Cases from Common Law (Restatement)

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.

New York County, Supreme Court of New York
Chico’s reaches settlement with rival Caché following allegations that former Chico’s employees had misappropriated trade secrets regarding seasonal clothing lines

Florida-based apparel company Chico's (which acquired White House/Black Market stores in 2003) accused rival company Caché of hiring two former Chico’s employees and using their intimate knowledge of upcoming White House/Black Market lines to create similar seasonal lines for Caché. Caché and the two former employees, Rabia Farhang and Christine Board, were accused of breach of contract and misappropriation of trade secrets.

The case was remanded to state court on July 27, 2010. In September 2010, Chico's withdrew its motion for a preliminary injunction because it felt that the proceedings could not be completed in time to stop Caché from selling products that Chico's alleged were developed using stolen confidential documents. Chico's stated that it planned to continue with its lawsuit. Ultimately, the parties settled in April of 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.

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.

United States District Court for the District of Delaware
Claims for trade secret misappropriation against a licensee survive motion to dismiss for failure to plead with specificity

Eastman refines further the pleading standard in trade secret cases. In general, there is no heightened pleading standard for trade secret cases after Twombly/Iqbal; a plaintiff is not required “to plead all of the relevant facts in detail.” However, a plaintiff can’t simply point to an area of technology or refer generally to information or business methods. The goal of the pleading standard is to provide notice to defendants of the substance of the claims against them. In the context of claims for trade secret misappropriation, this goal must be balanced with the need to maintain secrecy. Disclosure of the actual trade secret is not required.

Here, the alleged deficiencies in the pleadings were 1) a failure to identify the particular employees alleged to have stolen the trade secrets; 2) a failure to identify the trade secrets that were allegedly misappropriated; and 3) a failure to show use or disclosure of the alleged trade secrets. After a review of the facts set forth by the plaintiff, and case law from other states applying UTSA statutes, the Magistrate judge found that by identifying a group of employees, referring to the alleged trade secrets as information “relating to the manufacture of PET” and Eastman’s “IntegRex technology,” and alleging their use in start-up of a new plant, Eastman had properly disclosed sufficient information to meet the Rule 8 pleading requirements and state a claim.

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.

Southern District of New York
Alleged exploitation of "technological resources" by Oracle competitor

Oracle Systems Corporation, formerly Passlogix (a wholly owned subsidiary of Oracle Corporation that has since dissolved), sued 2FA Technology, LLC. alleging that 2FA threatened illegitimate legal action, breached contractual obligations, exploited Passlogix’s resources, and sought to injure Passlogix's competitive position and reputation. Oracle Systems Corp. filed a motion for partial summary judgment, which is currently pending before the court.

This case is related to 2FA Technology, LLC v. Oracle Corp. (10-cv-9648), a later-filed case by the defendant in this action, currently stayed pending the disposition of the summary judgment motion here.

United States District Court for the Western District of New York
WDNY denies summary judgment to defendants seeking to avoid enforcement of “anti-raiding” provision in employment contracts

The Western District of New York recently denied summary judgment to defendants Jarrett and Kurtz, former employees of plaintiff Renaissance. Renaissance, a company working within the dairy industry to provide vitamin and mineral supplements for cows, alleged that the defendants conspired to resign simultaneously to form a competitive company, “Cows Come First,” and to take several former Renaissance employees with them. Renaissance asserted that this was in violation of a “non-recruitment” or “anti-raiding” clause incorporated into the defendants’ contracts. The clause essentially prohibited any attempts to “solicit, divert or take away” employees of Renaissance to competitive ventures for 5 years after leaving. The court denied the defendants' motion, stating that the plaintiff had a legitimate interest in protecting client relationships developed at its expense, and that it had provided enough supporting facts regarding the alleged breach to survive summary judgment. The court also noted that other defensive arguments, such as geographic and temporal overbreadth and coercion, were accompanied by insufficient preliminary evidence and would be best left to a trier of fact.

United States District Court, Central District of California
District Court denies Mattel's motions for Judgment as a Matter of Law and a new trial, and reduces MGA's damages award to $85 million

Most recently, Mattel, Inc.’s (Mattel) asked a federal court of appeals in San Francisco to reverse the $310 million in damages and attorneys' fees the District Court for the Central District of California ordered Mattel to pay over in a prolonged battle over the ownership rights to the billion dollar “Bratz” doll empire against a former employee and Bratz designer, Carter Bryant, and MGA Entertainment (MGA). In particular, Mattel challenged the $17.25 million that MGA won on its counterclaims for trade secrets misappropriation by Mattel. It argued that the claims were time-barred. It added that MGA also failed to prove that its alleged trade secrets were really trade secrets.

Mattel's most recent action is not its first attempt to fight the heavy judgment. On August 4, 2011 the District Court denied Mattel’s motions for judgment as a matter of law (JNOV) and for a new trial. It found that the factual record supported an eight-person jury’s conclusions that MGA had used reasonable efforts to maintain its trade secrets for the Bratz dolls, which Mattel misappropriated by misrepresentation. Although the District Court remitted MGA’s damages award of $88.5 million to $85 million, it also ordered Mattel to pay an additional $139.9 million in attorneys’ fees and costs.

In 2004, Mattel first claimed copyright infringement and theft of its trade secrets by MGA and Bratz designer, Carter Bryant. Four years later, a federal jury awarded Mattel $100 million. However, the verdict was overturned on appeal and sent back for retrial on which the scope of Mattel's claims was limited. Mattel could only pursue the copyright infringement claims against the four original MGA dolls and two later models ("Formal Funk Dana" and "Ooh La La Cloe”), but could proceed with most of its trade secret theft claims.

However, an eight-person jury returned a verdict against Mattel on April 21, 2011. Specifically, the jury found that Mattel did not own a copyright in the creative designs behind the dolls. It also found that the ideas, designs and name of the doll collection were not Mattel’s trade secrets and, generally, MGA did not misappropriate any of Mattel’s trade secrets. The jury, however, found that Mattel misappropriated 26 of MGA’s trade secrets, awarding MGA $3.4 million for each misappropriated trade secret for an approximate total of $88.5 million.

DuPont Wins Complex Case on Summary Judgment

Big Vision Private, Ltd. (Big Vision), a company based in Mumbai, India, lost its trade secrets case against E.I. DuPont de Nemours & Co. (DuPont) on a motion for summary judgment. The case will be of interest both to practitioners of trade secrets and of patent law. Big Vision claimed that DuPont had filed a U.S. patent on a manufacturing process for which Big Vision already had a patent in India.

Both the claims and the history were complex. The two companies had worked together in trials. As for the claims, the case has several hundred exhibits and the court notes, in footnote 1, "the parties have submitted two separate 56.1 statements, two 56.1 counterstatements (resulting in 223 paragraphs of fact, nearly 200 of which were contested to some extent), 227 exhibits, and thousands of pages of deposition transcripts."

Big Vision appears to have made several fundamental mistakes in crafting its trade secrets case. For example, the court found that its definition of its own trade secret changed. Big Vision also made mistakes in the details of its claim. Big Vision claimed that no other company had a "cost-competitive" product, but failed to offer any pricing evidence.

Big Vision had failed to describe its trade secret with particularity, a rule that is common in most Courts of Appeals, even though "the Second Circuit has not explicitly adopted this requirement."

Big Vision did not have a trade secret. "[T]he evidence shows that Big Vision disclosed either the 'recipe' it obtained from another company’s patent, or variations of a formulation derived from structures tested at the First and Second Trials, to at least 16 different third parties."

Finally, the court also found no misappropriation by DuPont.