Cases from Other state statute

District Court for the Eastern District of California
District Court for the Eastern District of California held that concepts, designs, ideas and workflow shared during a business partnership were not trade secrets

On September 13, 2011, Chief Judge Anthony W. Ishii of the District Court for the Eastern District of California refused to enjoin Plaintiff’s former business partner, the Trizetto Group, Inc. (“Trizetto”), from using concepts, designs, workflow processes and flows, and other insights developed during their partnership.

Plaintiff, Agency Solutions.com, LLC (“Agency Solutions”) and Trizetto had entered into an agreement to develop software to service the administration of insurance companies. However, the parties’ relationship soured and the agreement was terminated before the software was completed. Agency Solution’s product never entered the market. Agency Solutions then filed suit against Trizetto after learning that Trizetto was marketing a similar software product to its competitors. Plaintiff sought a preliminary injunction to prevent Trizetto from marketing the product, alleging that Trizetto misappropriated 26 “trade secrets” mainly pertaining to 1) conception and design; 2) workflow processes and flows; and 3) rating and underwriting.

Judge Ishii found that the allegedly misappropriated information, consisting of ideas and general experience from software development, did not qualify as “trade secrets.” Significantly, the Court explained that a trade secret did not consist of “conceptual datum,” such as ideas, concepts, or general knowledge, but “empirical datum,” such as “customer’s preferences, or the location of a mineral deposit.”

Plaintiff filed a notice of appeal of the Court's refusal to grant a preliminary injunction, and Judge Ishii agreed to stay the proceeding pending the appeal's resolution. However, during the pendency of the appeal, Plaintiff voluntarily dismissed the action on January 4, 2012. However, the Court denied Defendant's motion for attorney's fees.

County of Los Angeles, Superior Court of the State of California
Clash between Hollywood talent agency and competitor over stolen client information

Hollywood talent agency Diverse Talent Group, Inc. sued three of its former agents who left for a competitor, but not before allegedly stealing confidential information to poach clients. In the suit, filed August 23, 2011 in Los Angeles Superior Court, Diverse alleged misappropriation of trade secrets, intentional interference, breaches of duty and contract, conversion, and slander. The agency also sought a temporary restraining order prohibiting the disclosure or use of proprietary information. According to its website, Diverse represents actors and directors from TV shows like "Mad Men" and "Lost."

The complaint alleges that former Diverse employees Isam Durzi, Ehab Durzi and Wendy Morrison left Diverse to join Function Talent Group (also named as a defendant) and diverted business to their new employer by using confidential client information misappropriated from Diverse and by falsely claiming their former agency was closing. The three supposedly used the confidential materials, such as customer lists and the personal and financial information of clients, to poach those clients for Function. "Defendants have taken the confidential information without the permission of Diverse and have used it for their own financial gain and business purposes," the suit said. "Despite demands to cease and desist from using this information, defendants continue to use the confidential information." Diverse demanded that the files be returned, but the employees refused, according to the complaint.

Diverse claims that the Durzis and Morrison agreed as a condition of their employment that the agency's client list and other customer information were property of the agency. According to the complaint, the three accepted positions at Function earlier this year, but before they started their new jobs, the employees sent letters to Diverse customers soliciting them to take their business to Function. The letters made "false, defamatory and damaging statements," including that Diverse was going out of business, according to the complaint. The complaint goes on to say that they had some success, causing the termination of some of the plaintiff’s client representations.

The complaint also asserts that the employees "hacked into Diverse's computer system and changed the agency's contact information," and sent messages to clients instructing them to contact Ehab Durzi using the newly-diverted number.

The suit seeks unspecified damages, an injunction barring the employees from disclosing Diverse's confidential information and an order compelling them to arbitrate the dispute. According to the complaint, Diverse expects the dispute to be headed to arbitration as a result of employment agreements with the three former agents, but the company says it was forced to seek provisional remedies to deter the diversion of its clients.

The talent agency says on its website that its "highly valued clientele" includes "Academy Award winners, top sitcom actors, one-hour drama directors, editors and producers." The site states that the agency's clients have worked on shows including "The Big Bang Theory" and "Battlestar Galactica" and movies including "Transformers" and "Good Night and Good Luck."

The parties are scheduled to appear before Judge Meiers for a case-management conference on January 10, 2012.

District Court for the District of Massachusetts
Marketing vendor alleges that Procter & Gamble misappropriated its strategic marketing plan

On August 2008, Electronic Arts (“EA”) launched Procter and Gamble’s ("P&G") joined together to promote P&G’s subsidiary Gillette. The strategic alliance is now the subject of a lawsuit filed by Alternative Productions, Inc. (“API”) against P&G in Massachusetts federal court on August 23, 2011.

