Cases from Common Law (Restatement)

Scherer Design Group LLC v. Ahead Engineering LLC
United States Court of Appeals for the Third Circuit
Employer Granted Injunctive Relief Against Former Employee After Searching Facebook

At issue here is whether a former employer that suspects trade secrets theft has taken place can log in to the former employee’s personal social media account to search for the potentially incriminating evidence. While the initial reaction for many would be a resounding “no”, in Scherer Design Group v. Ahead Engineering LLC, the Third Circuit held that the unclean hands doctrine did not bar an employer’s claims against its former employee for trade secret misappropriation though the employer had previously installed and used software that allowed for the monitoring prior to the termination of employment.

The court looked to decide how far an employer can go to protect their potentially misappropriated trade secret and where the line may be drawn. Here, Chad Schwartz, a senior direction of engineering at Scherer Design Group, left the company following a failed plan to obtain partial ownership. Schwartz made it clear that if he was not made an owner, he would start his own competing company. Scherer requested that Schwartz sign a noncompete agreement to which Schwartz declined and left to begin his own companies – Ahead Engineering LLC and Far Field Telecom LLC – and hired others from Scherer to join him.

After his, and his co-workers including David Hernandez, departure from Scherer, a network administrator from his former employer inspected Hernandez’s company laptop where he was able to gain access to Hernandez’s Facebook account that had allegedly been left logged in. While this allegation is debated, it is undisputed that Scherer installed a monitoring device on Hernandez’s company-issued laptop during his employment and was able to uncover alleged plans to steal client information and intellectual property to bring to their next company.

Scherer brought suit against the former employees claiming trade secret misappropriation under state and federal law. Defendants argued that injunctive relief was inappropriate because of the doctrine of unclean hands and argued that there was a violation of Hernandez’s privacy.

The U.S. District Court for the District of New Jersey granted the preliminary injunction against the defendants which prevented them from contacting Scherer’s clients, and the Third Circuit agreed. In order to invoke the unclean hands doctrine, the party must establish that the opposing party committed an “unconscionable act”, and the act is related to the claim in which equitable relief is sought. The unclean hands doctrine was one of many factors that the court must consider when deciding on injunctive relief. The Third Circuit decided “on balance” that they would not be allowing for the continued misappropriation.

In Judge Ambro’s dissent, he wrote that this was a clear violation of New Jersey’s privacy law, arguing that the company “went on an external fishing expedition rather than merely conducting a review of activity on its own physical assets.” This strong dissent further called into question the completeness of the analysis by the majority of the unclean hands doctrine.

Attia v. Google, Inc.
County of Santa Clara, Superior Court of the State of California
Eli Attia Brings Racketeering Charges Against Google

Santa Clara Superior Court of California recently granted a motion for leave to file an amended complaint that allowed Eli Attia and Eli Attia Architect PC (“Plaintiffs”) to successfully bring racketeering claims under the Racketeer Influenced and Corrupt Organization Act (“RICO”) in addition to the trade secret misappropriation and breach of contract claims against Google, Inc. (“Google”). Attia originally filed suit on December 5, 2014.

Eli Attia (“Attia”) is an architect who developed a technology that enables creation of more sustainable buildings faster and with lower cost. He called the technology, “Engineered Architecture” (“EA”). Google X, an affiliate of Google, approached Attia in 2010 and signed a Non-Disclosure Agreement (“NDA”) permitting Google to use Attia’s confidential information “to facilitate technical discussions concerning existing or future product development efforts by the parties.” Shortly after, the parties entered into an Inbound Services Agreement (“ISA”) and a Statement of Work (“SOW”) to build a software system capable of implementing the EA technology using Attia’s trade secrets and his “pre-existing property.” This was dubbed the “Genie Project.”

Attia alleged in the complaint that Google plotted to “squeeze out” Attia from the Genie Project and misappropriated his trade secrets by continuing to use EA and his pre-existing property without permission and compensation. Attia alleged that Google pretended to kill the Genie Project and spun it off into a new company called “Flux Factory” to further develop Attia’s technology.

In the fourth amended complaint filed on July 24, 2017, the Plaintiff’s legal team added racketeering charges against Google by claiming a pattern of trade secret thefts. The complaint uncovered six other cases in which Google engaged in a similar pattern of activity where the tech giant sought inventors, signed an NDA, boxed them out, and misappropriated their trade secrets. In the October 4, 2017 Order after hearing, the Superior Court permitted the addition in the amended complaint. Trial is scheduled for September 2018.

The case is Eli Attia et al. v. Google, Inc. et al., case number 2014-1-CV-274103, in the Superior Court of the State of California, County of Santa Clara.

Fourth Amended Complaint: http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/attia-v-google-inc/20170724fourth-amended-complaint.pdf
Order After Hearing: http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/attia-v-google-inc/20171004order-after-hearing.pdf

America's Test Kitchen v. Christopher Kimball et al.
Suffolk County Superior Court
America’s Test Kitchen Sues Former Host for Misappropriating Tasty Trade Secrets

America’s Test Kitchen Inc. (“Plaintiff”) owns multimedia publications and productions, including television programs such as America’s Test Kitchen, cooking magazines and books, and several websites. Plaintiff sued Christopher Kimball (“Defendant”), a celebrity chef and the former host of its TV shows. Plaintiff alleges that Defendant misappropriated its trade secrets and breached his fiduciary duty to the company. Plaintiff filed the lawsuit on October 31, 2016.

