Recent Decisions and Case Developments

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.

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

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.

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.

April 8, 2016 | United States District Court for the District of Arizona
Arizona Requires Specificity in Trade Secret Description

The United States District Court for the District of Arizona applied Arizona’s Uniform Trade Secrets Act legislation to grant Tuscon Embedded Systems Inc.’s ("TES") motion for summary judgment on April 8, 2016. TES sued Turbine Powered Technology for Turbine’s alleged failure to pay TES for parts used to modify Turbine’s engine product into a one-megawatt generator. Turbine counter-sued, claiming that TES had stolen its trade secrets, including “parameters and settings, including timing, temperatures, flow rates, horsepower settings, pressures” and instructions on making and operating the modified engines. The court granted TES’s summary judgment motion because Turbine’s description of the trade secrets were not legally sufficient.

The court noted that when describing claimed trade secrets, “catchall phrases” typically can’t reach the level of specificity required to establish the substance of a legally protectable secret and survive a summary judgment motion. This decision is in line with the U.S. Court of Appeals for the 9th Circuit’s decision in Imax Corp. v. Cinema Techs., Inc., 152 F.3d 1161 (9th Cir. 1998), which held that “dimensions and tolerances” are too vague to clearly establish the substance of the trade secret.

March 3, 2016 | Appellate Division, First Department, New York Supreme Court
Zylon Raises Triable Issues of Fact in its "Zero-Fold" Catheter Suit

A New York state appellate division court affirmed the lower court’s ruling that rejected a motion to dismiss trade secrets misappropriation and unfair competition claims where such claims raised triable issues of fact about the alleged trade secrets.

Plaintiff Zylon Corp. is a company that focuses on developing new technologies relating to medical materials, medical devices, and catheters. Defendant Medtronic, Inc. is a medical device designer and manufacturer. In 2005, the parties entered into an Evaluation Agreement whereby Zylon Corp. would create a “zero-fold” balloon to be used in angioplasty catheters for Medtronic. As part of the Agreement, all information and processes developed through the course of the project were to be confidential and the property of Medtronic.

In 2008, Zylon brought suit against Medtronic, alleging that after disclosing the Zylon design and manufacturing process of creating the “zero-fold” balloon to Medtronic as a part of their confidential relationship, Medtronic misappropriated trade secrets and confidential information related to the process to create a balloon component for a different product, the Sprinter® Legend Semicompliant Rapid Exchange Balloon Catheter. Zylon argued that the information provided to Medtronic included Zylon trade secrets, outside of the Agreement’s confidential information.

The appellate division court affirmed the decision because Zylon raised triable issues of fact about the trade secret process for creating “zero-fold” balloons and whether a protectable trade secret existed. Medtronic failed to demonstrate that the information it used to create its own catheters was the same confidential information pursuant to the Agreement. As such, the court affirmed the lower court, rejecting Medtronic’s bid to dismiss Zylons claims.

February 24, 2016 | United States Court of Appeals for the Seventh Circuit
7th Circuit Overturns Trade Secret Theft Damages Calculation

The 7th circuit vacated a $760,000 restitution penalty and three-year prison sentence against Yihao Pu. Pu allegedly used two employers’ proprietary stock trading programs for personal trading and lost $40,000.The U.S. Sentencing Commission’s guidelines permit district courts to determine the “intended loss” to the victim of trade secret theft when no “actual loss” occurs. However, on February 24, 2016, the 7th Circuit held that if a district court holds that the “intended loss” holds the same value as the cost of development of the trade secret, the court must have evidence that the defendant “intended to cause a loss to the victims that equaled the cost of development. On remand, the district court will have to reconsider Pu’s evidence that the loss to his employers was at most, $2,000. The 7th Circuit also held that the district court could consider Pu’s gains in determining an “intended loss” figure, but here it appeared that Pu did not have any financial gains from the use of the software.

