Cases from Delaware

United States District Court for the District of Delaware
Delaware Court Denies Tech Company's Motion for Preliminary Injunction

On December 22, 2015, Adtile Technologies, Inc. (“Plaintiff”) filed a complaint in the United States District Court for the District of Delaware against Intercept Interactive, Inc. d/b/a Undertone (“Defendant”). The complaint asserted multiple intellectual property claims, including that defendant misappropriated plaintiff’s trade secrets and confidential information.

Plaintiff develops technology and services for motion advertisements used predominantly on smartphones and tablets. Defendant is a marketing company. On August 18, 2014, the parties entered into a license agreement and non-disclosure agreement whereby Plaintiff would create motion advertisements and Defendant would sell them. Under the license agreement, Plaintiff would give Defendant access to software to create the advertisements and approve any advertisements Defendant wished to release using the software. The agreement also allowed Defendant to purchase, license, or develop similar, even competitive technology or services. Some of the software Plaintiffs used in their advertisements were publicly available on the internet.

From February to April 2015, Defendant accessed Plaintiff’s proprietary information about the motion advertisements, as per the agreement. However, Plaintiff did not, and still has not, provided Defendant with the licensed software for the advertisements. The parties terminated the license agreement on June 12, 2015. Plaintiff alleges that Defendant sought termination only after accessing Plaintiffs’ proprietary information regarding the technology. Defendant counters that it sought termination after Plaintiff refused to provide motion advertisements despite the license agreement.

According to Plaintiff, the day the parties terminated the license agreement, Defendant released a motion-activated advertisement for Discover. The advertisement included Plaintiff’s proprietary information, including layout, interface, and a "handphone" image that Plaintiff used. Plaintiff argues that Defendants created this advertisement and others using trade secrets that were outside the scope of the parties’ license agreement. As a result, Plaintiff filed this lawsuit, and also moved for a preliminary injunction to enjoin Defendant from releasing motion advertisements that include features using Plaintiff’s proprietary information.

On June 23, 2016, the Court denied Plaintiff’s motion for a preliminary injunction on the grounds that its claims, particularly misappropriation of trade secrets, are unlikely to succeed on the merits. The Court concluded that much of the information Plaintiff claimed was a “trade secret” is publicly accessible online after an advertisement is delivered to a web browser. As such, the Court could not determine which features of the advertisements were Plaintiff’s trade secrets, and found that the record lacked persuasive evidence that Defendant used any of Plaintiff’s trade secrets at all. Accordingly, the Court found Plaintiff unlikely to succeed on the merits and denied its motion for a preliminary injunction.

The Memorandum Order can be found here: https://delawareintellectualproperty.foxrothschild.com/wp-content/uploads/sites/17/2016/06/Adtile-Technologies-Opinion-June-23-2016.pdf?utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link

Supreme Court of the State of Delaware
Delaware Supreme Court Says Trade Secret Violation Can Be A Valid Business Judgment

When DuPont wasn’t able to create a product that could compete with “Roundup Ready,” it created a product that combined its own technology with that of Monsanto, the original “Roundup Ready” manufacturer. Monsanto sued DuPont for patent infringement, resulting in a settlement in which DuPont agreed to pay Monsanto $1.7 billion over ten years in exchange for a licensing agreement. One of DuPont’s stockholders, a Pennsylvania pension fund, brought a derivative suit against DuPont for breach of fiduciary duty in connection with DuPont’s “combined technology” product. In May 2015, the Delaware Chancery Court dismissed the derivative lawsuit, but another investor attempted to revive the derivative suit. The Chancery Court said the investor failed to show that the board’s refusal to take legal action was an invalid exercise of business judgment. On January 28, 2016, the Chancery Court affirmed the dismissal of the derivative suit.

