Recent Decisions and Case Developments

April 13, 2011 | District of Oregon
Music festival producer settles suit against competitor after alleging misappropriation of trade secrets

The plaintiff, a music festival producer, claimed that the defendant, the organizers of a competing festival, misappropriated trade secrets such as customer lists, leases, and contracts with providers. Defendant contacted providers and told them it would be putting on the plaintiff's annual music festival under new management, when in fact the festival had no relation to the plaintiff. The defendant obtained contracts in excess of $60,000.

The case was conditionally settled on April 13, 2011. The matter is stayed pending completion of the settlement agreement.

April 12, 2011 | United States District Court for the Northern District of Illinois - Chicago
Television producers allege court proceeding spoiled outcome of reality show

Contestants on a women's mixed martial arts reality show called "Ultimate Women's Challenge" were sued by the show's owners and investors for willful misappropriation of trade secrets and tortuous interference with prospective economic advantage. Each of the sixteen female contestants on the show signed a “Participant Agreement and Release from Liability” before filming commenced. However, seven of the contestants filed a lawsuit against the show's producer in Wisconsin circuit court and, in doing so, revealed the outcome of multiple matches and the ultimate winner of the series. The plaintiffs Sean Morrison Entertainment (SME) claimed that the lawsuit should have been filed under seal in order to prevent the events and outcome of the reality show from being revealed. Plaintiffs also claim that the contestants and their attorneys leaked details about "Ultimate Women's Challenge" to the media and various websites. The lawyers who represented the contestants in the Wisconsin lawsuit were also been joined as defendants.

On December 28, 2011, the Northern Illinois District court dismissed the owner-investor claims against the MMA contestants for lack of personal or specific jurisdiction. The court asserted that SME's alleged contacts were too attenuated for Illinois to be the proper forum for their claims. Further, citing only an "impact theory of minimal contacts," the court concludes that SME failed to allege activities by Thompson et al "that create a substantial connection with the forum state." (See Also Burger King v. 471 US at 475-476). Furthermore, the court found none of the individuals joined the action had any substantive connection to Illinois that would warrant personal jurisdiction for the court. Thus the Illinois court never reached the substantive issue of the trade secret misappropriation by the athletes in filing their separate Wisconsin matter, as the SME claim was dismissed for want of personal or specific jurisdiction.

April 5, 2011 | United States Court of Appeals for the Fifth Circuit
5th Cir.: Unique combinations of methods previously disclosed in patent applications, themselves no longer trade secrets, may be protectible as such

Tewari De-Ox Systems (“Tewari”) created a meatpacking method that results in an oxygenless environment, maximizing freshness. The method allegedly relied on many trade secrets, including special iron-based oxygen scavengers, special bags, and a special mixture of gases. As a result, Tewari required companies viewing demonstrations of the method to sign non-disclosure agreements.

Tewari demonstrated the method to Mountain States/Rosen, L.L.C. (“MTSR”) in this manner. However, Tewari suspected that MTSR subsequently misappropriated its trade secrets and brought suit in the United States District Court for the Western District of Texas. MTSR received summary judgment on the trade secrets claims, as the District Court held that Tewari had disclosed its trade secrets in two 2004 patent applications, and therefore no issue of fact could exist as the information was not truly secret.

The 5th Circuit reviewed the summary judgment order de novo and reversed the order. It agreed with the District Court that the pieces of information disclosed in the patent applications were no longer trade secrets, as Tewari’s patent applications were published in 2004 and were therefore no longer secret. Regardless, the court reversed the order of summary judgment on the ground that the District Court incorrectly ruled that the previously disclosed elements, when potentially combined in unique ways by Tewari,
could not be trade secrets.

Therefore, Tewari had at least raised material issues of fact as to whether or not these combinations were trade secrets and whether or not MTSR had used these combinations. As a result, summary judgment was inappropriate.

March 3, 2011 | United States District Court for the Northern District of California
Settlement reached in dual-screen eReader technology misappropriation case

In January 2011, a federal judge in San Jose, California ruled that Spring Design, Inc., an electronic reader (or eReader) development company, could proceed to trial over its claims that Barnes & Noble stole confidential information to create its Nook eReader device. In 2006, Spring Design developed a patent pending, dual-screen eReader design. Barnes and Noble expressed interest in Spring Design’s dual-screen design. In October 2009, after eight months of discussions between Spring Design and Barnes & Noble over a possible collaboration, Barnes & Noble independently launched the Nook, an Android-based, dual-screen eReader. Spring Design has sued the bookseller's website division, Barnesandnoble.com, LLC, for misappropriation of trade secrets and unfair competition. Barnes & Noble has argued that Spring Design's information does not qualify for trade secret protection because the information at issue was publicly available and because Spring Design failed to take reasonable steps to protect the secrecy of its design, among other defenses.

The case was settled on March 3, 2011. Pursuant to the settlement, Spring Design will grant Barnes & Noble a non-exclusive, royalty-free license to its patent portfolio. Other terms were not disclosed.

