Cases from New Jersey

N.J. Super. Ct. Ch. Div.
The Employee Who Was Allowed to Compete from His Garage

This case starts with an unusual employment agreement, which allowed Felix Ferrer to operate a business called FNA out of his garage while working for his employer, SAS Stressteel. Ferrer is an experienced construction engineer who was an important sales manager for his previous employer, DYWIDAG-Systems International, with 31 years' experience, when SAS hired him in 2001.

The agreement gave Ferrer 10% of the company, a guaranteed salary and benefits, and contained a non-solicitation provision but no non-compete.

SAS did not learn until 2012 that FNA was earning over $1 million per year, that FNA was using SAS equipment and personnel, and that Ferrer also owned 40% of Retech, a major SAS customer.

SAS tried to acquire FNA but Ferrer decided instead to sell his interest in FNA and then several SAS employees joined FNA. SAS sued.

The court denied a preliminary injunction, finding no irreparable harm, but allowed the case to proceed on several issues. The case will be interesting to practitioners for two reasons: 1) the agreement allowing for competition but not solicitation presents interesting lessons and 2) the case contains a concise and well-written analysis, under New Jersey's UTSA, of the plaintiff's burden for proving misappropriation of trade secrets.

Appellate Division, New Jersey Superior Court
Trade Secret Laws Are Not Intended To Extend Protection After Patents Expire, Says New Jersey Court

On August 27, 2013, a three-judge panel of the New Jersey Superior Court, Appellate Division affirmed the long held notion that the content of an expired patent passes into the public domain and is thus outside the boundary of trade secret law.

In UCB Mfg, Inc. v. Tris Pharma, Inc., plaintiff employer alleged that defendant former employees used plaintiff’s confidential information to create a generic version of plaintiff’s cough medicine, Tussionex®. In addition to finding the noncompetition agreement between the parties unenforceable, the court emphasized that “all the confidential information alleged to have been divulged was in the public domain and not entitled to protection.”

On appeal, UCB dropped its trade secret misappropriation claim and pursued a theory of breach of contract and unfair competition. The court held that UCB’s breach of contract claims could not stand “[w]here trade secrets are not demonstrably involved . . .” The court found that trade secrets did not exist because after UCB’s patent had expired, “the knowledge of the invention inures to the people, who are thus enabled without restriction to practice it and profit by its use.”

Federal District Court for the District of New Jersey
N.J. Federal Court Denies Motion to Dismiss Trade Secret Claims against The Weather Channel

On July 12, 2013, A federal judge denied a motion filed by The Weather Channel Interactive to dismiss a number of trade secret misappropriation claims brought by Events Media Network, Inc. The judge held that the plaintiff had alleged sufficient facts to make out a claim under the Georgia Trade Secrets Act.

The claim arose out of a license agreement between Events Media Network, Inc. (EMNI) and The Weather Channel Interactive (TWCI) under which EMNI provided TWCI access to a database of upcoming events and attractions. EMNI continually updated the database with event information drawn from publicly available sources. The license agreement allowed TWCI to use the database to serve local event listings to its website viewers.

Although the information contained in the database was publicly available, the court found that the database was a valuable compilation that gained value from its secrecy. The court further held that the general confidentiality provision contained in the license agreement was sufficient to make out reasonable efforts to protect the information under the Georgia Trade Secrets Act.

Superior Court of New Jersey
New Jersey UTSA Does Not Displace Common Law Misappropriation

The Superior Court of New Jersey, Chancery Division, considered the applicability of the New Jersey Trade Secrets Act (NJTSA). The act, recently passed by New Jersey, enacted the widely endorsed and adopted Uniform Trade Secrets Act (UTSA).

The issue in SCS Healthcare v. Allergan was one of first impression and considered whether the NJTSA “preempts common law causes of action which are based on the same set of operable facts.” The court held that the NJTSA does not preclude parties from seeking relief under both the NJTSA and the common law. The court cited the legislature’s intent regarding the provision and the final statutory language that stated the NJTSA supplemented, but did not displace, common law remedies. Accordingly, claimants may seek relief via the statute and traditional common law avenues. This decision makes New Jersey a particularly friendly forum for trade secret plaintiffs. Moreover, the courts interpretation affords misappropriated information that does not rise to the level of “trade secret” protection under common law.

District Court of the District of New Jersey
Judge rules that a trade secret does not necessarily lose its secret status simply because it has been posted on the Internet

On August 18, 2011, Judge Walls of the District Court of the District of New Jersey held in Syncsort Incorporated v. Innovative Routines International, Inc. that a trade secret does not automatically lose its secret status if it has been posted online. His opinion, instead, offered practical guidance on how to determine whether a trade secret should remain secret after exposure on the Internet.

The case dates back to July 29, 2004, when Syncsort Incorporated (“Syncsort”) filed suit against its competitor in the data transformation market, Innovative Routines International, Inc. (“IRI”). As explained in the complaint, data transformation is the process of taking data in one form and changing it to another, such as by editing, reordering, or aggregating portions of the data. Syncsort’s and IRI’s data transformation programs (SyncSort UNIX and CoSORT, respectively) were incompatible.

Syncsort alleged that IRI misappropriated 1) the SyncSort UNIX command language, an “extensive symbolic system by which a user instructs the SyncSort UNIX program to perform specific data processing and transformation jobs” and 2) the SyncSort Unix Reference Guide that “defines commands, parameters and syntax and formal grammar definitions of the SyncSort UNIX command language.” In 2000, IRI developed software programs, SSU2SCL and RESCRIPT, which translated the SynSort UNIX command language for compatibility with CoSORT. Syncsort alleged that the translation programs were developed using pilfered scripts from the SyncSort UNIX command language and the Reference Guide, which IRI partly obtained from various websites.

IRI challenged that the scripts it found on the Internet had already lost their trade secret status and that Syncsort did not take precautions to maintain the secrecy of the scripts. Judge Walls, however, declared that “public posting of parts of the command language did not destroy the trade secret because the information contained in those postings were insufficient to develop the translator.” He considered the circumstances around each online posting and concluded that Syncsort did not lose its trade secrets. He wrote, “Widespread, anonymous publication of the information over the Internet may destroy its status as a trade secret.... But publication on the Internet may not destroy a secret if it is ‘sufficiently obscure or transient or otherwise limited so that it does not become generally known to the relevant people, i.e., potential competitors or other persons to whom the information would have some economic concern.’ The guiding ‘concern is whether the information has retained its value to the creator in spite of the publication.’”

Importantly, this decision marks a progressive benchmark in the acknowledgment in federal courts of the vast and pervasive nature of the internet. Moreover, Judge Walls also recognized the inevitable interplay with the internet and trade secret information, and how even if available on the internet, information may retain trade secret status if it cannot be replicated and is of some value.