Recent Decisions and Case Developments

Daugherty v. Highland Capital Mgmt., L.P.
August 22, 2016 | Court of Appeals of Texas (Dallas)
Daugherty v. Highland Capital Mgmt., L.P.

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.

Shapiro v. Hasbro Inc., et al.
August 2, 2016 | United States District Court for the Central District of California
Doll Designer Alleges Hasbro Violated DTSA with “My Little Pony”

Plaintiff Elinor Shapiro (“Shapiro”) alleges that Defendant Hasbro, Inc. (“Hasbro”) misappropriated her trade secrets regarding new versions of the popular doll “My Little Pony.” Shapiro works as a doll creator and made a submission to Hasbro for a new line of pony dolls that are clear, filled with glitter, and light up. The submission included a presentation, marketing plan, and prototypes. Roughly 17 months later, Hasbro released a new line of “My Little Pony” dolls that are clear, light up and filled with different colored glitters. Shapiro argues that this was a misappropriation of information she presented, and has filed two lawsuits against Hasbro.

Shapiro’s first lawsuit, Shapiro v. Hasbro Inc. et al.,, No. 2:15-cv-02964, which is set to go to trial in September 2016, alleges multiple claims including copyright infringement, breach of contract, and multiple California trade secret law violations. Shapiro filed the second lawsuit, Shapiro v. Hasbro Inc. et al., No. 2:16-cv-05750, on August 2, 2016. The second suit drops the copyright infringement claims and focuses more on trade secrets, including a claim under the Defend Trade Secrets Act (DTSA), which took effect in May 2016.

The complaint for Shapiro’s latest lawsuit can be found here: http://tsi.brooklaw.edu/cases/shapiro-v-hasbro-inc-et-al/filings/shapiro-v-hasbro-inc-et-al

RLM Communications, Inc. v. Amy E. Tuschen; eScience and Technology Solutions, Inc.
July 28, 2016 | United States District Court for the Fourth Circuit
Fourth Circuit Shoots Down Overbroad Noncompete Agreement

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.

Unitherm Food Systems, Inc. v. Hormel Foods Corporation et al
July 25, 2016 | United States District Court for the District of Minnesota
Minnesota Trade Secret Law Preempts Unitherm Food Systems Claims

Unitherm is a developer of processes and equipment for cooking meat. Hormel is a manufacturer and marketer of brand-name food and meat products. In 2007, the companies entered a joint development agreement to develop an oven that would make bacon products using high levels of steam for cooking.  

Under the agreement, both parties agreed that "following completion of a commercially viable application of the Project, the parties will negotiate an agreement by which Unitherm will be the exclusive supplier to Hormel of equipment related to the Project for an initial period of five (5) years," with the possibility of an extension. The parties also agreed that all information shared relating to the Project would be considered confidential in accordance with the terms of the Mutual Confidential Disclosure Agreement ("MCDA") signed by both parties.

In 2008 Unitherm filed a patent application covering the process of cooking food at high steam levels.  In 2010, Hormel withdrew from the agreement with Unitherm and filed for patent protection of its own method of cooking bacon.  However, Unitherm alleged that the method claimed by Hormel was developed by Unitherm during the course of the joint development agreement and was proprietary. In September 2014, Unitherm filed suit against Hormel, claiming breach of contract, unjust enrichment, trade secrets misappropriation, accounting, and declaratory relief.

On January 27, 2015, the Honorable Paul A. Magnuson dismissed the trade secrets and accounting claims. In turn, Hormel answered and filed breach of contract and declaratory judgment counterclaims. Each remaining claim and counterclaim is covered by one or both of the summary judgment motions.

On July 25, 2016, United States District Judge Joan N. Ericksen ruled on Unitherm's motion for partial summary judgment and Hormel's motion for summary judgment. Unitherm's breach of contract and unjust enrichment claims were dismissed with prejudice, Hormel's breach of contract counterclaim was dismissed with prejudice, Hormel's declaratory judgment counterclaim was dismissed with prejudice to the extent it claims ownership of the Unitherm Process. The claim remains unresolved to the extent it claims ownership of the Hybrid Process. Unitherm's claim for declaratory relief remains unresolved.

Unither's unjust enrichment claim brought in lieu of its breach of contract claim is of significance. "Unjust enrichment is an equitable theory which cannot be asserted where the rights of the parties are governed by a valid contract." Holiday Hosp. Franchising, Inc. v. H-5, Inc., 165 F. Supp. 2d 937 , 941 (D. Minn. 2001). Since Unitherm's claim is based on conduct that is governed by the joint development agreement, the unjust enrichment claim fails. Unitherm's claim based on Hormel's disclosure of confidential information and reverse engineering of the oven also fails because it was governed by the MCDA. Lastly, to the extent that Unitherm's claim is based on the allegations that Hormel stole the Unitherm Process, the claim fails becuase it is based on the same operative facts and is therefore preempted by Unitherm's dismissed claim under Minnesota's Uniform Trade Secrets Act.

Panera, LLC v. Michael R. Nettles and Papa John’s International, Inc.
July 19, 2016 | UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI
Defend Trade Secrets Act Takes a Bite Out of Fast Food Tussle

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.

