Cases from 8th Circuit

United States Court of Appeals for the Eighth Circuit
8th Circuit Finds Global Noncompete to be Overbroad

On February 6, the 8th Circuit released an opinion finding that a Global Noncompete Agreement was overbroad, and therefore unenforceable. Arunya Suresh began working at NanoMech in 2010, agreeing to the noncompete which was for two years following termination with or without cause, and would have prevented Suresh from working or consulting with any business that competes with NanoMech. The agreement did not state a geographic limitation, and so was presumably enforceable anywhere in the world.

Suresh left NanoMech in May 2012, stating she was going to pursue her doctorate degree. However, NanoMech discovered she had actually accepted a position as a chemist at competitor BASF. At the district court level, NanoMech was unsuccessful in obtaining an injunction against Suresh, and ultimately the 8th Circuit Court upheld the decision.

This sort of global noncompete is frowned upon by most courts, and will often not stand up to the three-part test used in Arkansas (but fairly typical elsewhere), that looks at 1) whether the employer has a valid interest to protect, 2) whether the geographical restriction is overly broad, and 3) whether the time limit imposed is reasonable. In this case, the court ruled the combination of the broad restriction on the things Suresh could not do, considered together with the complete lack of geographic limitation, renders the noncompete overbroad and unenforceable. In the court's words, the lack of geographic limitation was particularly oppressive because the agreement "prohibits her from working in any capacity for any business that competes with the company."

This decision is interesting since Arkansas affords trade secrets particularly strong protection. In fact, Arkansas has previously upheld certain global noncompetes, but as the court pointed out, the restrictions in those cases were far more narrowly tailored as to the prohibited conduct. In both cases discussed, the employees simply couldn't solicit clients with whom they had contact with while employed by their respective former employers. It was this very narrow limitation on what conduct they could not do do that the courts found to justify a lack of geographic limitation in the noncompete agreements.

8th Circuit
Distinguishing Between Misappropriation and Breach of Contract

Loftness Specialized Farm Equipment, Inc. (“Loftness”) brought a declaratory judgment action againt three defendants (Terry Twiestmeyer; Steven Hood; and Twiestmeyer & Associates, Inc.) (collectively, "Twiestmeyer"), arguing that it had satisfied an agreement with Twistmeyer regarding grain bagging equipment design secrets. Defendants allege that they shared this confidential information with Loftness in 2007, that these conversations eventually led to Loftness’s decision to enter this market, and that this information was shared with Loftness under the protection of a twenty-year Non-Disclosure Agreement (“NDA”) which the parties signed before their meeting. Thereafter, the parties agreed to an additional agreement in which defendant would be paid a percentage of the revenue generated from the sale of this equipment for two years.

Twiestmeyer received payments for more than two years, but the parties were unable to negotiate a new deal to govern the remaining time covered by the NDA, after which Loftness brought this action. Twiestmeyer subsequently countersued for unjust enrichment and breach of the two contracts.

The district court dismissed the unjust enrichment claim and granted Loftness’s summary judgment motion on the breach of contract.

In the section of the opinion most relevant to trade secret practitioners, the Court of Appeals determined that the district judge had erred in applying the test for the tort of misappropriation and that, instead, the claim was based on a breach of contract. Because the district court had failed to analyze the NDA, the court remanded the case so that the district court could examine the NDA.

Eighth Circuit, United States Court of Appeals
Eighth Circuit holds that compilations of publicly available and proprietary information may qualify as trade secrets

In AvidAir Helicopter Supply Inc. v. Rolls-Royce Corp., the Eighth Circuit interpreted the state’s implementation of the Uniform Trade Secrets Act, holding that compilations including both proprietary and public information may be entitled to trade secret protection where time and money were expended in their preparation and reasonable efforts were taken to maintain their secrecy.

