Cases from Federal Statutes

A federal district court in Florida has ruled that in cases of continuous misappropriation where a plaintiff can establish that at least one occurrence took place after the effective date of the Defend Trade Secrets Act (May 11, 2016), that plaintiff is entitled to at least partially recover under the DTSA. Neither party raised the question of whether this butts against the notion that you cannot apply a statute retroactively.

In this case, Plaintiff Adams Arms, which specializes in military-grade rifles, alleges that Defendant Unified Weapon Systems, Inc. ("UWS") both improperly acquired and disclosed its trade secrets. Adams Arms says that its rifles’ unparalleled reliability is the result of certain mechanical processes, mixes of parts, and the vendors used to supply them. Plaintiff disclosed this information to Defendants because they had been working together to win a bid with the Peruvian military. They also granted a tour of their facility, and handed over pricing information. Prior to this exchange, in 2014, parties executed a "Mutual Confidentiality and Nondisclosure Agreement," which was to be binding upon the companies and their representatives and officers.

However, relations between the parties soured when Defendant began locking Plaintiff out of meetings with the Peruvian client, and—Plaintiff alleges—attempted to sell to the client UWS rifles that were actually retooled Adams Arms rifles, following Plaintiff’s mechanics and designs.

Plaintiff Adams Arms seeks to recover under the DTSA, while Defendants believe the trade secrets misappropriation claim (Count 5 of the complaint) should be dismissed because the UTSA governs all incidents prior to May 11, 2016. The Court rejected Defendants’ motion to dismiss. Judge Hernandez Covington said that UWS signed a contract with the Peruvian military after May 11th, using the Adams Arms designs, specifications, and processes, which enables Plaintiff’s disclosure claim to advance in court. However, all trade secrets were acquired pre-DTSA, so Plaintiff’s misappropriated acquisition claims cannot be remedied under that statute.

Read the full case here: https://www.bloomberglaw.com/public/desktop/document/Adams_Arms_LLC_v_Un...

Panera, LLC (“Plaintiff”) has filed a complaint against Papa John’s International, Inc. and Michael Nettles (“Defendants”) for misappropriation of Panera’s trade secrets and other confidential information. Plaintiff alleges misappropriation under the Defend Trade Secrets Act and Missouri Uniform Trade Secrets Act, as well as raises counts of breach of contract and tortious interference with contractual relations regarding a non-compete which Nettles had signed. Plaintiff seeks immediate injunctive relief against Defendants.

Plaintiff Panera is a Delaware limited liability company with its principal place of business in Missouri. It serves made-to-order sandwiches, salads, soups, and other baked goods in its 2,000-plus branded stores across the United States and Canada. It considers its customer-facing technological innovations to be an integral part of its consumer appeal in a competitive market. Defendant corporation Papa John’s is also a Delaware company, but it is headquartered in Kentucky and—according to the complaint—likewise makes its “dough” products in a technology-driven, customer-centric environment. Co-defendant Michael Nettles recently moved from Missouri to Kentucky to begin work for Papa John’s. Previously, he had been Panera’s Vice President of Architecture in its Information Technology department from July 2012-July 2016, a position that allowed him access to Panera’s most sensitive and proprietary technologies.

Plaintiff alleges that Nettles misused or will misuse information including, but not limited to, Panera’s thought processes, visions, and schematics for its technology systems. Further, Plaintiff asserts Nettles has an intimate knowledge of Panera’s strategic plans for the next 2-4 years and that he is currently in violation of a non-compete agreement he (like all high-level executives at the company) signed in 2013, which prohibits him for working for a competitor company for a period of one year after ending his employment with Panera. According to the complaint, Nettles asked to be released from the non-compete when he was offered a job at Defendant company, but Panera’s CEO declined to do so. Instead, the CEO offered to help Nettles get a job with a company not in direct competition with Plaintiff. However, encouraged by Papa John’s—who Plaintiff asserts had actual knowledge of the strict non-compete—Nettles accepted the high-level position at Papa John’s. He then allegedly made copies of Panera’s sensitive information and stored them on his personal devices, where they remain.

