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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.

September 11, 2015 | Ramsey County District Court
Breaking News

Last week, Bryan Szweda, a former vice president at St. Jude Medical was charged with theft of trade secrets in Ramsey County District Court in Ramsey County, Minnesota. While at St. Jude Medical, Szweda filled the role of vice president of operations for global manufacturing of structural heart devices. Szweda presently works at Edwards Lifesciences, one of St. Jude’s competitors that manufactures artificial heart valves. In addition to five felony counts of theft by swindle, Szweda is accused of taking over 4,000 files related to his work at St. Jude before he was placed on administrative leave in September 2014. The stolen files included one of St. Jude’s most restricted documents- its strategic plan which detailed a roadmap of St. Jude’s research and marketing initiatives. Szweda had already moved out of state by the time investigators executed the search warrant on Szweda’s former home in Plymouth, Minnesota. Stay tuned for more developments in this case.

For more information on the case see here and here.

December 14, 2014 | United States Court of Appeals for the Federal Circuit
Surviving A Motion to Dismiss in Trade Secret Cases

The Federal Circuit held that the dismissal of a trade secrets complaint for failure to state a justiciable claim was not warranted solely because the misconduct allegedly involved a number of wrongdoers and began many years before the complaint was filed. Remanded for further proceedings, ABB Turbo Systems, AG v. TurboUSA, Inc., Case No. 2014-1356 (Fed. Cir., Dec. 17, 2014) ABB’s pleading alleged various actions the company took to protect its trade secrets.

The trial court inferred that ABB’s efforts to protect secrecy probably would be deemed insufficient but the federal circuit held that only “reasonable” care is required, and “the complaint stage is not well-suited to determining what precautions are reasonable in a given context.”

Seeking the best chance for surviving a Rule 12(b)(6) motion, a complaint which alleges the relevant facts as the pleader understands them, and which aligns those factual allegations with the operative legal principles as ABB seemingly did in this case, is recommended. On appeal, ABB’s pleading was found to satisfy those minimum standards. Going forward, the parties will have an opportunity to perform some discovery before the trial court decides whether further litigation would be futile. Stay tuned for developments.

November 28, 2014 | United States District Court for the District of Delaware
Solazyme Counter-Claims Trade Secret Misappropriation

Solazyme is alleging that Roquette Freres SA misappropriated its trade secrets regarding algae-based nutritional products.

The companies agreed to a research and development joint venture in November 2010 on microalgae-derived products. After the agreement fell apart, a subsequent arbitration between the parties held that Solazyme was entitled to all of the improvements made to the intellectual property it brought to the agreement.

Roquette sued in the federal court of Delaware in November 28, 2014 to vacate the arbitration order and for a declaration of joint ownership of the algae Intellectual Property rights. Solazyme answered on February 26, 2015 that Roquette agreed to the secrecy of Solazyme's IP under the agreement and violated the agreement by filing patent applications on the IP material.

The case is Roquette Freres SA v. Solazyme Inc., 14-cv-01442, U.S. District Court, District of Delaware (Wilmington). https://www.pacermonitor.com/public/case/5370069/Roquette_Freres_SA_v_So...

May 1, 2014 | United States District Court for the Western District of Pennsylvania (Pittsburgh)
U.S. Government Files Charges Against Chinese Officials for Cybertheft of Trade Secrets

In the first time charges have ever been brought against a state actor for cyber-espionage including theft of trade secrets, the U.S. government has alleged that five Chinese Officials stole valuable information from a number of U.S. companies. The indictment, filed in the Western District of Pennsylvania, enumerates the alleged conduct, including: stealing confidential and proprietary technical and design specifications for pipes, pipe supports, and pipe routing for a Westinghouse Power Plant; stealing confidential information from SolarWorld regarding their cash flow, manufacturing metrics, production line, and costs; installing malware on U.S. Steel computers in an attempt to identify and exploit vulnerable servers; stealing network credentials for nearly every ATI employee; stealing e-mails from senior USW employees containing sensitive information about USW strategies related to pending trade disputes with China; and stealing emails from Alcoa pertaining to an agreement between Alcoa and a Chinese State Owned Enterprise.