Court of Chancery of Delaware
Court of Chancery Finds Choice of Law Clause Void

On January 28, 2015, the Delaware Court of Chancery released an opinion finding that a choice of law clause in a noncompete contract, designating Delaware as the venue and choice of law for dispute resolution, did not govern the dispute because the state of California had a materially greater interest in the issue. The parties here engaged in an employee investment agreement (“EIA”) in July of 2008, in which Defendant Underwood agreed not to compete with Ascension or its parent for two years after leaving his position at Ascension. Plaintiff Ascension sought to enforce the non-compete clause in the EIA and the Court of Chancery was presented with the question of whether California’s employee friendly statute or Delaware’s contract-friendly policies should govern the validity of the non-compete clause.

In the EIA both parties agreed to Delaware venue as well as Delaware choice of law. However, the court found that California was the state with the strongest contacts to the contract because the EIA was entered between a California resident and a Delaware limited liability company that now has its principal place of business in California, the non-compete clause was negotiated in California, and but for the choice-of-law provision, California law would apply to the EIA. Additionally, California’s interest in its employee-friendly public policy is greater than Delaware’s interest in the sanctity of a contract.

This decision is significant because the Chancery Court, which is historically corporate-friendly, took a strong stance against allowing corporations to contract around unfavorable state laws. The court emphasized that California’s public policy against non-compete clauses is so fundamental that it would prevail over a contracted to term which goes against this policy. This decision empowers employees and ensures that they will be able to rely on his or her state’s employee protection policies as long as he or she is engaging in the employment relationship in his or her state. Even if an employee agrees to a choice-of-law clause, applicable state policies will still be able to protect him or her. In the future, this decision should cause corporations to investigate the state policies on non-compete clauses in the states in which it engages in employee relationships.

United States District Court for the District of Delaware
Solazyme Counter-Claims Trade Secret Misappropriation

Solazyme is alleging that Roquette Freres SA misappropriated its trade secrets regarding algae-based nutritional products.

The companies agreed to a research and development joint venture in November 2010 on microalgae-derived products. After the agreement fell apart, a subsequent arbitration between the parties held that Solazyme was entitled to all of the improvements made to the intellectual property it brought to the agreement.

Roquette sued in the federal court of Delaware in November 28, 2014 to vacate the arbitration order and for a declaration of joint ownership of the algae Intellectual Property rights. Solazyme answered on February 26, 2015 that Roquette agreed to the secrecy of Solazyme's IP under the agreement and violated the agreement by filing patent applications on the IP material.

The case is Roquette Freres SA v. Solazyme Inc., 14-cv-01442, U.S. District Court, District of Delaware (Wilmington). https://www.pacermonitor.com/public/case/5370069/Roquette_Freres_SA_v_So...

Delaware Chancery Court
Remedies available for Employer Despite Lack of Non-Compete Agreement or Misappropriation of Trade Secrets

On March 5, 2014, the Delaware Chancery Court awarded damages to an employer against a former employee who, using the employer’s information, had started to compete directly with the employer, despite the absence of any non-compete agreement or any finding of trade secret misappropriation. Wayman Fire Protection (Wayman) brought suit against former employee Weitzel and others. Wayman alleged that after being fired by Wayman, Weitzel started competing directly with Wayman by bringing Wayman employees to his firm, and that those employees had taken with them Wayman’s proprietary information. The complaint alleged that, using this information, Weitzel won a bidding war against his prior employer.

After dismissing Wayman’s claims for tortious interference and misappropriation of trade secrets, the Chancery Court went on to find that Weitzel had indeed violated the Delaware Misuse of Computer System Information Act, and had also violated his fiduciary duty to Wayman. In addition, the court found Premium Fire liable as a conspirator, resulting in joint and several liability, and awarded Wayman over $85,000 in damages as well as attorney’s fees.

Thus, the court found that even absent a non-compete agreement or misappropriation of trade secrets, Wayman was still entitled to relief. This creative damages award suggests that new avenues for relief may be available for plaintiff employers seeking recovery from past employees, even in cases that fall short of trade secret misappropriation, and even where the company has failed to obtain a non-compete agreement from the employee at issue.