Plaintiff seeks a preliminary injunction to restrict Nettles from disclosing or further disclosing trade secrets and confidential information to Papa John’s. If Plaintiff is successful in asserting its breach of contract claims under contract theory and also as a matter of public policy, Nettles would be enjoined from beginning employment with Defendant corporation for a period of one year from July 1, 2016. Plaintiff seeks a permanent injunction after trial, prohibiting disclosure of trade secrets and requesting the return of any such information to Panera. Plaintiff asks that Defendants cover its reasonable costs and attorney’s fees.

The complaint can be found here: https://www.scribd.com/document/318937409/Panera-lawsuit-vs-Papa-John-s-...

Update: August 15, 2016
A federal judge ordered Michael Nettles to discontinue working at the Louisvlle-based pizza chain. According to the order, Nettles must cease and desist "advising, consulting, or working for Papa John's," either directly or indirectly. The order also restricts Papa John's from seeking advice, consulting or employing Nettles and requires Nettles to pay a $200,000 security bond.

Additionally, according to the judge's order, a third-party forensic analyst will analyze Nettles' personal devices including his personal laptop. Nettles and Papa John's have been ordered to pay half of the analyst's cost and Panera will cover the remaining half.

In this case, Plaintiff, Koninklijke Philips N.V. (“Philips”), et al. brought ten causes of action alleging that Dr. Chen, who was an employee of Plaintiff Lumileds Lighting Company, downloaded thousands of files “containing Philips Lumileds’ trade secrets and confidential business information onto a portable storage device." Complaint, ECF 1 ¶ 5. Dr. Chen then became employed by Defendant, Elec-Tech international Co., Ltd (“ETI”) and only six months into this employment, ETI announced two “new high-energy LED lighting products, an amount of time Plaintiffs claim is ‘unprecedented’ in the lighting industry.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *1 (N.D. Ca. March 30, 2015). The Plaintiffs used one claim under the Computer Fraud and Abuse Act (“CFAA”) to bring the other nine state claims. The court here held that the Plaintiffs did not state a CFAA claim upon which relief can be granted and therefore dismissed the nine state law based trade secret claims as well as the CFAA claim.

The Plaintiffs in this case were creative in finding a way to try to get their Trade Secret claims into federal court. However, the court took a strict stand against using the CFAA for misappropriation purposes. The court pointed out that the CFAA is interpreted by courts as “an anti-hacking statute.” Koninklijke Philips N.V. v. Elec-Tech International Co., Ltd., no. 14-cv-12737-BLF, 2015 WL 1289984 at *3 (N.D. Ca. March 30, 2015) (citing United States v. Nosal, 676 F.3d 854, 858 (9th Cir.2012)). Additionally, in the past, the Ninth Circuit has expressly refused to expand this statute to cover misappropriation. Id. While this is a blow for Philips here, this does help the argument for federal trade secret legislation. If courts are going to hold the bar this high for federal statutes that could be expanded to include misappropriation, then federal trade secret legislation is necessary in order to afford trade secret protection by the federal courts as well as state courts.

On February 21, 2013, Ecosphere Technologies, Inc. (“Ecosphere”) put industry giant Halliburton Energy Services, Inc. (“Halliburton”) on notice of a Demand for Arbitration ("Demand") that Ecosphere filed with the American Arbitration Association. The Demand alleges that “Halliburton took and disclosed Ecosphere’s trade secrets and proprietary technical, business and strategic information.”

Ecosphere is a water engineering, technology licensing and innovative manufacturing company that develops non-chemical water treatment solutions for industrial markets throughout the world. According to a press release from Ecosphere's counsel, Haliburton misappropriated Ecosphere's trade secret information related to hydro-fracking liquids, in violation of a non-disclosure agreement between the companies. Ecosphere had initially contracted to share the information with Haliburton. However, after Haliburton made a failed attempt to purchase Ecosphere outright, Haliburton continued to use Ecosphere’s trade secrets without authorization “to immediately market itself as an environmentally friendly company . . . .” The Demand claims $300 million in damages.

The issue of trade secrets in hyrdo-fracking has become a hotbed for litigation and legislation. TSI recently covered state attempts to legislate the issue. It was also a main topic at the 2012 TSI Symposium, “Private Data/Public Good: Emerging Issues in Trade Secrets Law.”