The case involved engine repair procedures developed by Rolls-Royce, the manufacturer of said engines. Rolls-Royce documented its federally-approved methods, techniques, and specifications in Distributor Overhaul Information Letters (“DOILs”), which it exclusively distributed to selected authorized maintenance centers (“AMCs”). DOILs were periodically updated to keep pace with federal certification requirements. Although Rolls-Royce’s predecessor did not restrict access to DOILs, upon acquisition of the company in 1995, Rolls-Royce made efforts to establish proprietary control over the documents, stamping each subsequent revision with a proprietary legend and enforcing previously-executed nondisclosure agreements. The Eighth Circuit affirmed the trial court, holding that, based on value and efforts to maintain secrecy, revisions issued after Rolls-Royce’s takeover and implementation of precautionary measures were protectable as trade secrets. In response to AvidAir’s argument that the minimal amount of new information in the updated DOILs was insufficient to sustain a trade secret claim, the Court stated,

“Compilations are valuable, not because of the quantum of secret information, but because the expenditure of time, effort, and expense involved in its compilation gives a business a competitive advantage.”

AvidAir's petition for certiorari was denied on October 1, 2012.

Eighth Circuit
8th Circuit Questions Award of Attorney’s Fees in Mayo Clinic Case

The Eighth Circuit affirmed a district court judgment against Dr. Peter Elkin (Elkin) a clinician and researcher formerly employed by the Mayo Clinic (Mayo), while calling into question the district court’s award of attorneys’ fees. Mayo originally brought ten causes of action against Elkin relating to Elkin’s misappropriation of natural language processing software that Elkin developed during his employment with Mayo.

While overruling a number of Elkin’s objections and affirming the judgment against Elkin, the unanimous Eighth Circuit panel took issue with the district court’s award of $1,900,139.90 in attorneys’ fees. Only one of the ten claims brought against Elkin, the Minnesota trade secret claim, provided a statutory basis for recovering attorneys’ fees. Despite this, Mayo asserted and the district court agreed that $1,900,139.90 of $2,447,058.36 (78%) in total attorneys’ fees were attributable to the trade secret claim.

The Eighth Circuit found that Mayo’s broad monthly summaries of litigation expense did not provide a sufficiently detailed basis for the district court’s award, and found that rather than performing a proper Lodestar analysis, the district court had spent its time “lambasting Elkin for his employment of time-consuming litigation strategies.” The panel remanded the case for a new determination of attorneys’ fees, and ordered Mayo to “strike an appropriate balance between the 4,000 pages [of total documentation] and the 5-page chart provided” in its original request.

U.S. Court of Appeals for the Eighth Circuit
$31 Million Trade Secrets Verdict Affirmed

The Eighth Circuit affirmed a $31.1 million jury verdict, including $10 million in putative damages, in favor of Hallmark Cards, Inc. against a private equity firm that misappropriated confidential information including Hallmark’s Power Point presentations on consumer behavior which constituted trade secrets. This appellate ruling is merely the latest development in a long-running legal battle between Hallmark and Clipper, coming more than a year after U.S. District Judge Ortrie D. Smith awarded Hallmark $103,000 — slightly under 20% of the greeting card company's $519,000 it sought in court fees.

United States District Court for the Southern District of Iowa
Chinese National Sentenced to Three Years for Conspiring to Steal Trade Secrets

On October 5, 2016, U.S. District Judge Stephanie M. Rose sentenced Mo Hailong (“Robert Mo” or “Mo”) to 3 years in prison for conspiracy to steal trade secrets from DuPont Pioneer and Monsanto. Mo was a legal resident living in Florida at the time of his arrest.

In the plea agreement, Robert Mo admitted he participated in a long-term conspiracy to steal trade secrets from DuPont Pioneer and Montsanto. Mo stole genetically modified seeds from both companies and sent them to scientists in Beijing, China. He was one of three other men from China arrested in 2013 for sending stolen, genetically modified seeds to China to be counterfeited. The stolen seeds are for a strain of corn that is one of the agricultural industry’s most valuable secrets.

The Judge opted to sentence Mo to prison time rather than community service to deter Chinese companies from engaging in such criminal behavior. In addition to sentencing Robert Mo, the Court ordered the forfeiture of two farms in Iowa and Illinois that Mo purchased with others during the course of the conspiracy.