February 11, 2011 | Central District of California (Western Division - Los Angeles)
Start-up TechForward alleges Best Buy misappropriated trade secrets to copy successful buyback program

TechForward Inc., a California based start-up, has filed suit in U.S. District Court for the Central District of California, alleging that Best Buy illegally modeled its buyback program after the startup's own “Guaranteed Buyback Plan” and misappropriated TechForward’s trade secrets to do so. Under the buyback plan at issue, customers can trade in electronic devices that they purchased for store credit. According to the suit, Best Buy had tried to design its own buyback program but failed. After seeking a collaboration with TechForward, the two companies signed a confidentiality and nondisclosure agreement in February 2008. Although a Los Angeles-based pilot program was successful in April 2010, TechForward contends that Best Buy abruptly terminated the relationship in October 2010 and launched its own buyback program on January 10, 2011. According to the suit, successful implementation of an electronics buyback program requires data that TechForward considers highly confidential and proprietary.

In its answer to the amended complaint, defendant Best Buy denies the existence of any trade secrets under California law. Additional motions, including Defendant's motion for summary judgement, have been sealed pursuant to a protective order issued on October 6, 2011.

While ajury trial has been previously set for November 6, 2012, the parties recently petitioned for an accelerated settlement conference now scheduled for September 26, 2012.

February 4, 2011 | Eastern District of Michigan
Dantec alleges that a direct competitor received stolen information about existing and prospective customers from a former employee

Dantec alleges defendant and direct competitor LaVision received confidential information about existing and prospective customers from a former Dantec salesperson, Michael Kotas who began work for LaVision after he was terminated. Kotas allegedly accessed Dantec's computer systems in order to obtain the information about Dantec’s customers then subsequently deleted electronic information to cover his tracks. Dantec claims that LaVision used the information to solicit business from its customers.

A scheduling/settlement conference is set for April 20, 2011.

January 26, 2011 | Eastern District of New York
Allegation of misappropriation of valuable customer information by independent contractors

Plaintiff, Liberty Power Corp. (LPC), brought suit against Defendants, Stewart Katz, Stewart A. Katz, Inc. (SAK) and Foundation Energy Services, LLC (FES), alleging misappropriation of certain customer information protectable as trade secrets. LPC is a supplier of electricity in states with deregulated energy markets that employs an in-house sales staff, as well as independent contractors, to carry out its work. Defendants, SAK and FES, are entities owned by defendant Stewart Katz that served as independent contractors to Plaintiff. Plaintiff alleges misappropriation of trade secrets and unfair competition, contending that certain customer specific information constituted trade secrets. Defendants contend the specific information at issue can be obtained from the customers and acquired from a commercially available sales lead list.

The court determined this information likely would constitute a trade secret and had been misappropriated by defendant. On Jan. 26, 2011, the court denied Plaintiff’s motion for a preliminary injunction on the grounds that it failed to sufficiently establish that it will suffer irreparable harm if the court does not issue a preliminary injunction.

December 15, 2010 | United States District Court for the District of Massachusetts (Boston)
Alleged misuse of software beyond the life of license agreement to discover software's unique processes

According to a copyright infringement complaint filed in the U.S. District Court for the Central District of California, Merriam-Webster continued to use Questrel's “Just-in-Time English” software after negotiations between the two companies for a new license agreement fell through. Questrel’s lawsuit also alleges breach of contract and misappropriation of trade secrets. According to the complaint, the trade secret is Questrel’s software and related methods, techniques, or processes, which were misappropriated when Merriam-Webster continued to use the software without Questrel’s consent.

Pursuant to a forum selection clause in the License Agreement between the parties, the suit was transferred to the United States District Court for the District of Massachusetts on March 24, 2011.

December 6, 2010 | Southern District of Texas
Accusation of abuse of confidential consumer info revealed by pharmacy benefit claims process

Six Texas pharmacies have brought suit against CVS Caremark for racketeering and misappropriation of trade secrets, accusing the company of requiring patients to buy maintenance medications at CVS retail pharmacies. The lawsuit, filed in September of 2010, claims that CVS does not maintain a “firewall” between its retail pharmacies and the pharmacy benefits management side of its business as required by the Federal Trade Commission. According to the complaint, each of the plaintiff pharmacies owns a trade secret in its patient lists, prescription files, and integrated patient information. The lawsuit claims that CVS misappropriated this confidential patient information, which was disclosed to CVS through the claims adjudication process.

Defendants moved to dismiss and compel arbitration on December 6, 2010. The deadline for plaintiffs to file their reply to defendants' motion to dismiss and compel arbitration was April 25, 2011.

April 30, 2010 | Southern District of New York
Hilton and Starwood Hotels reach settlement in suit alleging theft of trade secrets and use of secrets to develop competing luxury brand of hotels

The court consented to the settlement reached in January, 2011 between Starwood and Hilton Hotels in the trade secrets case initiated by Starwood in 2009. The suit filed in the U.S. District Court for the Southern District of New York in 2009, related to the defection of two senior executives from Starwood to Hilton. In April 2009, Ross Klein and Amar Lalvani moved to Hilton, taking hundreds of thousands of electronic documents which were essentially the blueprints for the beginning of a hotel brand. The settlement included a $75 million cash payment to Starwood and a permanent injunction which prohibits Hilton from opening any new “luxury and lifestyle” hotels for two years.

Status: A federal grand jury in Manhattan continues to investigate whether Hilton and its former executives should face criminal charges.

Complaint filed Apr. 16, 2009
Permanent injunction issued Dec. 22, 2010.