Top 10 Trade Secrets Decisions of 2013
With the ability to move large volumes of information electronically very quickly, the threats from cyber intrusions, joint development partners, and rogue employees are more significant every day. Dollars lost due to trade secret theft tally in the tens if not hundreds of millions annually. President Obama in his State of the Union address warned of the growing threat from cyber-attacks, especially corporate theft from foreign countries and companies. As a result, trade secrets are an increasingly important form of intellectual property protection.
Efforts to strengthen trade secret protection have been mounted in multiple fronts. Early last year the White House released a new "Administration Strategy to Mitigate the Theft of Trade Secrets. That strategy document pushed for improved coordination among federal agencies in intellectual property and enforcement and collaboration among companies to enhance and share "best practices" for preventing trade secret misappropriation. For its part, Congress sought trade secret reform with renewed attempts to improve protection in today's internet age.
The evolution of the trade secret landscape spans beyond these administrative and legislative efforts. Corporate IP and litigation counsel should also be aware of key case developments in this fast moving area of law. With that in mind, we offer our Top 10 Trade Secret Decisions of 2013:
Mattel, Inc. v. MGA Entertainment, Inc., 705 F.3d 1108, 2013 WL 264645 (9th Cir. 2013)
After two jury trials in a nearly decade-long dispute over rights to the Bratz doll line, a Ninth Circuit panel overturned a jury award of $172 million in damages to MGA, holding that a jury should not have been allowed to consider MGA's counterclaim-in-reply for trade secret misappropriation. Litigation began when Mattel sued MGA, claiming that MGA's Bratz dolls infringed on Mattel's copyrights and that MGA stole its trade secrets when former Mattel employees defected to MGA. MGA later filed a counterclaim that Mattel stole MGA's trade secrets by using fake MGA business cards to access trade secrets at toy fairs. A unanimous three-judge panel of the Ninth Circuit ruled that MGA's counterclaim was not compulsory and should not have reached the jury because it did not arise out of the same "aggregate core of facts" as Mattel's initial suit for trade secret theft claim.
K.F. Jacobsen & Co., Inc. v. Gaylor, 947 F.Supp.2d 1120, 2013 WL 2318853 (D. Or. 2013)
An Oregon federal district court held that conversion claims against employees are not preempted by the Oregon Trade Secrets Act. K.F. Jacobsen & Co., an asphalt manufacturer, sued its former employee for taking and disclosing the company's confidential information and trade secrets. Jacobsen alleged, among other things, trade secret misappropriation and conversion. The former employee sought to dismiss the conversion claim, on the theory that it was based on the same actions as the trade secrets claim and was therefore preempted by the Oregon UTSA. The Court reasoned that the complaint could be construed broadly enough to include conversion of information that does not fall with the definition of "trade secret" under the Oregon UTSA. Thus, the court found that, to the extent the Jacobsen's conversion claim sought damages for the conversion of information other than trade secrets, it was not preempted by the statute. Had the employer merely alleged that the information taken was all trade secret information, however, the claim would have been preempted.
JBC Holdings NY, LLC v. Pakter, 931 F.Supp.2d 514, 2013 WL 1149061 (S.D.N.Y. 2013); Lube-Tech Liquid Recycling, Inc. v. Lee's Oil Service, No. 11–2226, 2013 WL 2420448 (D. Minn. June 3, 2013)
New York and Minnesota district judges adopted the Ninth Circuit's narrow view of the Computer Fraud and Abuse Act, restricting application of the CFAA to computer hacking and excluding claims against employees whose use merely exceeded their authorized access. In JBCHoldings NY, LLC, an employer sued a former employee, and her alleged conspirators, for breaching a non-competition agreement and for violating the CFAA by obtaining client lists and other proprietary information from the employer's computers. The employer did not know exactly how the information was obtained, but speculated as to several possible methods. The employer did not allege that the defendants did not have access to the computers at issue or that they had exceeded authorized access, but merely alleged that they had misused their authorized access. The Southern District of New York dismissed the CFAA claim, finding that such misuse is not actionable.
Similarly, in Lube-Tech, a former employee was alleged to have downloaded Lube-Tech's customer information, presumably to share with a competitor. That information was never off limits to the employee, but she was not authorized to use the information for her own purposes. A federal court in Minnesota held that, because she was authorized to access the information, she could not be liable under the CFAA even though she subsequently misused the information.
Global Advanced Metals USA, Inc. v. Kemet Blue Powder Corp., No. 3:11–cv–00793, 2013 WL 2319348 (D. Nev. May 28, 2013)
Global Advanced Metals USA, Inc. sued a competing tantalum powder producer for trade secret misappropriation and other claims related to Kemet's hiring of 13 former employees of plaintiff. In 2012, a Nevada federal district court dismissed various tort and unfair competition claims as preempted by the UTSA, leaving only a trade secret claim. The court ultimately dismissed the trade secret claim on summary judgment under the statute of limitations based on evidence that Global Advanced Metals had sent letters to the former employees about concerns of breach of confidentiality and a cease-and-desist letter to Kemet years before filing suit.
