Cases from 3rd Circuit

United States Court of Appeals for the Third Circuit
Employer Granted Injunctive Relief Against Former Employee After Searching Facebook

At issue here is whether a former employer that suspects trade secrets theft has taken place can log in to the former employee’s personal social media account to search for the potentially incriminating evidence. While the initial reaction for many would be a resounding “no”, in Scherer Design Group v. Ahead Engineering LLC, the Third Circuit held that the unclean hands doctrine did not bar an employer’s claims against its former employee for trade secret misappropriation though the employer had previously installed and used software that allowed for the monitoring prior to the termination of employment.

The court looked to decide how far an employer can go to protect their potentially misappropriated trade secret and where the line may be drawn. Here, Chad Schwartz, a senior direction of engineering at Scherer Design Group, left the company following a failed plan to obtain partial ownership. Schwartz made it clear that if he was not made an owner, he would start his own competing company. Scherer requested that Schwartz sign a noncompete agreement to which Schwartz declined and left to begin his own companies – Ahead Engineering LLC and Far Field Telecom LLC – and hired others from Scherer to join him.

After his, and his co-workers including David Hernandez, departure from Scherer, a network administrator from his former employer inspected Hernandez’s company laptop where he was able to gain access to Hernandez’s Facebook account that had allegedly been left logged in. While this allegation is debated, it is undisputed that Scherer installed a monitoring device on Hernandez’s company-issued laptop during his employment and was able to uncover alleged plans to steal client information and intellectual property to bring to their next company.

Scherer brought suit against the former employees claiming trade secret misappropriation under state and federal law. Defendants argued that injunctive relief was inappropriate because of the doctrine of unclean hands and argued that there was a violation of Hernandez’s privacy.

The U.S. District Court for the District of New Jersey granted the preliminary injunction against the defendants which prevented them from contacting Scherer’s clients, and the Third Circuit agreed. In order to invoke the unclean hands doctrine, the party must establish that the opposing party committed an “unconscionable act”, and the act is related to the claim in which equitable relief is sought. The unclean hands doctrine was one of many factors that the court must consider when deciding on injunctive relief. The Third Circuit decided “on balance” that they would not be allowing for the continued misappropriation.

In Judge Ambro’s dissent, he wrote that this was a clear violation of New Jersey’s privacy law, arguing that the company “went on an external fishing expedition rather than merely conducting a review of activity on its own physical assets.” This strong dissent further called into question the completeness of the analysis by the majority of the unclean hands doctrine.

United States District Court for the Eastern District of Pennsylvania
Jury Awards Fig Jam Maker Millions in First DTSA Verdict

On February 24, 2017, a federal jury handed down the first verdict under the Defend Trade Secrets Act (DTSA). Dalmatia Import Group and Maia Magee (“Plaintiffs”) develop and sell various flavors of high quality fig jam. After their business relationship deteriorated, Plaintiffs sued their former distributors, Foodmatch, Inc. and Lancaster Fine Foods, Inc. (“Defendants”). In the suit, Plaintiffs alleged that Defendants’ competing fig jam impersonated Plaintiff’s product, more specifically, that Defendants stole the recipe for Plaintiff’s fig jam. Furthermore, Plaintiffs claimed that Defendants sold and distributed rejected jars of Plaintiff's fig spread, using Plaintiff’s trademark, without consent.

Plaintiffs brought claims for breach of contract, trademark infringement, counterfeiting, and misappropriation of trade secrets. After a four-week trial in the United States District Court for the Eastern District of Pennsylvania, the jury found Defendants liable for misappropriation of trade secrets, trademark infringement and counterfeiting. The jury awarded Plaintiffs $2.5 million in damages, which Plaintiffs’ attorneys estimate will double to roughly $5 million after the damages are trebled. Plaintiffs' attorneys also stated the court will issue an injunction enjoining Defendants from using Plaintiff’s trade secrets in the future.

The case is Dalmatia Import Group v. Foodmatch, Inc. et al., 16-cv-02767 (E.D. Pa. Feb. 24, 2017).

United States Court of Appeals for the Third Circuit
Florida's Litigation Privilege Bars Misappropriation Claims Under the FUTSA

On December 10, the 3rd Circuit upheld a district court decision dismissing Microbilt Corporation's claims for misappropriation of trade secrets under the Florida Uniform Trade Secrets Act ("FUTSA"). Microbilt claimed that Gunster violated the FUTSA when they attached copies of invoices from customers of a Microbilt subsidiary as an exhibit in a complaint alleging breach of contract, filed in the Middle District of Florida.

On appeal, the 3rd Circuit explained that it is "well-settled under Florida law that the absolute litigation privilege applies to statements in pleadings filed with the court." Thus the court reasoned, foreign state exceptions to the privilege, relied on by Microbilt, are irrelevant to the case at present. Further, since the privilege is settled law, the court need not submit it as a certified question to Florida Supreme Court.

Eastern District of Pennsylania
WebMD Alleges Former Vice President will Inevitably Disclose Trade Secrets Through Employment with Competitor

Plaintiff, WebMD Health Corp., sued Anthony T. Dale, a former employee, alleging by accepting employment with Health Grades, Inc., Dale breached his Restrictive Covenant Agreement, violated Delaware’s Uniform Trade Secrets Act, engaged in unfair competition, and converted WebMD’s trade secrets and confidential information. Plaintiff then moved for a preliminary injunction to enjoin Dale from employment with Health Grades for one year.

WebMD’s complaint alleged that in Dale’s ten years of employment, including three years as Group Vice President, he was exposed to, and involved in the development of, highly confidential information such as pricing policies, product development plans, business plans, sales strategies, and market positioning. Further, it stated that Health Grades was a direct competitor as defined by the terms of the restrictive covenants that Dale signed and that he could not perform the role he has planned at Health Grades without using WebMD’s confidential information, either consciously or inadvertently.

The District Court for the Eastern District of Pennsylvania, applying Delaware Law, granted WebMD’s motion for a preliminary injunction, finding that WebMD was likely to succeed on the merits. However, the court also found that that the definition for “competing businesses” in the restrictive covenants was overbroad and thus it “blue penciled” the definition to only restrict Dale’s involvement online advertising of health and wellness-related products, which constituted a marginal portion of Dale’s responsibilities at Health Grades.