Recent Decisions and Case Developments

The Commonwealth Court of Pennsylvania has ruled against Lyft, Inc.’s (Lyft) request to designate its aggregate trip data as a trade secret. This ruling comes out of two consolidated petitions for review filed by Lyft and Kim Lyons, a reporter for PG Publishing, Inc., d/b/a The Pittsburgh Post-Gazette (collectively, PG) from two orders of the Public Utility Commission (PUC).

In 2014, Lyft briefly attained experimental authority to operate as a transportation network company (TNC) in both Allegheny County and the entire Commonwealth. Shortly thereafter, the Bureau of Investigation and Enforcement (BIE) filed a complaint against the company, which prompted PUC to terminate Lyft’s authority to operate in the area. Administrative law judges for BIE have requested data from Lyft—including the number of rides utilized in certain areas before Lyft had full authority to operate—which Lyft objects to providing on the basis that this information constitutes a trade secret.

On review, PUC initially found and then reaffirmed that the data Lyft sought to protect merely constituted aggregate data, which rarely attains trade secret status from the Commission and did not here. Additionally, PUC found that the economic harm Lyft would face as a result of releasing such information did not outweigh the public’s interest. In fact, “the number of trips during the period before Lyft received authority to operate posed a risk to public safety.”

Speaking in the case at bar, Judge Simpson of the Commonwealth Court affirmed PUC’s determination. Judge Simpson notes that PUC properly analyzed what constitutes a trade secret pursuant to its own regulation, 52 Pa. Code §5.365, (Regulation), which differs from the definition of trade secret provided in Pennsylvania’s Uniform Trade Secrets Act. The differences between the Regulation and the Act had the effect of nullifying Lyft’s arguments in reliance on any state court precedent.

Specifically, PUC’s Regulation places the burden on the moving party (Lyft) to 1) prove that disclosure will result in substantial harm and 2) that the harm outweighs public interest in a transparent hearing. In balancing these two prongs, the PUC clearly supports an analysis of these factors: (1) The extent to which the disclosure would cause unfair economic or competitive damage. (2) The extent to which the information is known by others and used in similar activities. (3) The worth or value of the information to the party and to the party’s competitors. (4) The degree of difficulty and cost of developing the information. (5) Other statutes or regulations dealing specifically with disclosure of the information.

Judge Simpson ruled that the data requested by PUC is not detailed enough to trigger economic harm to Lyft as demanded by the factors above. He also denied Lyft’s argument that its competitors could extrapolate detailed information from the aggregate data to gain a competitive market edge. The Court called this argument “speculative and vague.” Therefore, Lyft had failed to prove the first prong of PUC’s Regulation, losing its opportunity to obtain a protective order for its ride data.

Finally, the Court denied PG’s request for an Interim Emergency Order to intervene in the case in the public interest, on the basis that PG’s aims have already been achieved. Judge McCullough, concurring in the majority’s ruling that Lyft’s aggregate data is not proprietary, dissents on this issue. Judge McCullough believes PG, as a conduit of information to the public, has the right to attain party status in this case, especially since Lyft is likely to repeat its attempts to keep certain vital information private as the case moves forward.

Read the full opinion here: http://www.pacourts.us/assets/opinions/Commonwealth/out/843cd15_8-31-16....

Background:
Patrick Daugherty was a partner and senior executive at Highland Capital Management, L.P. ("Highland") until he left to start a competing business. Highland sued Daugherty for theft of trade secrets and for breach of his employment contract. At trial, Highland presented evidence showing that Daugherty forwarded Highland documents to his personal email address, kept printouts of other emails, and kept 40,000 documents on his laptop that included portfolio and pricing information, as well as documents regarding Highland's internal management and operations.

At trial, the court found that that while Daugherty had breached his contracts with Highland, Highland's damages from the breaches of contract were $0. The jury found that the information that Daugherty took did not constitute trade secrets but did constitute "Confidential Information" as that term was defined in Daugherty's employment agreement with Highland. However, the jury awarded Highland $2.8 million in attorney's fees. The trial court upheld the findings and issued a permanent injunction against Daugherty, preventing him from further retaining or disclosing Highland's confidential information.

Daugherty appealed, challenging the judgment's award of $2.8 million in attorney's fees to Highland. He argued that Highland failed to please or tender a jury question for contractual attorney's fees, and was thus not entitled to attorney's fees by statute because the jury found zero damages on Highland's claim for breach of contract. Texas Civil Practices and Remedies Code Section 38.001(8) states that awarding attorney's fees for breach of contract should only occur when there is a finding of damages. The Dallas Court of Appeals rejected Daugherty's arguments and affirmed the jury verdict and trial court injunction.

Plaintiff RLM Communications, Inc. (“RLM”) is a government contractor that provides cyber security, information technology and information assurance services. Defendant Amy Tuschen (“Tuschen”) worked at RLM for six years. During her time with RLM, Tuschen managed an information assurance contract with the U.S. Government. She resigned from RLM in 2013, roughly one year before the government contract expired, and joined Defendant eScience and Technology Solutions, Inc. (“eScience”) a competing company. While RLM did not initially object to Tuschen’s new job, it took issue with her new employment when it discovered that eScience was bidding against it on a government contract. The contract at issue was similar to the one Tuschen managed at RLM.

RLM filed suit in North Carolina state court against Tuschen and eScience (collectively “defendants”) seeking a temporary restraining order and asserting multiple claims, including unfair and deceptive trade practices, misappropriation of trade secrets, and several other breach of contract claims. After the state court granted the temporary restraining order, defendants removed the case to federal court and moved to for summary judgment. The district court granted defendants’ motion on all claims and denied RLM’s motion for a permanent injunction.

On appeal, the United States Court of Appeals for the Fourth Circuit affirmed the district court’s decision. First, the Fourth Circuit rejected RLM’s claim that Tuschen violated her noncompete agreement, which was a part of her employment contract. The court found that the noncompete agreement was invalid because it prohibited direct and indirect participation in similar businesses, and was therefore overly broad. Second, the court stated that RLM failed to provide sufficient evidence that Tuschen breached her confidentiality agreement with the company. Similarly, the court rejected RLM’s misappropriation-of-trade-secrets claim because it admittedly gave Tuschen access to its trade secrets, and does not establish that she accessed them without its authorization. The court also affirmed the district court’s decision with respect to the remaining breach of contract and tort claims.

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.