Airvana v. Ericsson, No. 650360/12, 2012 WL 7766779 (N.Y. Sup. Ct. Mar. 19, 2012)
Airvana, a provider of wireless network software, sued Ericsson, alleging that Ericsson breached a license agreement and developed its own network software based on Airvana's trade secrets to avoid paying license fees. Despite the difficulty in proving irreparable injury in the context of breach of a license in New York, where courts have previously held that a licensee can misappropriate trade secrets so long as it does not disclose them, a New York state court granted a preliminary injunction against Ericsson's use of its network hardware. The court reasoned that Airvana had established irreparable injury because Airvana established that defendant was its only customer and, absent an injunction, it would be forced into bankruptcy. Its irreparable injury, the court concluded, was that any monetary damages would be meaningless after it was forced out of business.
United States v. Jin, 733 F.3d 718, 2013 WL 5356805 (7th Cir. 2013)
The Seventh Circuit affirmed the conviction of a former Motorola employee who sought to leave the country for China with hundreds of pages of secret corporate documents under the Economic Espionage Act, holding that the requirement of intent to confer economic benefit can be shown by an intent to study the stolen documents, which could make the former employee a "walking repository of knowledge." The panel also affirmed the holding below that, under the EEA, an intent to enhance an individual's career prospects was an economic benefit as well.
Angelica Textile Services, Inc. v. Park, 220 Cal.App.4th 495, 2013 WL 5797605 (Cal. Ct. App. 2013)
A California trial court dismissed an employer's claims that its former employee engaged in unfair competition and breached his employment contract and fiduciary duties when he negotiated non-customary terms in contracts with the employer's customers that would allow them to cancel those contracts and take their business to the employee's new employer. In October, a California court of appeals reversed the dismissal of those claims, holding that that a state statute forbidding restrictive covenants does not apply when an employee violates an employer's trust during employment, and that promoting a competing business while still employed by the plaintiff would be a violation of the employee's fiduciary duties. The Court also held that the California UTSA does not preempt contract damages, even if the contractual remedies are based on trade secret misappropriation, and does not preempt non-contractual claims that are related to, but independent from, trade secret misappropriation.
Corporate Technologies, Inc. v. Harnett, 731 F.3d 6, 2013 WL 5303480 (1st Cir. 2013)
A former employee of Corporate Technologies, Inc. sent a blast email to a targeted list of potential clients, including many customers of his former employer, announcing his new job working for a competitor. Corporate Technologies sued him and his new employer for breach of his non-solicitation agreement. Even in the absence of a "non-acceptance" provision in his non-solicitation agreement, the First Circuit affirmed the lower court's preliminary injunction and held that the former employee was barred from accepting work from former customers on behalf of a new employer, regardless of whether the former employee or the customer initiated the contact.
KNF&T Staffing, Inc. v. Muller, No. SUCV201303676BLS1, 2013 WL 7018645 (Mass. Sup. Ct. Oct. 24, 2013)
KNF&T sued its former employee for breach of a non-competition agreement after she updated her LinkedIn profile with information about her new job, which subsequently notified more than 500 contacts, including some of KNF&T's customers. A Massachusetts state court refused to grant a preliminary injunction in favor of KNF&T, finding that the mere posting of a new job on LinkedIn did not violate the former employee's non-competition clause. Instead, the court held, some overt act that is directed or targeted at particular individual or customers is required.
Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938, 2013 WL 3192931 (Ill. Ct. App. 2013), appeal denied,996 N.E.2d 12 (Ill. 2013)
An Illinois appellate court refused to enforce a restrictive covenant against a plaintiff's former employee, who voluntarily resigned after three months of employment to work for a competitor. The court held that employment alone is not sufficient consideration to support a restrictive covenant, and, without other consideration, an employee must have two years of continuous employment before an employer can enforce the restrictive covenant. In October, the Illinois Supreme Court refused to review the appellate court decision.
With the globalization of business operations and markets, the challenges of the internet age, and the increasing sophistication of cyber thieves, companies must be more aggressive in protecting their confidential information and pursuing misappropriation. As these Top 10 Trade Secret Decisions of 2013 show, the courts have delivered both wins and losses to intellectual property holders. Corporations that rely on technology, operate in global markets, and value their intellectual property should watch this space. 2014 promises to bring more legal developments, new bills in Congress to further strengthen trade secret protection, and heightened political and policy attention to trade secret theft.
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