federal Circuit vacated the damages award in that case
in 2018, leading to a retrial solely on damages.

Sufficient Trade Secret Identification and Dissolving Overly
Broad Injunctions

In Mallet & Co. Inc. v. Ada Lacayo et al., 16 F.4th
364 (3d Cir. October 15, 2021), the Third Circuit reversed an order
blocking the defendants from making certain
products—non-stick baking agents—and employing former
plaintiff’s workers, finding that plaintiff must identify the
particular trade secrets defendants allegedly misappropriated and
demonstrate that they are protectable.

The court found that since a lower court did not identify
specifics concerning plaintiff’s secrets, the panel cannot
decide if the plaintiff’s claims have merit. The court reasoned
that there is no basis to uphold the decision granting injunctive
relief “since its irreparable harm determination appears to
depend entirely on the defendants’ misappropriation of
Mallet’s trade secrets.” Id. at 380. “The
bottom line is this: without knowing what particular information
Mallett claims as trade secrets, we cannot assess its likelihood of
success in establishing that the information the defendants
acquired, disclosed, or used is trade secret information or that
misappropriation of a trade secret has occurred.” Id.
at 387.

The court reasoned a trade secret’s owner must meet the
burden of showing that the secrets they claim are actually
protected, rather than being common industry knowledge. Defendants
denied that they used anything other than generalized knowledge
that they have gained during employment.

The court found that since plaintiff’s generalizations did
not adequately identify information that is claimed as a trade
secret, the injunction must be dissolved. “Just how much
specificity a court should require of the plaintiff-owner is again
a context-specific matter,” the panel wrote. “We cannot
provide a bright-line rule.” In remanding the case, the court
indicated that injunctive relief may still be appropriate, if
specific examples are provided with regard to the trade secrets. In
addition to the purported trade secrets being adequately
identified, plaintiff must also point to evidence that links the
defendants’ actions “to the taking of those trade
secrets.” Id. at 387.

The panel added that the scope of a preliminary injunction must
be specific, rather than overly broad, if one is granted by the
trial court. It explained that the current injunction order
“is problematic” since its scope extends to what might be
lawful conduct. “It would take a truly extraordinary
showing—one not made here—to justify an order ejecting
a competitor from the marketplace altogether,” the court
found. “Injunction orders should not restrain competitors from
engaging in lawful business activities.” Id. at
390-91.

The court also addressed the $500,000 bond that plaintiff was
required to post to secure the preliminary injunction. It stated
the bond amount was not supported by the record and recommended
that the trial court consider a new amount if it decides to grant a
preliminary injunction on remand.

Continued Large Trade Secret Jury Verdicts

In Proofpoint Inc. et al. v. Vade Secure Inc. et al.,
case number 3:19-cv-04238 (N.D. Cal. August 24, 2021), a California
federal jury found that a cybersecurity technology company was
entitled to about $14 million after finding that a former employee
and a French technology company misappropriated trade secrets
concerning technology related to identifying malicious emails and
filter methods.

The jury entered the verdict against the plaintiff’s former
vice president of gateway technology and the company he went to.
The jury said the plaintiffs were owed $13,975,659. Specifically,
the jury found that defendants misappropriated most of the trade
secrets at issue, and that both infringed at least one copyright.
The jury also found that the corporate defendant’s
misappropriation was willful and malicious. The court found,
however, that there was no basis to award exemplary damages.

Recently in Virginia, a Fairfax County Circuit Court jury
awarded Appian $2.04 billion in damages for trade secret
misappropriation by software rival Pegasystems. Appian alleged that
Pegasystems retained an employee of a government contractor to
access its software, helping it to improve its own products and
better train its sales force. We expect that the large jury verdict
will be appealed.

Bad Faith in Trade Secret Cases

In Multimedia Sales & Marketing, Inc. v. Marison
Marzullo, et al.
, 2020 IL App (1st) 191790, the state
appellate court affirmed the award of attorneys’ fees incurred
by defendants under the bad faith fee shifting provision of the
Illinois trade secrets statute. Plaintiff sued one of its
competitors and three of its former employees who joined the
corporate defendant, alleging that the former employees
misappropriated trade secrets and used such information to solicit
plaintiff’s customers. Plaintiff and corporate defendant
compete to sell radio advertising time to businesses. The alleged
trade secrets at issue were sales lead lists of potential and
former purchasers of such advertising time.

Plaintiff’s former employees admitted to taking the sales
leads and using them at the corporate defendant, but disputed that
such information was confidential, let alone a trade secret. The
former employees were right. Plaintiff’s owner and president,
as well as its director, both testified that the sales lead lists
were disclosed to the radio stations for which plaintiff sought to
sell air time. Based on this undisputed testimony, the trial court
entered summary judgment and awarded defendants their
attorneys’ fees under the bad faith fee shifting provision of
the ITSA.