Court of Chancery of the State of Delaware
Fashion Designer Tory Burch Claims Ex-Husband Stole Her Trade Secrets to Create Knock-Off Brand

On November 5, 2012, fashion designer Tory Burch filed a counterclaim against ex-husband J. Christopher Burch in the Court of Chancery of the State of Delaware. Ms. Burch’s allegations include: Breach of Fiduciary Duty; Breach of Contract; Unfair Competition; and Misappropriation of Trade Secrets pursuant to the Delaware Uniform Trade Secrets Act (“DUTSA”). The counterclaim is in response to Mr. Burch’s original complaint that accused Ms. Burch of Breach of Contract and Tortious Interference.

The conflict stemmed from the October 2011 launch of Mr. Burch’s brand “C-Wonder,” which included a storefront in New York City near Ms. Burch’s original SoHo shop. Ms. Burch alleges that – although she original gave Mr. Burch her approval to launch C-Wonder – he had mislead Ms. Burch by claiming the store would be selling “an assortment of diverse products, including home goods . . . [and] nondescript apparel . . . .” However, Ms. Burch claims that Mr. Burch actually used confidential information that he obtained while serving as both Co-chairperson of, and consultant to, Tory Burch LLC to create a “knock-off” store that sold “cheapened, lower-quality version[s] of . . . Tory Burch brand [items].” Both positions (Co-chairperson and consultant) required Mr. Burch to sign agreements with explicit confidentiality provisions. Ms. Burch claims that her ex-husband personally admitted to “wrongdoing on several occasions.”

Pursuant to the DUTSA, the counterclaim alleges that Mr. Burch used improper means to acquire Tory Burch LLC’s trade secrets, which the company had taken reasonable efforts to protect. Ms. Burch alleges her trade secret information includes “highly confidential data compilations, business methods, techniques . . . .” She is seeking both injunctive and equitable relief.

On December 31, 2012, both parties agreed to a confidential settlement. Businessweek reports that Mr. Burch has agreed to sell half of his share in Tory Burch, LLC, and there's no indication he will be forced to close his C. Wonder product line.

United States District Court for the District of Delaware
Creator of semiconductor timing analysis tool alleges competitor misappropriated trade secrets by inducing customers to breach NDAs, then incorporating proprietary information into own product

Synopsys, Inc. voluntarily dismissed its complaint on October 11, 2011 as it acquired Extreme DA Corp.

Synopsys filed a complaint in the United States District Court for the District of Delaware on June 2, 2011 alleging trade secret misappropriation and interference with contractual obligations by its competitor, Extreme. Synopsys also asserted copyright and patent infringement allegations.

Synopsys and Extreme are both in the business of making timing analysis devices for the testing of semiconductors. Essentially, their products, “PrimeTime” and “GoldTime,” respectively, allow the computation of the expected speed of a digital circuit without the need to run a simulation.

According to Synopsys, prior to the development of PrimeTime, timing analysis was a time consuming effort and required a great amount of dedication from design teams. PrimeTime, using Synopsys’ proprietary information, significantly improved upon that task.

The complaint alleges that Extreme has taken the advances that Synopsys’ engineers have incorporated into PrimeTime and misappropriated them for use in their own GoldTime system. Synopsys notes that PrimeTime features “literally hundreds” of proprietary features that are not generally known and thereby grant a competitive edge. Additionally, these features are only disclosed to Synopsys customers when shielded by strict confidentiality obligations, and user manuals contain proprietary rights notices warning against unauthorized disclosure.

Synopsys alleges that Extreme gained unauthorized access to this proprietary information by purposefully breaching the PrimeTime end user license agreement (EULA) and by disrupting Synopsys’ contractual secrecy arrangements with its customers.

On its trade secrets claim, Synopsys has requested permanent injunctive relief preventing the further use of its trade secrets as well as any further actions intended to induce Synopsys customers to breach their non-disclosure agreements. In addition, it is requesting “compensatory, special, incidental and consequential damages according to proof” and attorneys' fees.

