Cases from Indiana

Indiana Court of Appeals
Indiana Appellate Court Adopts Majority "All or Nothing" Approach to UTSA Preemption, Denies Protection for Information Not Rising to the Level of Trade Secrets

On August 10, the Court of Appeals of Indiana in HDNET LLC v. North American Boxing Council joined states which have held that their enactment of the UTSA preempts related common law claims pertaining to trade secret misappropriation. The court reversed a lower court’s grant of partial summary judgment which held that the Indiana Uniform Trade Secrets Act did not preempt common law claims for idea misappropriation and civil conversion.

The North American Boxing Council (“NABC”), a mixed martial arts (“MMA”) sanctioning body, sued Mark Cuban’s HDNET television channel for misappropriation of a branded fight series concept that the parties had tried to develop in partnership. NABC also alleged misappropriation of trade secrets, but there had been no determination of whether the series concept met the IUTSA’s statutory definition of a trade secret because the Court of Appeals first heard an interlocutory appeal on the question of preemption.

The court’s analysis focused on a provision of Indiana’s enactment which it noted was “stronger than that found in either the 1979 or 1985 versions of the UTSA.” Indiana’s version provides that “the IUTSA ‘displaces all conflicting law of this state pertaining to the misappropriation of trade secrets, except contract law and criminal law.’” Although NABC’s claims all related to the same subject matter, i.e. the series concept, it argued that its alternative claims did not “pertain” to trade secrets under the statute’s meaning because they were not predicated on the existence of a trade secret.

The court, reasoning that the legislature intended the UTSA to be construed consistent with other UTSA jurisdictions, followed the Supreme Court of Hawai’i in holding that the UTSA “abolishes all free-standing alternative causes of action for theft of misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status (e.g. idea misappropriation, information piracy, theft or [sic] commercial information, etc.).” (quoting BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 123 Hawai’i 314, 321 (Haw. 2010)) (internal quotation marks omitted).

The court emphasized that the IUTSA “does not preempt claims for misappropriation of information or ideas that are protected by contract.” Nevertheless, under similar circumstances where no express obligation has been created, the decision bars recovery for a defendant’s use of confidential information that does not rise to the level of a trade secret.

The court also rejected NABC’s argument that its conversion claim was “derivative” of criminal law, and thus entitled to the statute’s exception. In so holding, the court distinguished civil conversion claims from civil claims brought under RICO, which are not preempted.

United States District Court for the Southern District of Indiana
Canadian national residing in US pleads guilty to trade secret theft and transfer to China and Germany; Sentenced to 87 months in prison

Defendant Kexue Huang pled guilty at an October plea hearing in a high-profile criminal trade secrets misappropriation case in the United States District Court for the Southern District of Indiana. Huang, a Canadian national permanently living in the United States, was charged with illegally exporting $300 million worth of trade secrets to China and Germany through an intermediary. Huang was sentenced to 7 years and 3 months in prison on December 21, 2011.

The case was particularly interesting because it dealt explicitly with the prong of the Economic Espionage Act that criminalizes stealing trade secrets for the benefit of a foreign government. This provision has been very seldom used since the law was passed in 1996, but its use in prosecutions is on the rise.

18 U.S.C. §1831(a) provides that individuals or organizations that, while “intending or knowing that the offense will benefit any foreign government,” steal, copy, or otherwise appropriate any trade secret or attempt to do so may be fined for up to $500,000, imprisoned for up to 15 years, or both.

The charges concerned trade secrets related to a commercial insecticide developed by Dow Chemical Co. in Indiana, where Huang worked from 2003 to 2008 until he was fired. In addition, some related to trade secrets owned by grain distributor Cargill, Inc., where Huang went to work as a biotechnologist in 2008. At the plea hearing, Huang admitted he stole a key component of a new Cargill food product and gave it to a student at Hunan Normal University in China.

Huang, while charged with 12 counts of economic espionage to benefit a foreign government or instrumentality and 5 counts of interstate or foreign transportation of stolen property, only pled guilty to one count of stealing trade secrets from Cargill and one count of engaging in economic espionage at Dow.