Cases from Other state statute

California Court of Appeal Third Appellate District
California Courts Affirms Attorneys' Fees for Defendants

As a reminder that attorneys’ fees can be awarded to a defendant under the uniform trade secrets act, where a misappropriation claim is brought in bad faith, a California appellate court, in an unpublished opinion, affirmed such an award on May 13, 2014. The attorney's fees were the sole issue on appeal in a case that had proceeded through two trials, and dates back to 2007. In the second trial, the court awarded defendants attorneys fees and a "lodestar" multiplier of 1.33 even though attorney Peter Scott agreed to represent defendants free of charge in order to settle a malpractice claim by defendants.

United States District Court for the Southern District of Alabama
Court Rejects Pre-Employment Non-Compete Agreement

Defendant Ameritox is a provider of specialized services for healthcare providers. In 2011, Plaintiff Dawson negotiated an employment contract and began working as an Assistant Director for Ameritox. As part of the employment agreement, Dawson agreed to both a non-solicitation, as well as a non-compete agreement prior to his employment. In the agreements Dawson acknowledged that he would have access to confidential information, and agreed that he would not solicit Ameritox clients or work for competitors for one year following his employment. In late 2013, Dawson left the company to accept a position with Millenium, a direct competitor of Ameritox. After Dawson filed this action to seek a declaratory judgment invalidating the non-compete agreement, Ameritox removed the case to federal court and moved to preliminarily enjoin Dawson from working for Millenium.

On January 6, 2014, the U.S. District Court for the Southern District of Alabama issued an order denying the injunction, on grounds that a non-compete agreement signed prior to employment is invalid in the state of Alabama. The court went on to consider whether the non-compete agreement constituted more than a partial restraint on the plaintiff’s trade, and whether non-solicitation agreements were barred by the Alabama statute, but ultimately rested its opinion on the pre-employment nature of the contract.

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.

Eastern District of Pennsylania, U.S. District Court
Consulting Group Sues Former Employees and Competitor for Violation of Restrictive Covenant with Partial Success

Capsicum Group, LLC - a legal services consulting group - brought this action against against two former employees and a competitor - "SSR" - to prevent those employees from working for SSR . Capsicum relied on a restrictive covenant entered into by the two employees which restricted their ability to compete with Capsicum for a period of two years following the end of their employment relationship. Believing that certain provisions of this covenant were unenforceable, SSR nevertheless hired the two employees. The Hon. William H. Yohn, Jr., U.S.D.J. held that SSR did not possess the requisite mens rea but nevertheless enforced certain provisions of the covenant.

Appellate Division, New Jersey Superior Court
Trade Secret Laws Are Not Intended To Extend Protection After Patents Expire, Says New Jersey Court

On August 27, 2013, a three-judge panel of the New Jersey Superior Court, Appellate Division affirmed the long held notion that the content of an expired patent passes into the public domain and is thus outside the boundary of trade secret law.

In UCB Mfg, Inc. v. Tris Pharma, Inc., plaintiff employer alleged that defendant former employees used plaintiff’s confidential information to create a generic version of plaintiff’s cough medicine, Tussionex®. In addition to finding the noncompetition agreement between the parties unenforceable, the court emphasized that “all the confidential information alleged to have been divulged was in the public domain and not entitled to protection.”

On appeal, UCB dropped its trade secret misappropriation claim and pursued a theory of breach of contract and unfair competition. The court held that UCB’s breach of contract claims could not stand “[w]here trade secrets are not demonstrably involved . . .” The court found that trade secrets did not exist because after UCB’s patent had expired, “the knowledge of the invention inures to the people, who are thus enabled without restriction to practice it and profit by its use.”

E.D. Cal.
Court Finds CUTSA Preemption Issue Must be Raised at Summary Judgment, not Motion to Dismiss

U.S. Legal Support, Inc., a provider of court reporting services, sued two of its former employees and their new employer for misappropriating its customer lists in order to set up a competing business in the area of Northern California.

In a decision that may be reviewed by the circuit court, the E.D. Cal found that defendants' motion to dismiss some claims based on the pre-emption of common law trade secrets claims by California's Uniform Trade Secrets Act (CUTSA) was premature. The court said that the question turned in part on whether plaintiffs had succeeded in showing that defendants had violated a common law property right that was based "on grounds that are qualitatively different from the grounds upon which trade secrets are considered property" (citing Bryant v. Mattel, Inc., No. CV 04–9049 DOC (RNBx), 2010 WL 3705668 at *22 (C.D. Cal. Aug. 2, 2010)). Because this was a question of fact rather than law, "[d]efendants can determine in discovery whether Plaintiff’s contentions have any merit, and when appropriate, bring a summary judgment motion as to the issue of supersession."

