Cases from Virginia

United States District Court - Eastern District of Virginia
In Virginia, Improper Aquisition of a Trade Secret is Sufficient to State a Claim

A September 5, 2013 opinion from the Eastern District of Virginia reminds us that plausible claims for trade secret misappropriation against former employees can survive a motion to dismiss even in the absence of actual use of the trade secret by a defendant. In Marsteller v. ECS Federal, Inc., a former Senior VP of ECS Federal Inc. (“ECS”), a government contractor, allegedly downloaded and transmitted confidential information in the period between her notice of termination and her last day of work, including company contracts, billing rates and business development plans. ECS alleges various violations of the Virginia Uniform Trade Secret Act (“VUTSA”) and the Virginia Computer Crimes Act, as well as breach of contract, conversion, breach of fiduciary duty and unjust enrichment. Marsteller moved to dismiss these claims under the theory that ECS had not adequately alleged that she had actually used any of this information in her possession, and it is the court’s denial of this motion that is most relevant here.

The VUTSA recognizes trade secret misappropriation if there “improper acquisition” or “disclosure of use” of a trade secret. See Va. Code Ann. § 59.1-336. In Virginia, misappropriation through acquisition occurs when “a person knows or has reason to know that a trade secret was acquired by improper means” which include, among other things, “use of a computer or computer network without authority.” Id. In applying this section of the VUTSA as well as the liberal standards for reviewing motions to dismiss under the Federal Rules of Civil Procedure, the court denied Marsteller’s motion to dismiss and allowed ECS’s counterclaim to stand. See Fed. R. Civ. P. 8, 12(b) (6). The court emphasized that “[u]nder the VUTSA, improper acquisition of a trade secret, even in the absence of allegations of use or disclosure, is sufficient to state a claim.”

Supreme Court of Virginia
Supreme Court of Virginia Departs from Precedent in Nullifying Non-Compete for Overbreadth Identical to One Previously Upheld

Departing from precedent, the Supreme Court of Virginia narrowed the outer limits of enforceability for non-competition agreements in its Nov. 4, 2011 opinion in Home Paramount. The decision has created a stir with legal observers and drew some criticism from dissenting Justice McClanahan for its opposite holding to a prior case, Paramount Termite Control Co. v. Rector, 238 Va. 171 (1989), despite that case’s identical non-compete being upheld. The language that troubled the majority in the employment agreement clashed with the “function” element of the standard non-compete reasonability test. While the geographic scope and duration of the non-competition agreement were quite limited, the court found the functional aspects to be overbroad, because they prevented Shaffer from associating with other pest control companies in any manner, even as a passive stockholder. This was so overbroad as to nullify the narrowness of the other factors in evaluating reasonability. Concerning the departure from precedent, the court noted that Paramount Termite was decided twenty-two years earlier, and that in the intervening time, jurisprudence surrounding such broadly drafted non-competes had been “gradually refined.” In this sense, the case represents a reining in of previously acceptable, but very broad, non-competes in Virginia.

US District Court for the Eastern District of Virginia
Fourth Circuit temporarily lifts injunction against competing DuPont Kevlar™ manufacturer

In a February 2009 compliant, DuPont (US) outlined a proprietary “para-amid fiber” manufacturing process for their Kevlar™ product, unique for its durability and strength and utilized notably in police, military and even in sports equipment throughout the US. DuPont alleged that competitor Kolon Industries (South Korea) engaged in purposeful and deliberate theft of the proprietary and trade secret information integral to successfully manufacturing para-amid fiber material as Kevlar™ is processed. DuPont alleged that Kolon executives recruited DuPont employees to reveal information, even paying cash in direct exchange for the specifications of DuPont’s Kevlar™ technology. Of those with access or knowledge of the Kevlar™ product, the complaint specifically alleged misappropriation of information related to the trade secret Kevlar™ manufacturing process by former DuPont Kevlar™ developer Michael Mitchell, sought out by Kolon soon after his termination. Mitchell ostensibly provided paper documents, electronic files and data, and personal knowledge to Kolon, intending to address the company’s difficulties in quality control and production of para-amid fiber products in the US market.

After over two years of litigation, a September 2011 jury issued a verdict in favor of DuPont, finding Kolon liable for misappropriation of trade secrets. On August 30, 2012, Justice Payne assessed a remarkable $919M in compensatory damages against Kolon, an additional $350,000 in punitive damages, and enjoined Kolon from selling para-amid fiber products in the U.S. for twenty years.

The district court also issued a permanent injunction against any further use or disclosure of DuPont trade secrets used in their Kevlar™ product. Kolon filed an emergency motion to stay the injunction pending appeal the following day, which was granted by the Fourth Circuit on August 31, and so-ordered by the District Court on October 5. The matter was then timely appealed.

On April 3, 2014 the Fourth Circuit overturned the jury verdict in which DuPont had been awarded significant damages against a defendant and competitor – Kolon – which had allegedly misappropriated DuPont’s proprietary manufacturing process for Kevlar. In its opinion, the Fourth Circuit ruled that “the district court abused its discretion, to Kolon’s prejudice, when it granted one of DuPont’s pre-trial motions in limine and thereby excluded relevant evidence material to Kolon’s defense.” At issue, was evidence offered by Kolon which it hoped would show that many of the alleged trade secrets at issue were publicly available, specifically that they had been the subject of previous litigation and were thus part of the public domain. Rule 403 of the Federal Rules of Evidence is clear that the probative value must be “substantially outweighed by the danger of confusion …. or of misleading the jury” and that this “standard [was] not satisfied on this record.” Since DuPont’s motion to exclude was highly prejudicial to the defendant, the Fourth Circuit has vacated and remanded the case back to the district court.