United States District Court for the District of Delaware
Claims for trade secret misappropriation against a licensee survive motion to dismiss for failure to plead with specificity

Eastman refines further the pleading standard in trade secret cases. In general, there is no heightened pleading standard for trade secret cases after Twombly/Iqbal; a plaintiff is not required “to plead all of the relevant facts in detail.” However, a plaintiff can’t simply point to an area of technology or refer generally to information or business methods. The goal of the pleading standard is to provide notice to defendants of the substance of the claims against them. In the context of claims for trade secret misappropriation, this goal must be balanced with the need to maintain secrecy. Disclosure of the actual trade secret is not required.

Here, the alleged deficiencies in the pleadings were 1) a failure to identify the particular employees alleged to have stolen the trade secrets; 2) a failure to identify the trade secrets that were allegedly misappropriated; and 3) a failure to show use or disclosure of the alleged trade secrets. After a review of the facts set forth by the plaintiff, and case law from other states applying UTSA statutes, the Magistrate judge found that by identifying a group of employees, referring to the alleged trade secrets as information “relating to the manufacture of PET” and Eastman’s “IntegRex technology,” and alleging their use in start-up of a new plant, Eastman had properly disclosed sufficient information to meet the Rule 8 pleading requirements and state a claim.

New Castle County Superior Court
Delaware Superior Court Denies Exemplary Damages

In this case during a twelve day trial, the jury found that Plaintiff, Professional Investigating & Consulting Agency, Inc.’s (“PICA”) Channel Management Program, was a trade secret and that Defendant, Hewlett-Packard Company (“HP”) wilfully and maliciously misappropriated the Channel Management Proposal. On the Channel Management Proposal misappropriation claim, the jury awarded PICA $300,000 in damages for out of pocket expenses and lost profits as well $700,000 for HP’s unjust enrichment.

On March 23, 2015, the New Castle County Delaware Superior Court decided on the parties’ post-trial motions. The court granted in part and denied in part PICA’s motions for exemplary damages and attorneys’ fees, attorneys’ fees and expenses, and costs and interest. The court also denied HP’s motion for a new trial or remittitur and renewed motion for judgment as a matter of law. Regarding the trade secret misappropriation verdict, HP argued that PICA did not present evidence that it derived any economic value from the Channel Management Program not being generally well-known because “every aspect of PICA’s proposal was generally known”, and that PICA attempted to keep the program confidential. The court, however, applied Delaware’s Uniform Trade Secret Act (“DUSTA”) and found that PICA provided extensive evidence at trial that though some of the components of PICA’s program was a trade secret, the program as a whole was a trade secret and that the jury’s damage award was not duplicative.

The court also applied the DUSTA when it granted in part and denied in part PICA’s motion for exemplary damages and attorneys’ fees. Although PICA moved for the court to grant two million dollars in exemplary damages (the maximum amount allowed under the DUSTA), the court followed the guidance of Agilent Technologies, Inc. v. Kirkland and denied exemplary damages. Agilent took the approach of making the plaintiff “whole and to deprive [the defendant] of unjust rewards.” The court here analogized this case to Agilent, where further punishment through exemplary damages were unnecessary because the court had already granted a “stringent remedy that [would] sufficiently vindicate the interests of [the plaintiff] and those more generally protected by the Delaware Uniform Trade Secrets Act.” In the current case, the court held that “the jury’s $1 million award reasonably compensates PICA for misappropriation of its trade secrets… [and] in light of the total jury verdict, the Court decline[d] to impose an additional amount for exemplary damages for punitive purposes.”
This case is significant because the court demonstrates that though the DUTSA permits a court to award exemplary damages in cases where wilful and malicious misappropriation exists, the bar for granting exemplary damages will be set high in cases where the total jury verdict already reasonably compensates the plaintiff for the misappropriation. Though the bar is set high for exemplary damages, this wasn’t much of a total loss for the plaintiff because the court granted the plaintiff’s requested 75% of attorneys’ fees for the entire litigation of the Channel Management Program misappropriation claim as well as 75% of attorneys’ fees and expenses incurred by PICA since July 29, 2013 due to HP’s bad faith throughout the discovery process. Although PICA was not able to obtain exemplary damages, the court did grant PICA to recover for most of the costs incurred with the claims which it prevailed on.