Part of the original $760,000 included costs incurred to conduct an internal investigation to uncover Pu’s theft, including attorney’s fees for over 300 hours of work by lawyers, paralegals and legal assistance, 1,818 hours of forensic analyst work, as well as divers to retrieve hard drives from a canal. The Circuit court also held that plaintiff Citadel failed to give a complete accounting to support these figures used to calculate the $760,000 restitution. Without giving a further explanation through evidence “of how each professional’s time was spent investigating the data breach,” Citadel will not be awarded the full $760,000 restitution. For more details, read the full decision below.

February 12, 2016 | Oregon, U.S. District Court in Portland
Adidas Files Patent Infringement Suit Against Skechers

On July 11, 2016, Adidas filed suit against Skechers in the U.S. District Court in Portland, Oregon for willful infringement of two patents related to Springblade, a shoe design intended to help propel runners move forward. Adidas accused Sketchers of developing its Mega Flex shoes as "takedowns" that copy the Springblade technology without the cost of creating it. Adidas is seeking an injunction against any infringement and triple damages.

This is Adidas' second lawsuit against Skechers in less than a year. Last September, Adidas filed suit against Skechers for illegally copying the design for its classic white Stan Smith tennis shoes. Adidas was awarded a preliminary injunction in February 2016 and it scheduled for a jury trial in May 2017.

The patents at issue are U.S. Patent Nos. 9,339,079 and 9,345,285, both issued in May 2016.

Updates to follow.

January 28, 2016 | Supreme Court of the State of Delaware
Delaware Supreme Court Says Trade Secret Violation Can Be A Valid Business Judgment

When DuPont wasn’t able to create a product that could compete with “Roundup Ready,” it created a product that combined its own technology with that of Monsanto, the original “Roundup Ready” manufacturer. Monsanto sued DuPont for patent infringement, resulting in a settlement in which DuPont agreed to pay Monsanto $1.7 billion over ten years in exchange for a licensing agreement. One of DuPont’s stockholders, a Pennsylvania pension fund, brought a derivative suit against DuPont for breach of fiduciary duty in connection with DuPont’s “combined technology” product. In May 2015, the Delaware Chancery Court dismissed the derivative lawsuit, but another investor attempted to revive the derivative suit. The Chancery Court said the investor failed to show that the board’s refusal to take legal action was an invalid exercise of business judgment. On January 28, 2016, the Chancery Court affirmed the dismissal of the derivative suit.

December 3, 2015 | The United States Court of Appeals for the Second Circuit
Second Circuit Limits CFAA in Cannibal Cop Case

About two years ago Alberto Valle, later known as the “Cannibal Cop,” was convicted of being involved in a criminal conspiracy to kidnap and violating the CFAA by using his work access as a New York City Police Officer to further his conspiracy. After his jury conviction, Valle filed a motion for acquittal on both charges. The district court granted his motion on the kidnapping charge, finding that there was a lack of sufficient evidence to establish the kidnapping conspiracy, but denied the motion on the CFAA charge. The Second Circuit then reviewed the case and found in favor of Valle because the language of the CFAA was ambiguous.
“The CFAA imposes both criminal and civil liability for anyone who ‘intentionally accesses a computer without authorization or exceeds authorized access,’ and in doing so ‘obtains…information from any protected computer.’”18 U.S.C. §1030(a)(2)(C). The crux of the decision and the circuit split is based on the meaning of the phrase “exceeds authorized access.” The First, Fifth, Seventh and Eleventh Circuit Courts have all held that the language in the CFAA is clear and has broader application- that “under the statute you’re not entitled to use your company access to obtain information for a purpose not permitted by your employer.” However, the Second Circuit in Valle joins the Fourth and Ninth Circuit in holding that the CFAA has a much narrower application- Valle’s activity does not violate the CFAA because Valle was authorized by his employer to access the information he accessed- it doesn’t matter that Valle’s purpose for seeking the information was outside the scope of his employer’s authority. Though the Second Circuit saw the merit in the view adopted by the First, Fifth, Seventh and Eleventh Circuits, the Second Circuit decided it must find in favor of Valle, the criminal defendant, because of the rule of lenity.
Read the full decision here. It looks probable that this issue will be analyzed by the Supreme Court due to the circuit split that has occurred. Stay tuned for more developments on the interpretation of the CFAA.