On appeal, the court affirmed the decision of the lower court.
Pertinent to the award of attorneys’ fees, the appellate court
borrowed from Illinois Supreme Court Rule 137, which allows the
court to penalize claimants who bring vexatious, false and/or
frivolous filings. Applying Rule 137, the appellate court affirmed
the trial court’s holding that plaintiff’s trade secret
claims were “never well-grounded in fact or warranted by
existing law or an argument to extend existing law.”

Preemption in Trade Secret Cases

In 250ok, Inc. v. Message Sys., Inc., C.A. No.
2020-0588-JRS (Del. Ch. Jan. 22, 2021), the Delaware Chancery Court
found that Delaware’s version of the Uniform Trade Secrets Act
expressly preempts common law claims based on the misappropriation
of trade secrets. The Court of Chancery dismissed a claim for
unjust enrichment based on defendant’s alleged misappropriation
and use of plaintiff’s confidential and proprietary data
because Delaware’s trade secret statute “occupies the
filed” and preempts claims for common law unjust
enrichment.

This case involved a proprietary sensor network created by
plaintiff. This technology helps email marketers avoid spam traps
designed to block their email marketing efforts. Plaintiff entered
into a “Reseller Agreement” with defendant to market and
sell its product with defendant’s own products and services.
Approximately 4 years later, defendant allegedly reverse engineered
plaintiff’s technology and offered its own competitive product.
Not surprisingly, plaintiff sued defendant, alleging that it had
misappropriated its proprietary information.

Plaintiff asserted three claims: (I) breach of the Reseller
Agreement; (II) misappropriation of trade secrets under the
Delaware Uniform Trade Secrets Act (the “DUTSA”); and
(III) unjust enrichment. Defendant moved to dismiss Count
III—for unjust enrichment—as preempted by the DUTSA.
The issue presented by defendant’s motion was whether a common
law claim could be dismissed as preempted before the court
determined that an actual trade secret exists. The court recognized
that Delaware had “joined the ‘majority view'”
that preemption under the DUTSA includes common law claims based on
misappropriation of business information, even in cases in which
the claim does not meet the statutory definition of trade secret
and in which the term “trade secret” is not explicitly
mentioned in the common law claim. As the court explained,
“[u]nder our settled law, what matters for preemption purposes
is whether the trade secrets and unjust enrichment claims are based
on the ‘same alleged wrongful conduct.'” Id.
at *6.

Plaintiff’s claims all arose under the same common nexus of
facts: defendant allegedly took plaintiff’s confidential
information to develop its own competitive product. As the claim
for unjust enrichment was based on the same facts and wrongdoing,
the court dismissed the claim for unjust enrichment with
prejudice.

Plaintiff fell into a common trap—by opting for trade
secret protection, it abandoned any possible common law claims
(aside from those based on contract). Plaintiffs should be aware
and consciously make the decision to either pursue misappropriation
claims under the UTSA, or pursue common claims that lack the
statutory benefits but also do not require proving the existence of
a trade secret.

Similarly, other courts have found trade secret preemption where
plaintiffs’ claims arise from the same nexus of facts as the
trade secret claims. See Pro Flexx LLC v. Hiroshi Yoshida,
No. 20-00512 SOM-KJM, 2021 U.S. Dist. LEXIS 17858 (D. Haw.
2021)(defining the “same proof” standard for claim
preemption by the HUTSA: if a non-HUTSA claim would simultaneously
establish a claim for trade secret misappropriation, it is
preempted, regardless of if additional elements are necessary to
establish the non-HUTSA claim); VibrantCare Rehab., Inc. v.
Deol
, No. 2:20-cv-00791-MCE-AC, 2021 U.S. Dist. LEXIS 79718
(E.D. Cal. 2021) (noting that the CUTSA preempts any claim based
entirely on the same factual allegations that form the basis of a
trade secret claim); NW Monitoring LLC v. Hollander, No.
C20-5572 RSM, 2021 U.S. Dist. LEXIS 73193 (W.D. Wash. 2021)
(stating that under the “strong” form of preemption under
the WUTSA, a plaintiff may not rely on acts that constitute trade
secret misappropriation to support another cause of action, even if
the other claim requires proof of additional elements).

Trade Secret Attorneys’ Fees Denial Not Immediately
Appealable Order

In Dr. V Prods., Inc. v. Rey, 68 Cal. App. 5th 793
(2021), a California appellate court found that an order denying a
motion for attorneys’ fees under CUTSA is not an appealable
order. In the case, plaintiff filed suit against a former employee,
alleging the former employee converted and destroyed documents
belonging to the plaintiff, which contained “proprietary
company information.” Id. at *1. After discovery, the
plaintiff voluntarily dismissed its trade secret misappropriation
claim, and the defendant moved for an award of attorneys’ fees
under CUTSA which the court denied. Id. The defendant
appealed, and the plaintiff moved to dismiss on the grounds that a
denial of a motion for attorneys’ fees under CUTSA is not an
appealable order. Id. at *2.

