Cases from Other state statute

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.

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.

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.

County of San Francisco, Superior Court of California
Jawbone Obtains Preliminary Injunction Against Rival Fitbit in Trade Secrets Dispute

On October 13 2015, San Francisco Superior Court Judge Harold Kahn issued a preliminary injunction, ordering five Fitbit employees who had formerly worked at Jawbone to return Jawbone confidential information they took before leaving. Judge Kahn agreed with Jawbone that the information taken constituted confidential information and that these employees likely breached their confidentiality agreements with Jawbone when they provided the confidential information to their new employer, Fitbit.

This is the first opinion in the ongoing legal battle between rival wearable fitness tracker makers, Fitbit and Jawbone. Since May 2015, Jawbone has filed three complaints against Fitbit, and in turn, Fitbit has filed two complaints against Jawbone.

In May 2015, Jawbone owner Aliphcom Corp. sued rival Fitbit after its announcement of its initial public offering in California State Court. In an effort to “decimate” Jawbone, Jawbone alleged that Fitbit poached its employees and stole its trade secrets. Per the initial Complaint, Jawbone alleged that Fitbit contacted roughly 30 percent of its workforce in early 2015 and of those contacted, at least five employees had left Jawbone to work for Fitbit. Before leaving, Jawbone alleged that these employees downloaded sensitive information - which included business plans, research, product plans, services, customer lists and data - stored it on thumb drives, and then provided it to their new employer, Fitbit.

In June 2015, a week before Fitbit’s IPO, Jawbone filed a second lawsuit in California federal court, alleging that each of Fitbit’s products infringed at least one of three Jawbone patents. Then, in July 2015, Jawbone petitioned the U.S. International Trade Commission to block imports of Fitbit’s products, alleging patent infringement. In August 2015, the ITC posted a short notice online stating that the agency will investigate whether Fitbit has been importing infringing fitness tracking devices.

In response, on September 3rd, Fitbit Inc. accused Jawbone of patent infringement in a suit filed in Delaware federal court and then on September 8th, Fitbit filed another patent infringement suit in California federal court.

Appellate Division, First Department, Supreme Court of New York
NY Appellate Court Revives Claim Against Early Equity Investor in Pinterest

Plaintiff Theodore F. Schroeder alleged that defendants Brian S. Cohen, New York Angels, Inc. (“NY Angels”), and Pinterest Inc. (“Pinterest”) misappropriated Schroeder's confidential ideas, technology and business plans in developing the popular social network bulletin board, Pinterest.com. In 2005, Schroeder had initially invited Cohen to participate in planning meetings for another project and during these meetings, Schroeder had shared confidential information, which Schroeder alleges Cohen then provided to Pinterest.

On October 6, 2015, the NY appellate court revived the trade secret misappropriation claim, stating that the Complaint provides sufficient support for the trade secret misappropriation claim against Cohen and NY Angels. The court noted that Cohen had indeed been exposed to the confidential information and had provided the confidential information whilst knowing the information must remain confidential. Further, the opinion notes Schroeder’s efforts in trying to maintain secrecy over the technology he worked on for roughly four years. However, the court did not extend the misappropriation claim to Pinterest, as there were no facts in the pleadings demonstrating that there had ever been a confidential relationship established between Plaintiff and Pinterest, let alone any contact between them at all.

Click here to read the full opinion.

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.

Court of Chancery of Delaware
Court of Chancery Finds Choice of Law Clause Void

On January 28, 2015, the Delaware Court of Chancery released an opinion finding that a choice of law clause in a noncompete contract, designating Delaware as the venue and choice of law for dispute resolution, did not govern the dispute because the state of California had a materially greater interest in the issue. The parties here engaged in an employee investment agreement (“EIA”) in July of 2008, in which Defendant Underwood agreed not to compete with Ascension or its parent for two years after leaving his position at Ascension. Plaintiff Ascension sought to enforce the non-compete clause in the EIA and the Court of Chancery was presented with the question of whether California’s employee friendly statute or Delaware’s contract-friendly policies should govern the validity of the non-compete clause.

In the EIA both parties agreed to Delaware venue as well as Delaware choice of law. However, the court found that California was the state with the strongest contacts to the contract because the EIA was entered between a California resident and a Delaware limited liability company that now has its principal place of business in California, the non-compete clause was negotiated in California, and but for the choice-of-law provision, California law would apply to the EIA. Additionally, California’s interest in its employee-friendly public policy is greater than Delaware’s interest in the sanctity of a contract.

This decision is significant because the Chancery Court, which is historically corporate-friendly, took a strong stance against allowing corporations to contract around unfavorable state laws. The court emphasized that California’s public policy against non-compete clauses is so fundamental that it would prevail over a contracted to term which goes against this policy. This decision empowers employees and ensures that they will be able to rely on his or her state’s employee protection policies as long as he or she is engaging in the employment relationship in his or her state. Even if an employee agrees to a choice-of-law clause, applicable state policies will still be able to protect him or her. In the future, this decision should cause corporations to investigate the state policies on non-compete clauses in the states in which it engages in employee relationships.

Texas District Court
Fake Evidence Leads to Dismissal with Prejudice

One month into a complex case involving energy production in post-Soviet Russia, Moncrief Oil International abruptly dropped its $1.37 billion lawsuit that included a trade secret misappropriation claim against Gazprom after the Fort Worth company was accused of producing a falsified key document in the case. The company’s lawsuit hinged upon the allegation it had shared with Gazprom the secret details of an LNG plant it wanted to build with Occidental Petroleum in Ingleside, Texas in 2004.

State District Judge Melody Wilkinson dismissed the case with prejudice at the request of attorneys representing Moncrief Oil, which was suing the Moscow-based energy company for backing out of a deal for rights to develop a natural gas field in Siberia. During the trial last week, a document prepared by an accountant at Moncrief Oil International was found to include a key error, making it impossible to continue with the case

By dismissing the case with prejudice, Wilkinson prevents Moncrief Oil from continuing with any lawsuit on the same claims. This case shows the necessity of following all rules, both ethical and procedural, whilst litigating such claimes.

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.

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.”