Adtile Technologies, Inc. v. Perion Netwtork Ltd. and Intercept Interactive, Inc. d/b/a Undertone
June 23, 2016 | United States District Court for the District of Delaware
Delaware Court Denies Tech Company's Motion for Preliminary Injunction

On December 22, 2015, Adtile Technologies, Inc. (“Plaintiff”) filed a complaint in the United States District Court for the District of Delaware against Intercept Interactive, Inc. d/b/a Undertone (“Defendant”). The complaint asserted multiple intellectual property claims, including that defendant misappropriated plaintiff’s trade secrets and confidential information.

Plaintiff develops technology and services for motion advertisements used predominantly on smartphones and tablets. Defendant is a marketing company. On August 18, 2014, the parties entered into a license agreement and non-disclosure agreement whereby Plaintiff would create motion advertisements and Defendant would sell them. Under the license agreement, Plaintiff would give Defendant access to software to create the advertisements and approve any advertisements Defendant wished to release using the software. The agreement also allowed Defendant to purchase, license, or develop similar, even competitive technology or services. Some of the software Plaintiffs used in their advertisements were publicly available on the internet.

From February to April 2015, Defendant accessed Plaintiff’s proprietary information about the motion advertisements, as per the agreement. However, Plaintiff did not, and still has not, provided Defendant with the licensed software for the advertisements. The parties terminated the license agreement on June 12, 2015. Plaintiff alleges that Defendant sought termination only after accessing Plaintiffs’ proprietary information regarding the technology. Defendant counters that it sought termination after Plaintiff refused to provide motion advertisements despite the license agreement.

According to Plaintiff, the day the parties terminated the license agreement, Defendant released a motion-activated advertisement for Discover. The advertisement included Plaintiff’s proprietary information, including layout, interface, and a "handphone" image that Plaintiff used. Plaintiff argues that Defendants created this advertisement and others using trade secrets that were outside the scope of the parties’ license agreement. As a result, Plaintiff filed this lawsuit, and also moved for a preliminary injunction to enjoin Defendant from releasing motion advertisements that include features using Plaintiff’s proprietary information.

On June 23, 2016, the Court denied Plaintiff’s motion for a preliminary injunction on the grounds that its claims, particularly misappropriation of trade secrets, are unlikely to succeed on the merits. The Court concluded that much of the information Plaintiff claimed was a “trade secret” is publicly accessible online after an advertisement is delivered to a web browser. As such, the Court could not determine which features of the advertisements were Plaintiff’s trade secrets, and found that the record lacked persuasive evidence that Defendant used any of Plaintiff’s trade secrets at all. Accordingly, the Court found Plaintiff unlikely to succeed on the merits and denied its motion for a preliminary injunction.

The Memorandum Order can be found here: https://delawareintellectualproperty.foxrothschild.com/wp-content/uploads/sites/17/2016/06/Adtile-Technologies-Opinion-June-23-2016.pdf?utm_source=Mondaq&utm_medium=syndication&utm_campaign=inter-article-link

Henry Schein, Inc. v. Cook
June 10, 2016 | United States District Court for the Northern District of California
California Court Renders First Decision Under Defend Trade Secrets Act

A federal district court in California handed down the first decision made under the Defend Trade Secrets Act (DTSA) since Congress signed it into law in May 2016. The court granted plaintiff Henry Schein, Inc.’s (“HSI”) motion for a Temporary Restraining Order (TRO) to enjoin defendant Jennifer Cook from accessing and disclosing any of its confidential data or accepting business from its customers.

Cook worked for HSI as a sales consultant, and entered into a confidentiality and non-solicitation agreement when HSI hired her in 2005. HSI alleges that prior to leaving the company, Cook began to collect confidential information and trade secret documents in several ways, some of which included forwarding emails to her personal account, keeping her laptop for up to 2 weeks after she left the company, and illegally accessing the HSI computer system to obtain purchase data for HSI customers. HSI also claims that Cook tried to divert customers from the company and destroyed some of the company’s customer information.

On June 9, 2016, HSI applied for a TRO and filed a complaint alleging eight causes of action, one of which was for misappropriation of Trade Secrets under the DTSA. HSI brought additional claims under the California Uniform Trade Secrets Act and multiple common law claims. Furthermore, HSI moved for expedited discovery to immediately obtain data on Cook’s personal accounts and devices.

The court granted HSI’s motion for a TRO because (1) there was a likelihood of irreparable injury to HSI, (2) HSI was likely to succeed on the merits, (3) Cook was not likely to suffer undue hardship, and (4) public interest would be served by protecting trade secrets. The court denied HSI’s request for expedited discovery because HSI had not established that the circumstances warranted intruding on Cook’s personal data and property.