Defendant left Plaintiff’s program in November 2015, and recently developed his own program called Christopher Kimball’s Milk Street. Plaintiff alleges that Defendant created his company using its image to attract new customers, and marketed his program as an enhanced version of America’s Test Kitchen. Plaintiff also contends that Defendant stole from its collection of recipes, TV show ideas, media contacts, and subscriber information. It seems Plaintiff and Defendant did not have a formal non-compete agreement in place.

Plaintiff is seeking damages against Defendant and a disgorgement of all profits that he has derived through the use of the trade secrets he allegedly misappropriated from America’s Test Kitchen. Plaintiff’s complaint also names Melissa Baldino (Defendant’s wife), Christine Gordon, and Deborah Broide as defendants, and claims that they aided and abetted Defendant’s breach of his fiduciary duties.

The case is America’s Test Kitchen, Inc., v. Christopher Kimball et al., 1684-cv-03325.

Plaintiff’s complaint can be found here: http://tsi.brooklaw.edu/cases/americas-test-kitchen-v-christopher-kimball-et-al/filings/america%E2%80%99s-test-kitchen-sues-former-h

People v. Jimmy John’s Enterprises, LLC
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

Zylon Corp. v Medtronic, Inc.
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.

Orthofix, Inc. v. Eric W. Hunter
United States court of Appeals for the Sixth Circuit
Sixth Circuit Protects Confidential Information Under Non-Disclosure Agreement

On November 17, the Sixth circuit held that Orthofix, Inc.’s (Orthofix) non-disclosure and non-compete clauses protected Orthofix’s confidential information regardless of whether the information achieved trade secret status or not. The defendant, Eric Hunter (“defendant” or “Hunter”) was a medical device salesman for Orthofix from 2000 to November 2012. Hunter sold bone growth stimulators and Orthofix was among the three main competitors for this type of product. Upon his hiring with Orthofix, Hunter signed an employment agreement that contained both a non-compete and non-disclosure provision. During his time with Orthofix, Hunter developed relationships with prescribing doctors and acquired valuable information about their “schedules, prescribing habits, and preferred brands of bone growth stimulators.”
In July 2012, Hunter and a fellow employee began negotiations to join DonJoy Orthopedics with an area vice president of DonJoy Orthopedics, Orthofix’s competitor. In the course of the negotiations Hunter provided DonJoy with information he had acquired over his past twelve years at Orthofix which he would use if he became employed with DonJoy, “including his Orthofix employment agreement, his W-2 wage statement, copies of his Orthofix sales reports, and an account-by-account breakdown of some of his sales of bone growth stimulators.” Hunter, his fellow Orthofix employee, and DonJoy made a plan for Hunter and his fellow employee to join DonJoy and begin selling DonJoy bone growth stimulators to Orthofix customers. Additionally, Hunter introduced other DonJoy salesmen to Orthofix customers. Hunter also “maintained Orthofix confidential information in the form of documents and spreadsheets on his personal laptop and memory,” including “customer lists, wholesale price information, sales data, staff contacts, physician schedules and preferences, and physicians’ prescribing habits.” Orthofix claimed these materials are protected as a trade secret or as “confidential information” under Hunter’s employment agreement.
In considering the Non-disclosure agreement, the Sixth Circuit applied Texas state law holding that the “confidential information” covered by the agreement was not limited to only trade secrets. Further, the court found that when Hunter promised in the non-disclosure agreement “that he would ‘never use or disclose any confidential information which [he]… acquired during the term of his[] employment with [Orthofix],’” the referenced “confidential information” includes “Orthofix ‘customer lists or identification,’ ‘business and trade practices,’ ‘sales or distribution methods and techniques,’ ‘business strategies,’ ‘and ‘other confidential information pertaining to [Orthofix’s] business or financial affairs.’” The court also found that the non-disclosure agreement was not an unreasonable restraint of trade under Texas law, despite its absence of geographical or durational limits. Since Orthofix’s confidential information is protectable under the non-disclosure agreement and the information is not publicly available or the subject of Hunter’s general knowledge, the non-disclosure agreement is not an unenforceable non-compete agreement under Texas law.

Thomas A. Lamont, L.O.G. Energy Development, Ltd., Rosendo A. Carranco and Montecristo Energy II, Ltd. V. Vaquillas Energy Lopeno, Ltd., LLP And Job Energy Partners II, Ltd.
Supreme Court of Texas
"Treasure Map" Misappropriation Award Upheld in Texas

On March 13, 2015, the Texas Supreme Court denied review of Lamont et al v. Vaquillas Energy Lopeno, Ltd. et al, thereby upholding a $4.9 million jury award for Vaquillas in its trade secret misappropriation suit. At the center of the dispute is the seismic map of oil and gas prospects that Ricochet Energy, Inc. generated pursuant to an agreement with Vaquillas in 2003 and 2004. The seismic map, or “treasure map” as both parties had referred to it, had identified a lucrative prospect – a gas reservoir containing natural gas estimated as much as $60 million.

