Recent Decisions and Case Developments

November 7, 2014 | N.D. Ill.
Common Law Misappropriation of Confidential Information Preempted Under ITSA Even if Information is Not A Statutory "Trade Secret"

The Northern District of Illinois held on November 7 that the Illinois Trade Secrets Act (ITSA) preempted the common law claims of misappropriation of confidential information, unfair competition, and unjust enrichment. The court additionally noted that such claims are preempted even if the information in question would not qualify as trade secrets under the Act.

Defendant Keywell Metals, LLC ("Keywell Metals") acquired the assets of Keywell, LLC ("Keywell"). Prior to the sale, Keywell had approached Plaintiff Cronimet Holdings Inc. ("Cronimet") with Cronimet as a potential purchaser of Keywell. Keywell and Cronimet entered into a Non-Disclosure Agreement ("NDA"), terms of which restricted Cronimet from hiring any Keywell employees it met during the negotiations for a period of 24 months.

Cronimet initiated this action against Keywell Metals, seeking a declaratory relief against enforcement of the employment restrictions and arguing that the acquisition extinguished the terms of the NDA. Keywell Metals responded with ten counterclaims including violation of the ITSA, misappropriation of confidential information, unfair competition and unjust enrichment. Cronimet moved for dismissal of the common law claims, arguing that the claims were preempted by the ITSA. Keywell Metals contended that the ITSA's preemption provision is inapplicable since the confidential information at issue does not rise to the level of a statutory trade secret. After reviewing its case law, the Court decided that common law claims that are "dependent on the existence of confidential information" are preempted by ITSA, even if such information does not meet the statutory definition of a trade secret.

November 5, 2014 | United States Court of Appeals for the Ninth Circuit
Criminal Conviction Affirmed for Trade Secret Theft

Reminding all that misappropriating a trade secret can not only constitute a crime, but also that the intent to reap an economic benefit is sufficient to sustain a conviction under 18 USC Section 1832, the Ninth Circuit upheld the criminal conviction of Suibin Zhang for the theft of Marvell Semiconductor Inc.’s trade secrets.

After a bench trial, Zhang was found guilty and sentenced to three months in prison followed by three months of supervised release, 200 hours of community service, and $75,000 in restitution. Zhang appealed, challenging the sufficiency of the evidence and contending that his Sixth Amendment right to a public trial was violated.

On appeal, the Ninth Circuit held that there was, in fact, sufficient evidence, beyond a reasonable doubt, that Marvell took “reasonable measures” to protect its trade secrets. Marvell did so by advising users of the existence of their trade secrets and by limiting access on a need to know basis and controlled access through passwords. The Court also held that, although Zhang did not personally sign the Marvell non-disclosure agreement, he accepted a limited license agreement that incorporated its terms.

The Court further held that even though Zhang never sold the documents or sent around economically valuable secrets, sufficient evidence established that he intended to reap an economic reward. The Court held this same evidence established an intent to injure Marvell, enough to uphold the criminal conviction. Intent, this case, was key.

November 5, 2014 | United States District Court Central District of California
LinkedIn Contacts May Be Trade Secrets

Operating under the California Uniform Trade Secrets Act, the Central District of California denied summary judgment in favor of the defendant and found that there was a material issue of fact regarding whether LinkedIn contacts that a former employee made while working for Cellular Accessories For Less (“Cellular”) are Cellular’s protectable trade secrets. The defendant argued that the LinkedIn contacts are not a trade secret because “Cellular encouraged its employees to create and use LinkedIn accounts, and [the defendant’s] LinkedIn contacts would have been ‘viewable to any other contact he has on LinkedIn.’” On the other hand, Plaintiff argued that the LinkedIn contacts are only available “to the degree that the user chooses to share it.”

The Central District found that the parties’ statements did not make it sufficiently clear whether and to what degree defendant’s LinkedIn contacts were public and if so, whether this was done with Cellular’s explicit or implicit permission. The court held that this dispute regarding the publicity of LinkedIn contacts was an issue of fact which a jury must decide.

For a primer on the development of social media and trade secrets click here.

October 27, 2014 | E.D. Texas, United States District Court
Medical Device Company Steals Doctor's Trade Secret - Now it Pays the Price

Medical Device Company Globus met with Dr. Bianco back in 2007 to tell them about his idea for a new device to be used as an interbody spacer. The spacers that existed at the time did not have the ability to expand and contract at the surgeon's will, and thus Dr. Bianco's innovation was to create a design that was capable of doing so. Globus told Dr. Bianco that they would let him know whether they wanted to pursue his invention, but after a short period, they told him they were not interested. In 2011, however, Dr. Bianco learned that they had pursued his idea, when Globus tried to sell one of their products employing the technology to Dr. Bianco.

Ultimately, the jury awarded over $4 million to Dr. Bianco for the theft of his Trade Secrets. No recovery would have been possible if not for the mutual NDA both parties had agreed to prior to their initial meeting. Followings the jury's award, Globus filed for a judgment as a matter of law, but Judge Bryson was unconvinced by Globus' numerous legal arguments, and denied the motion in a decision issued on October 27.