People v. Jimmy John’s Enterprises, LLC
June 8, 2016 | CIRCUIT COURT OF COOK COUNTY, Circuit Court of Cook County, Chancery Division, ILLINOIS COUNTY DEPARTMENT
Illinois Attorney General Cracks Down On Overbroad Non-Competes

The Attorney General of the State of Illinois, Lisa Madigan, has filed a complaint on behalf of the People against Jimmy John’s Enterprises, LLC and Jimmy John’s Franchise, LLC (collectively, “Defendants”) for the use of overly restrictive non-compete clauses as used against low-wage, at-will employees. The state seeks declaratory and injunctive relief, as well as civil damages, for Defendants’ alleged restraint of free trade and employee mobility.

Defendants operate a national sandwich chain, incorporated in Delaware and headquartered in Illinois. They own eight Jimmy John's Sandwich Shops in Illinois, including all intellectual property associated with the stores and franchises. From approximately September 2007-April 2015, low-level employees signed a non-compete clause as a prerequisite to employment. Although the clause itself went through several iterations, it remained substantially the same. The non-compete clause applied to assistant store managers, delivery personnel, sandwich-makers, and other store employees, prohibiting them from working with an employer situated within two miles of any Jimmy John’s store, if that employer derived at least ten per cent of their revenue from certain categories of products (including “deli” sandwiches). This prohibition stretched for a period of two years after ending employment with Defendants.

The state believes Defendants’ actions were unreasonable and harmful, as these particular employees had limited access to trade secrets or other confidential information. Illinois alleges that Defendants’ conduct has resulted in a restraint of trade in the state, affecting not only Jimmy John’s employees but other Illinois businesses and the public at large. Illinois brings this action because Defendants have made no attempt to modify or rescind the non-compete.

The state requests that the Court declare the non-competes void as a matter of public policy and without adequate consideration as a matter of law. It also seeks an injunction to prevent Defendants from continuing with the non-compete clause. Finally, the state seeks restitution on behalf of Illinois consumers and businesses, a disgorgement of profits received by Defendants as a result of the alleged conduct, and a penalty of $50,000 per violation.

The complaint can be found here: https://will.illinois.edu/nfs/JimmyJohnsComplaintFILED.pdf

People v. Jimmy John's Enterprises (Update)
June 8, 2016 | Chancery Division, Cook County, Illinois Circuit Court
Jimmy John's Ditches Overbroad Non-Compete Agreements

Jimmy John's, a sandwich shop chain incorporated in Delaware, has included broad non-compete agreements in employment contracts with low-income employees. The agreements at issue prevent employees from working at competing companies if they were (1) located within 2 miles of a Jimmy John's Shop, and (2) made more than 10% of their profit selling sandwiches. The agreements last for a period of two years after the employee leaves the company.

On June 8, 2016, Illinois Attorney General Lisa Madigan sued Jimmy John’s Illinois franchisees for forcing low-income workers to sign these non-compete agreements. The company announced that it told Madigan it would no longer use or enforce the non-compete agreements. Madigan’s case, People v. Jimmy John’s Enterprises, LLC, remains open.

Relatedly, Jimmy John's New York franchisees have agreed to stop enforcing the non-compete agreements, and told New York Attorney General Eric Schneiderman that they would void past agreements with their employees.

For more information about People v. Jimmy John’s Enterprises, LLC, see http://tsi.brooklaw.edu/cases/people-v-jimmy-john%E2%80%99s-enterprises-llc.

Cohen v. Trump
May 27, 2016 | United States District Court for the Southern District of California
Trump University Playbooks Not Trade Secret

A federal district court in California granted the Washington Post’s motion to intervene in the case to request the immediate unsealing of court documents relating to Trump University “Playbooks.” These items had been filed as sealed exhibits by Plaintiff Art Cohen (“Plaintiff”) as part of his Class Certification Motion against Defendants Trump University, LLC and Donald J. Trump (“Defendant”).

Plaintiff brings litigation individually and on behalf of others who enrolled in Trump University, a for profit education company teaching real estate tips and practices. Plaintiff alleges that Defendant misrepresented his role in curating Trump University curricula and instructors, and that Defendant is liable for mail and wire fraud. This initial matter was allowed to proceed under the court’s February 21, 2014 ruling, denying Defendant's motion to dismiss the complaint as time-barred under the Clayton Act. At issue now is whether 153 particular pages, from four different documents, contain Defendant’s trade secrets and should therefore remain sealed.

The court granted the Post’s motion to intervene because much of the contested information was duplicative of a 2010 Playbook which had previously been posted online in full by the political news website, Politico, thereby destroying Defendant’s trade secret and confidentiality claims. The Court further found that the Playbooks contained "very routine and commonplace information.” The Court therefore dismissed as moot Defendant’s claims that the special compilation of information itself constituted an “arguable” trade secret (see August 28, 2014 Order, aka "Gallo Order,” in the related case Low v. Trump University, LLC., No. 3:10-cv-00940-GPC-WVG, ECF No. 343). The Court also recognized the public’s strong interest in accessing court materials related to Defendant, who is the presumptive Republican nominee in the 2016 presidential race.

Plaintiff was ordered to file unsealed versions of most playbooks, with only phone numbers and non-corporate e-mail addresses redacted. A sampling of these documents can be found here: http://www.npr.org/sections/thetwo-way/2016/05/31/480214102/trump-university-playbooks-released-by-court-advise-being-courteous-to-media

Check back for updates on this case.