Estimating the cost of cyber-espionage on the U.S. economy is quite tricky, but some economists have claimed the damages are on the order of tens of billions of dollars. Over the past year, the U.S. has made it clear that they will intensify their efforts to put an end to the theft. John Carlin, the Assistant A.G. for National Security, stated that “State actors engaged in cyber espionage for economic advantage are not immune from the law just because they hack under the shadow of their country’s flag.”

January 13, 2014 | Central Division, County of Los Angeles, Superior Court of the State of California
Still Fighting over Dolls: MGA Refiles its Claim Against Mattel in Cal. State Court, Claiming UTSA Violation

In the latest chapter of this saga, MGA Entertainment filed a $1 billion suit against Mattel in a California state court claiming that Mattel engaged in willful and deceptive business practices regarding the Bratz line of dolls. The complaint alleges that for over fifteen years, Mattel employees snuck into trade shows in order to steal advertising lists, price lists and new product concepts. One year ago, a Ninth Circuit panel threw out a $170 million jury award in favor of MGA on grounds that MGA's counterclaim was not properly before that jury; the Ninth Circuit left the door open for MGA to refile.

November 12, 2013 | N.J. Super. Ct. Ch. Div.
The Employee Who Was Allowed to Compete from His Garage

This case starts with an unusual employment agreement, which allowed Felix Ferrer to operate a business called FNA out of his garage while working for his employer, SAS Stressteel. Ferrer is an experienced construction engineer who was an important sales manager for his previous employer, DYWIDAG-Systems International, with 31 years' experience, when SAS hired him in 2001.

The agreement gave Ferrer 10% of the company, a guaranteed salary and benefits, and contained a non-solicitation provision but no non-compete.

SAS did not learn until 2012 that FNA was earning over $1 million per year, that FNA was using SAS equipment and personnel, and that Ferrer also owned 40% of Retech, a major SAS customer.

SAS tried to acquire FNA but Ferrer decided instead to sell his interest in FNA and then several SAS employees joined FNA. SAS sued.

The court denied a preliminary injunction, finding no irreparable harm, but allowed the case to proceed on several issues. The case will be interesting to practitioners for two reasons: 1) the agreement allowing for competition but not solicitation presents interesting lessons and 2) the case contains a concise and well-written analysis, under New Jersey's UTSA, of the plaintiff's burden for proving misappropriation of trade secrets.

February 21, 2013 | American Arbitration Association
Halliburton Served with $300 Million Demand for Arbitration over Trade Secret Theft

On February 21, 2013, Ecosphere Technologies, Inc. (“Ecosphere”) put industry giant Halliburton Energy Services, Inc. (“Halliburton”) on notice of a Demand for Arbitration ("Demand") that Ecosphere filed with the American Arbitration Association. The Demand alleges that “Halliburton took and disclosed Ecosphere’s trade secrets and proprietary technical, business and strategic information.”

Ecosphere is a water engineering, technology licensing and innovative manufacturing company that develops non-chemical water treatment solutions for industrial markets throughout the world. According to a press release from Ecosphere's counsel, Haliburton misappropriated Ecosphere's trade secret information related to hydro-fracking liquids, in violation of a non-disclosure agreement between the companies. Ecosphere had initially contracted to share the information with Haliburton. However, after Haliburton made a failed attempt to purchase Ecosphere outright, Haliburton continued to use Ecosphere’s trade secrets without authorization “to immediately market itself as an environmentally friendly company . . . .” The Demand claims $300 million in damages.

The issue of trade secrets in hyrdo-fracking has become a hotbed for litigation and legislation. TSI recently covered state attempts to legislate the issue. It was also a main topic at the 2012 TSI Symposium, “Private Data/Public Good: Emerging Issues in Trade Secrets Law.

