Cases from Federal Circuit

United States Court of Appeals for the Federal Circuit
Surviving A Motion to Dismiss in Trade Secret Cases

The Federal Circuit held that the dismissal of a trade secrets complaint for failure to state a justiciable claim was not warranted solely because the misconduct allegedly involved a number of wrongdoers and began many years before the complaint was filed. Remanded for further proceedings, ABB Turbo Systems, AG v. TurboUSA, Inc., Case No. 2014-1356 (Fed. Cir., Dec. 17, 2014) ABB’s pleading alleged various actions the company took to protect its trade secrets.

The trial court inferred that ABB’s efforts to protect secrecy probably would be deemed insufficient but the federal circuit held that only “reasonable” care is required, and “the complaint stage is not well-suited to determining what precautions are reasonable in a given context.”

Seeking the best chance for surviving a Rule 12(b)(6) motion, a complaint which alleges the relevant facts as the pleader understands them, and which aligns those factual allegations with the operative legal principles as ABB seemingly did in this case, is recommended. On appeal, ABB’s pleading was found to satisfy those minimum standards. Going forward, the parties will have an opportunity to perform some discovery before the trial court decides whether further litigation would be futile. Stay tuned for developments.

Court of Appeals for the Federal Circuit
Federal Circuit Grants Preliminary Injunction in Fracking Software Case

On August 7, 2013, the Court of Appeals for the Federal Circuit granted a preliminary injunction in Core Labs. LP v. Spectrum Tracer Servs., LLC, reversing a decision of the United States District Court for the Western District of Oklahoma. Core Laboratories (Core) initially brought a number of claims, including trade secret misappropriation, against Spectrum Tracer Services (Spectrum), a company established by former Core employees. Both companies provided services to oil well operators to assist in tracing fossil fuels and underground fracking processes. Core sought a preliminary injunction on February 12, 2013, after a Tracer employee notified Core that Tracer had given him a software program clearly belonging to Core, and had asked him to recreate some of the program's functionality.

The District Court denied Core’s motion on March 13, 2013, stating that Core had failed to establish that it would be irreparably injured, because “any harm Core has suffered or may suffer . . . can be adequately remedied through an award of monetary damages.” The Federal Circuit reversed, holding that under Texas law, when a defendant possesses trade secrets and is in a position to use them, irreparable harm to the trade secret owner may be presumed. This decision upholds the proposition advanced by Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) that the economic value of a trade secret lies in the competitive advantage the secret confers on its owner. Because Core demonstrated that Spectrum possessed its trade secret, and further demonstrated that Core lost nearly $1 million worth of jobs to Spectrum, injunctive relief was clearly appropriate under Texas law.

United States Court of Appeals for the Federal Circuit
U.S. International Trade Commission has authority to exclude from importation products manufactured using misappropriated trade secrets

The Federal Circuit held (2-1) on October 11, 2011 that the United States International Trade Commission (“USITC”) has the authority, pursuant to Section 337 of the Tariff Act of 1930 (19 U.S.C. §1337(a)(1)(A)), to ban importation of goods manufactured using “unfair methods of competition,” including misappropriation of trade secrets, where the importation could harm a domestic company. It found in this case that the USITC properly excluded under Section 337 railway wheels that were created using an allegedly misappropriated secret process, even though the misappropriation occurred in China. The decision, however, does not enjoin continuing manufacture of these railway wheels. Although the opinion focuses on whether a presumption against extraterritoriality applies to Section 337, it signifies that the U.S. Federal government is increasing protection of domestic companies' trade secrets.

Amsted Industries, Inc. (“Amsted”) is a domestic manufacturer of railroad components, including railway wheels made using the secret Griffin® and ABC processes. It licenses the manufacture of wheels using the ABC process to firms in China. TianRui Group Co. (“TianRui”) failed to obtain such a license from Amsted and, after failed negotiations, hired employees from another Amsted licensee firm, Datong ABC Castings Company, Ltd. (“Datong”). All of the Datong employees hired by Tianrui were trained in the ABC process and almost all signed confidentiality agreements. When TianRui imported railway wheels using the ABC process into the United States, Amsted filed a complaint with the USITC to exclude the wheels from importation. Amsted argued that continued importation would harm its business in the United States, even if the alleged trade secret misappropriation occurred in China. The USITC agreed with Amsted’s arguments and issued a limited exclusion order, which TianRui appealed to the Federal Circuit.

The Federal Circuit's opinion was reported at 661 F.3d 1322 (Fed. Cir. 2011).