The instant controversy began when Thomas Lamont, a co-owner of Ricochet, separated from Ricochet in 2006, and then formed a new entity, Montecristo II, with another oil and gas investor, Rosendo Carranco in 2007. Because Lamont had continued to own a working interest in the gas prospect, after Lamont’s separation, Ricochet shared the treasure map with Lamont as a potential investor, without signing any confidentiality agreements. Montecristo II then outbid Ricochet to lease property adjacent to the gas reservoir, and depleted it, foreclosing any opportunity for Ricochet to withdraw any gas.

On appeal from the jury’s verdict in favor of Vaquillas, Lamont argued that the trade secret’s status was destroyed when Ricochet shared the treasure map with Lamont after his effective resignation date. However, the court noted that the disclosure to Lamont was in his role as a potential investor, and as such, the limited disclosure did not destroy its trade secret status. The disclosure was never meant to enable a potential investor to compete directly against Ricochet, but instead, to work with them in an investment opportunity. Further, the court noted that Ricochet took proper means to protect its trade secret, by keeping it a secret from its employees, competitors, and the public. Next, the appellate court concluded there was sufficient evidence to support a finding that Lamont and Carranco’s actions fell below the generally accepted standards of commercial morality, because they used improper means to locate the gas reservoir when they misused the map. Notably, Lamont and Carranco had never conducted any independent research, indicating their reliance on the map, which they used to enrich themselves off of Ricochet’s work and investment.

While Texas adopted a version of the Uniform Trade Secrets Act, it only took effect on September 1, 2013, and does not apply to prior misappropriation. As such, in the instant case, the appellate court relied heavily on the 3rd Restatement of Unfair Competition, which notably, is aligned with the Act. Therefore, this case is still persuasive in situations where a company must rely on common law to protect its trade secrets if it is in a state where the UTSA, or any version of the model Act, has not been adopted. Further, and more significantly, this case demonstrates that companies which did not employ confidentially or non-disclosure agreements, may still be protected in the scenario a potential business investor misuses their secrets. While certainly helpful in situations where negotiations could be stalled for such agreements, it is always better to employ these agreements, if for no other reason than it may define the scope of litigation.

Nanomech, Inc. v. Arunya Suresh
United States Court of Appeals for the Eighth Circuit
8th Circuit Finds Global Noncompete to be Overbroad

On February 6, the 8th Circuit released an opinion finding that a Global Noncompete Agreement was overbroad, and therefore unenforceable. Arunya Suresh began working at NanoMech in 2010, agreeing to the noncompete which was for two years following termination with or without cause, and would have prevented Suresh from working or consulting with any business that competes with NanoMech. The agreement did not state a geographic limitation, and so was presumably enforceable anywhere in the world.

Suresh left NanoMech in May 2012, stating she was going to pursue her doctorate degree. However, NanoMech discovered she had actually accepted a position as a chemist at competitor BASF. At the district court level, NanoMech was unsuccessful in obtaining an injunction against Suresh, and ultimately the 8th Circuit Court upheld the decision.

This sort of global noncompete is frowned upon by most courts, and will often not stand up to the three-part test used in Arkansas (but fairly typical elsewhere), that looks at 1) whether the employer has a valid interest to protect, 2) whether the geographical restriction is overly broad, and 3) whether the time limit imposed is reasonable. In this case, the court ruled the combination of the broad restriction on the things Suresh could not do, considered together with the complete lack of geographic limitation, renders the noncompete overbroad and unenforceable. In the court's words, the lack of geographic limitation was particularly oppressive because the agreement "prohibits her from working in any capacity for any business that competes with the company."

This decision is interesting since Arkansas affords trade secrets particularly strong protection. In fact, Arkansas has previously upheld certain global noncompetes, but as the court pointed out, the restrictions in those cases were far more narrowly tailored as to the prohibited conduct. In both cases discussed, the employees simply couldn't solicit clients with whom they had contact with while employed by their respective former employers. It was this very narrow limitation on what conduct they could not do do that the courts found to justify a lack of geographic limitation in the noncompete agreements.

Bianco v. Globus Medical, Inc.
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.

Move v. Zillow
Washington Superior Court, King County
Washington Trial Court Refuses to Invoke Inevitable Disclosure Doctrine

On March 5, 2014, Errol Samuelson was hired by Zillow. He had worked at Move, Inc. for over a decade and most recently was its Chief Strategy Officer, a position that resembled head of sales with the added responsibility of running newly acquired business units.

The Washington state trial court found no evidence of actual trade secret misappropriation. It refused to grant an injunction under the inevitable disclosure doctrine, but did not explain why.

The case continues. Samuelson's attorneys have asked the court to grant them access to the trade secrets that Samuelson allegedly misappropriated.