February 8, 2013 | Circuit court of Harrison County, Mississippi
Isle of Biloxi Casino Claims Ex-Employee Took Trade Secrets to Margaritaville

On February 8, 2013 Riverboat Corporation of Mississippi, owner of the Biloxi Hotel Casino ("Biloxi"), brought suit against its competitor and ex-employees. The suit brings claims against defendants Doug Shipley, Stacey McKay and the Margaritaville Casino & Restaurant ("Margaritaville") both individually and collectively, including breach of contract and trade secret misappropriation

From September 14, 2008 through November 29, 2012, defendant Shipley served as Vice President and General Manger of Biloxi. Shipley’s employment agreement with Biloxi included non-compete and non-solicitation of employees clauses, as well as a confidentiality agreement. Shipley left Biloxi to work as General Manager at Margaritaville, which is located less than two miles from Biloxi. Biloxi alleges that Shipley not only initially lied about accepting the position, but also began actively soliciting employees of Biloxi and using Biloxi's confidential information. Shortly thereafter, McKay, who was Director of Marketing at Isle Biloxi, left to join Margaritaville.

Plaintiff seeks injunctive and declaratory relief, as well as monetary damages including compensatory and punitive damages, and attorney’s fees.

January 17, 2013 | United States District Court for the District of Oregon
Oregon Food Co. Reser's Claims Former Business Partner Stole Trade Secret Baking Technique

In a complaint filed mid-January 2013 in Oregon Federal District Court, Oregon company Reser’s Fine Foods Inc. (Reser) claimed former corporate partner Bob Evans Farms (BEF) misappropriated Reser trade secret baking techniques. The law suit comes in the wake of the two companies’ split last year, and BEF’s subsequent development and market for sale of a competing line of pre-made meal side dishes. According to the complaint, Reser and BEF had a business partnership since the mid 1990’s, in which Reser sold private label food products for BEF to re-sell. Reser alleges that through this relationship, BEF was able to access confidential information of Reser innovative product lines, processing of products, packaging techniques, market research and analysis. The Reser allegations include counts of trade secret misappropriation, breach of non-disclosure and confidentiality agreements, and conversion under Ohio and Oregon state law. The suit was accompanied by an application by Reser for a protective order, granted January 18, 2013, and Reser’s motion for a preliminary injunction against BEF filed the same day.

Reser is Oregon’s 6th largest company, having prepared refrigerated food since the 1950’s, selling their products locally and nationally to restaurants and supermarkets. In part of their seventeen-year business relationship, Reser and BEF parties executed a Mutual Confidentiality and Non-Disclosure Agreement in January 2008, forbidding BEF from using Reser proprietary information to make and sell imitation or comparable products. The agreement terms applied to both parties and outlined a mutual information sharing arrangement “enabling Reser and BEF to freely engage in discussions and information sharing to benefit their mutual business interests and relationship on the condition that such information and technology be kept confidential and not be used except as provided” (Complaint, 8). The agreement also made specific reference to “recipes and formulas” as potential proprietary information contemplated under the mutual agreement. Accordingly, the crux of Reser allegations stem from a proprietary and innovative “Baked process,” to which BEF gained access through this mutual relationship. Reser contends that the “Baked process” is innovative and uniquely creates refrigerated food items with a crunchy, caramelized, browned top layer over a creamy bottom layer when reheated. When the Reser-BEF business relationship dissipated in August 2012, Reser notified BEF it would no longer accept orders for BEF side-dishes, but instead purchased the “Kettle Creations” company to produce similar food items. After this acquisition, Reser claims that BEF continued to manufacture and sell its own side-dishes, using the same UPC codes that were used for Reser products. For Reser, this act is significant because UPC codes are product and ingredient-sensitive and cannot be changed without notification to the retailer, demonstrating that the new BEF side-dishes were identical to the Reser “Baked” products.

While Reser ‘s complaint takes important measures to outline their company history, financial objectives, and proprietary “Baked process” at issue, the filing may fall short of some elements required for a valid trade secrets misappropriation claim under Ohio State law. Specifically, the complaint lacks specific examples showing that their “Baked process” was actually kept secret, or that reasonable measures were taken to maintain its secrecy. Moreover, Reser contends that it “relied on protections of the signed NDA” when it disclosed its confidential information to BEF, and that the information was secret because the Reser “employee manual expressly prohibits Reser employees from divulging company trade secrets and makes clear that an employee who does will be subject to discipline for doing so” (Complaint, 10). However, the complaint makes no specific reference to how the “Baked process” technology was kept secret by Reser, and instead highlights several instances where this technology was shared and made readily available for BEF executives.

The lawsuit is active and pending in front of Chief Judge Ann L. Aiken United States District Court for the District of Oregon in Portland.

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