October 22, 2014 | confidentiality agreements, trade secrets
7th Circuit Case Serves as a Reminder of Trade Secrets Best Practices

The 7th Circuit ruled in favor of Defendants Block and Company, Inc. on October 22, 2014 on the issue of breach of confidentiality agreement. The Court cited a previous 7th Circuit case which stated that in the 7th Circuit, courts "will enforce [confidentiality] agreements only when the information sought to be protect is actually confidential and reasonable efforts were made to keep it confidential." See Tax Track Sys. Corp. v. New Investor World, Inc., 478 F.3d 783, 787 (7th Cir.2007).

Since the Plaintiff nClosures Inc. did not make additional efforts to have individuals who access the designs at issue sign confidentiality agreements, keep the designs under lock and key, or store the designs on a limited-access computer, the Court found that nClosures did not engage in "reasonable steps" to protect the confidentiality of its designs. Therefore, the Court concluded that confidentiality agreement between nClosures and Block and Company is unenforceable as a matter of law.

September 16, 2014 | Central District of California (Western Division - Los Angeles)
Are LinkedIn Contacts Protectable Trade Secrets?

In a recent District Court opinion in the Central District of California, Judge Pregerson denied a defendant's motion for summary judgment on the issue of trade secret misappropriation under the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civil Code § 3426 et seq. Central to the trade secret claim, is the controversial issue of whether and to what extent LinkedIn contacts are trade secrets.

In the opinion, Judge Pregerson explains that while a list of business contacts can be protected as a trade secret, certain conditions must be met. Essentially, the list must have been difficult to create, and the list cannot be easily obtained through public sources. In this situation, it remains unclear how difficult it was to obtain the information, since many of the individuals the Defendant had contacted, had already been contacted by competitors, and "LinkedIn suggested contacts to [the defendant] automatically."

Also unclear, is the issue of whether the contacts were permissibly made available to the public. Defendant argues the company encouraged him to have a LinkedIn account, and his LinkedIn contacts would have been viewable to "any other contact he has on LinkedIn." In contrast, Plaintiff argues that LinkedIn information is "only available to the degree that the user chooses to share it."

These issues will likely be decided when the case goes to trial, and could have a serious impact on the role that LinkedIn currently plays in the corporate world.

August 27, 2014 | 127th Judicial District Court
Schlumberger Case Potentially Raises the Stakes in Texas Trade Secrets Litigation

The 127th Judicial District Court of Harris County, Texas might have raised the stakes of bringing Trade Secrets litigation in Texas by allowing for the grant of attorney’s fees and sanctions in such cases under the Texas Citizens’ Participation Act (“TCPA”).

Schumberger originally sued Charlotte Rutherford, former Schumberger chief intellectual property attorney, for Rutherford’s use of the company’s confidential information to help Acacia launch two patent infringement suits. Schumberger filed claims of misappropriation of trade secrets, conversion, breach of fiduciary duties, violations of the Texas Theft Liability Act and breach of contract.

Rutherford denied the claims and filed a motion to dismiss the suit under the TCPA. To survive the TCPA motion, Schumberger had to produce “clear and specific” evidence that the Rutherford had used the company’s trade secrets against it. Judge Sandill ruled that the company did not meet this burden and dismissed all causes of action save for the breach of contract claim, ordering Schlumberger to pay $350,000 in attorney’s fees and $250,000 sanction fees.

The TCPA is a statute passed to curb lawsuits threatening free speech. Various sources have voiced concern over the expansive reading of the TCPA that led to this hefty penalty against the Plaintiff and the resultant heightened burden of proof that the Plaintiff must meet to survive a TCPA motion to dismiss.

August 18, 2014 | Court of Appeals of the State of Washington, Div. I
Plaintiff's Burden to Show Sales but not Damages from Sales

According to a Washington state appeals court, once a plaintiff in a trade secrets misappropriation case has established sales, the burden then shifts to the defendant to establish what portion of those sales were not attributable to the misappropriated trade secret.

The appeals court overturned a jury's finding of no damage from the misappropriation on the grounds that the jury instructions had misstated the law, and in doing so had improperly shifted the burden of proof from the defendant to the plaintiff.

The instruction, the appeals court held, was a “misstatement of law” given that “the plaintiff's initial burden is to prove only ‘sales,' not ‘damages from sales,' before the burden shifts to the defendant.”

July 15, 2014 | U.S. Court of Appeals for the Eighth Circuit
$31 Million Trade Secrets Verdict Affirmed

The Eighth Circuit affirmed a $31.1 million jury verdict, including $10 million in putative damages, in favor of Hallmark Cards, Inc. against a private equity firm that misappropriated confidential information including Hallmark’s Power Point presentations on consumer behavior which constituted trade secrets. This appellate ruling is merely the latest development in a long-running legal battle between Hallmark and Clipper, coming more than a year after U.S. District Judge Ortrie D. Smith awarded Hallmark $103,000 — slightly under 20% of the greeting card company's $519,000 it sought in court fees.

June 30, 2014 | Minnesota Court of Appeals
Trade Secrets are not Synonymous with Confidential Information

Relco LLC of Willmar, Minnesota, sued former employees in May 2011, alleging they took confidential information to their new jobs at Custom Fabricating & Repair Inc. of Marshfield, Wisconsin, and violated terms of their employment agreement. As a reminder that confidential information and trade secrets are not synonymous, the Minnesota Court of Appeals held that the Uniform Trade Secrets Act does not necessarily apply to all confidential information. As a result, however, it is not necessary information be a trade secret to be protected, since a trial court may issue an injunction against a party who has, in violation of an explicit agreement or a common law duty, wrongfully used confidential information or trade secrets obtained from his employer.