United States District Court - Eastern District of Virginia
In Virginia, Improper Aquisition of a Trade Secret is Sufficient to State a Claim

A September 5, 2013 opinion from the Eastern District of Virginia reminds us that plausible claims for trade secret misappropriation against former employees can survive a motion to dismiss even in the absence of actual use of the trade secret by a defendant. In Marsteller v. ECS Federal, Inc., a former Senior VP of ECS Federal Inc. (“ECS”), a government contractor, allegedly downloaded and transmitted confidential information in the period between her notice of termination and her last day of work, including company contracts, billing rates and business development plans. ECS alleges various violations of the Virginia Uniform Trade Secret Act (“VUTSA”) and the Virginia Computer Crimes Act, as well as breach of contract, conversion, breach of fiduciary duty and unjust enrichment. Marsteller moved to dismiss these claims under the theory that ECS had not adequately alleged that she had actually used any of this information in her possession, and it is the court’s denial of this motion that is most relevant here.

The VUTSA recognizes trade secret misappropriation if there “improper acquisition” or “disclosure of use” of a trade secret. See Va. Code Ann. § 59.1-336. In Virginia, misappropriation through acquisition occurs when “a person knows or has reason to know that a trade secret was acquired by improper means” which include, among other things, “use of a computer or computer network without authority.” Id. In applying this section of the VUTSA as well as the liberal standards for reviewing motions to dismiss under the Federal Rules of Civil Procedure, the court denied Marsteller’s motion to dismiss and allowed ECS’s counterclaim to stand. See Fed. R. Civ. P. 8, 12(b) (6). The court emphasized that “[u]nder the VUTSA, improper acquisition of a trade secret, even in the absence of allegations of use or disclosure, is sufficient to state a claim.”

United States District Court for the Southern District of California
Court dismisses Tablet Maker Fraud Claims, Trade Secret Missapropriation Claims Remain

Popular children’s toy purveyor “Toys ‘R’ Us” (TRU) recently turned tech, having introduced its “Nabi” children’s electronic tablet device in late 2011 and “Nabi 2” in summer 2012. With TRU’s announcement of its own “Tabeo” tablet set for October 2012, the company was set to enter into its “first move into house-brand electronics.” (WSJ; Complaint Exhibit A). However, according to a September 24, 2012 filing, TRU is now being sued by Nabi maker FUHU in the United States District Court for the Southern District of California. In FUHU v. Toys R Us, No 3:12-cv-02308, electronics manufacturer FUHU claimed breach of contract, unfair competition, breach of implied covenant of good faith, and alleged misappropriation of its trade secrets by Toys R Us in its development of the TRU Tabeo tablet. The Tabeo was designed by TRU to progress upon and replace the original Nabi devices created by FUHU, and formerly sold in TRU stores. These devices were the subject of an exclusive distribution license between FUHU and TRU, terminated in 2011 for alleged under-performance and frustration to market on the part of TRU. The current lawsuit claims that TRU is seeking to capitalize on the Tabeo device by breaching its non-disclosure agreement with FUHU, executed during production of Nabi 1, and by subsequently misappropriating FUHU ’s trade secrets for use in the creation of the Tabeo tablet.

While most of FUHU ’s pleadings address the breach of contract and unfair competition claims, the fourth claim alleges TRU’s trade secret misappropriation stemming from earlier disclosures by FUHU of proprietary information about its “FOOZ KIDS” device and software interface, the prototype for what eventual became the Nabi devices. While this disclosure was made in the context of a prior exclusive distribution agreement between FUHU and TRU for Nabi products, FUHU asserts that upon the agreement’s termination TRU continued to utilize FUHU trade secret materials. The FUHU trade secret information surrounding the Nabi “user interface” was only made available to TRU upon execution of a non-disclosure agreement prior to entering into the exclusive agreement. FUHU claims that TRU subsequently used FUHU ’s trade secret information to develop and manufacture its latest Tabeo tablet for commercial gain.

FUHU ’s complaint was immediately followed by motions for a temporary restraining order (TRO) against TRU, and to expedite discovery in order to preliminarily enjoin TRU from its upcoming release and sale of the Tabeo tablet. On October 19, 2012 Judge Hayes of the District Court denied all three FUHU claims supporting their application for a TRO, including TRU's alleged trade secret misappropriation. The court first reasoned that temporary restraining orders are an extreme remedy fashioned only where the plaintiff is likely to succeed on the merits and is likely to suffer harm in the absence of preliminary relief. See Winter v. NRDC 555 US 7, 20 (2008). However, FUHU's pleadings did not demonstrate a likelihood of irreparable harm because the information identified by FUHU as trade secret was considered "general business concepts and broad marketing ideas that do not fit within the definition of trade secret under New Jersey Law (note that the existing NDA between the parties stipulated to NJ law). Order at 6. Denial of Fuhu's application for a temporary restraining order is a setback for the technology company, as the Toys R' Us Tabeo tablet was recently released in Mid-September.

After TRU's answer and subsequent FRE 12b6 motion to dismiss, the District Court issued an order on March 4th 2013 granting part of TRU's motion to dismiss six of FUHU's claims. fraud. However, the court left ten of the sixteen claims intact, including those for breach of contract and misappropriation of Trade Secrets. View the order by clicking the link below.

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.

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.