The defendant argued that “if a collateral order directing
the payment of attorneys’ fees is appealable, by parity of
reasoning the opposite should be true.” Id. at *2. The
appellate court disagreed, citing to case law which made no mention
of an order denying the payment of money being appealable.
Id. The court also cited other examples where
“statutes are not always reciprocal to parties” and where
“some authorize an appeal by one side but deny that right to
the other side.” Id.

The defendant argued that an order denying fees under CUTSA is
collateral to the litigation. The court disagreed and cited
authority that a party may not normally appeal from a judgment on
one cause of action if determination of other causes of action is
pending. Defendant’s underlying motion addressed only one of
respondent’s causes of action and six remained. Id. at
*3. The appellate court also stated that because the core of the
lawsuit concerned destruction and conversion of corporate
documents, the trade secret misappropriation claim was intertwined
with the other claims and therefore not collateral. Id.
Accordingly, in California, an attorneys’ fees claimant must
litigate all claims to conclusion at the trial level, before
appealing the fees’ order.

Customer Information/Protectable Trade Secrets

In Peterson Machinery Co. v. May, 313 Or. App. 454
(2021), an Oregon appellate court held that basic customer
information, such as customer identities and email addresses,
without more, does not give rise to a trade secret claim under
Oregon’s trade secrets statute. Plaintiff must present evidence
that alleged the trade secret information derives economic value
from not being generally known and was subject to reasonable
efforts to maintain its secrecy.

According to plaintiff, defendant accessed a sales database 12
times in his final month of employment, and sent an email to 139 of
plaintiff’s customers using the autofill feature from
defendant’s address book before departing from the company.
Additionally, plaintiff alleged that defendant had retained a list
of customers contained in a copy of a performance improvement plan
and took and destroyed a notebook with information that should have
been entered into sales database.

Defendants brought a motion to dismiss the trade secret claims,
arguing that plaintiff on had failed to identify any trade secrets
and that there was insufficient evidence of misappropriation. The
trial court granted the motion and dismissed plaintiff’s
misappropriation claim. On appeal, the Oregon appellate court
affirmed the trial court’s decision, finding that plaintiff had
failed to show that the information at issue qualified as
“trade secrets” within the meaning of Oregon statute. To
constitute a trade secret under ORS 646.461(4), information must
both (1) gain value because it is not generally known and (2) be
the subject of reasonable efforts to maintain that secrecy. Each of
those determinations must be made on the basis of historical facts
and circumstances of the parties, such as whether the information
is generally known within the relevant community, whether it
becomes more valuable by not being generally known, and what
efforts were made to keep it secret.

The court found that the mere names of customers and potential
customers were not protectable trade secrets. See id. at
468. The court indicated that the record showed that the customers
at issue were already known in the industry. The court pointed to
over 300 crossover customers or prospective customers between the
two competitors. With respect to contact information such as email
addresses, the court found that plaintiff did not sufficiently
demonstrate that the email addresses (or how many) were not
publicly known, how long it would take someone to compile such
information, or what the economic value of those email addresses
was as compiled by plaintiff. See id. at 470.

The court observed that there was evidence that the defendant
employee had kept some handwritten notes about customers and
retained in his memory certain other information like sales
preferences and history. The court reasoned, however, that
plaintiff had failed to present evidence from which a reasonable
fact finder could determine that defendants had actually
misappropriated—i.e., used or disclosed—such
information. See id. at 471. Absent an enforceable
restrictive covenant agreement, the defendant employee was entitled
to solicit plaintiff customers while working for the corporate
defendant, and the mere fact that he had retained certain
information about plaintiff’s customers in his memory was
insufficient to support a misappropriation claim. The court
observed that, in the end, “equity has no power to compel a
man who changes employers to wipe clean the slate of his
memory.” Id. at 474.

In contrast, in Glam & Glits Nail Design, Inc. v.
#NotPolish, Inc.
, Case No.: 21-cv-0052-GPC-DEB, 2021 WL
2317410, at *5 (S.D. Cal. June 7, 2021), the district court found
that plaintiff had stated a claim for trade secret misappropriation
based upon the alleged theft of a customer list. The plaintiff was
a nail care products manufacturer and vendor focusing in part on
nail salons owned and operated by Vietnamese Americans. Plaintiff
sued its former employee and her new employer alleging
misappropriation of confidential customer information. The court
found that the information could qualify as trade secret. According
to the court: “the Information is more than just a ‘client
list.’ It includes non-public personal cellphone numbers of the
owners and operators of G&G’s customers and distributors
who prefer conducting business in Vietnamese, the customers’
and distributors’ account purchasing histories, their
corresponding pricing tiers, and their product and billing
preferences … [T]he CEO of G&G himself compiled them over
many years and took various measures to keep the Information
exposed as little as possible … And it is easy to see how knowing
private cellphone numbers of the owners/operators and their
preferences to the most intricate detail would provide a
competitive edge.” Id. at *5. Allegations that, among
other things, the defendants began contacting the plaintiff’s
Vietnamese speaking customers to solicit their business using their
private cell phone numbers were sufficient to allege
misappropriation. Id.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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