API alleges that a former P&G marketing consultant, Michael Fuccillo, approached it in June 2007 to discuss a strategic plan for a Nascar promotional campaign for Gillette. API delivered a marketing plan which included the “novel idea of establishing online, console-based gaming tournaments” through a partnership with EA. Fuccillo, however, informed API that Gillete had rejected the plan, which nonetheless became integrated into a larger marketing campaign produced by Gillette’s principal advertising agency.

API asserts that Fuccillo shared its strategic alliance plan with other P&G employees, in breach of his non-disclosure agreement with API. Additionally, it argues that P&G knew or should have known that the alliance plan with EA did not originate with Fuccillo, whose duties at P&G did not include creating marketing ideas.

Defendant's motion to dismiss the case for lack of jurisdiction is currently pending before the Court.

Eighth Appellate District in Ohio (Cuyahoga County)
Trade secrets plaintiff can secure both a damages award and a permanent injunction

In Litigation Management, Inc. v. Bourgeois, 2011 Ohio 2794 , the Court of Appeals for the Eighth Appellate District in Ohio (Cuyahoga County) held that a trade secrets plaintiff can now secure both a damages award for misappropriation of trade secrets and a permanent injunction to prevent further injury under Ohio's version of the Uniform Trade Secret Act.

Plaintiff-appellant, Litigation Management, Inc. (“LMI”) is a litigation support company, specializing in analyzing medical records. The lead defendant, Jean Bourgeois, was LMI’s chief operating officer. Bourgeois and the other defendants were all subject to noncompetition, nonsolicitation, and confidentiality agreements. Bourgeois was terminated in May 2003. In December 2004, she founded Excelas as a direct competitor to LMI and, in the words of the court, set up business “almost literally across the street.” She recruited the remaining defendants from LMI, all of whom were medical analysts, to work for Excelas and perform the same function.

LMI brought claims against the individual defendants for breach of the noncompetition, nonsolicitation, and confidentiality agreements; a claim against Excelas for intentional interference with contractual relations; and a request for a permanent injunction under the Uniform Trade Secrets Act, R.C. 1333.61, et seq.

LMI prevailed at trial on its claim for damages caused by defendants-appellees, Jean Bourgeois, Excelas, LLC, and a number of Excelas employees, all of whom were former LMI employees who breached the terms of nondisclosure and trade secrets agreements they made with LMI prior to founding Excelas, a direct competitor to LMI. In addition to damages, LMI sought a permanent injunction to enforce prospectively the terms of the noncompetition and trade secrets agreements. The court denied the injunction, finding that LMI failed to establish that it had suffered “irreparable” damages in light of the damage award. LMI argues that the court abused its discretion by finding that an injunction for prospective relief was barred when damages for the breach had been awarded.

In a ruling issued at the close of evidence in the trial, the trial court upheld the validity of the noncompetition agreements, but limited their geographic scope. It then submitted the amended noncompetition agreements and the trade secrets violations to the jury. In a general verdict, the jury found against each individual defendant and the corporation, awarding damages of $4,000 per individual defendant and $45,000 against Excelas.

Following the verdict, LMI asked the court to enter a permanent injunction against eight of the individual defendants and enforce the terms of the noncompetition, nonsolicitation, and confidentiality agreements. The court refused to enter a permanent injunction on the noncompetition claim because LMI did not show that it suffered an irreparable injury. It noted that each defendant had been ordered to pay damages as a result of the breach of their agreements, thus being made whole: “In short, not only is an adequate remedy at law available, it has been given. The wrong of competing unfairly has been righted by the jury’s award: LMI as received fair and reasonable redress.”

The Eighth District Court of Appeals disagreed, noting that the damages award only remedied the plaintiff's past damages, not its future damages. The Eighth District recognized that "injunctions concern the prevention of future harm, not compensation for, or punishment of, past harm" (Opinion at Para. 18). Without an injunction, the defendants would continue to have the benefit of the trade secrets post-trial and would continue to use them against the plaintiff.

In another noteworthy holding, the Eighth District found that the jury's verdict created a rebuttable presumption of irreparable harm resulting from the loss of the proprietary information. As a result, it found that the defendant now bears the burden of proving that the injunction should not issue in this situation.

The appeals court held that the evidence at trial had showed that LMI suffered irreparable harm from the misappropriation of its trade secrets; LMI expended money and effort into developing proprietary information that it wished to remain confidential and it took steps to protect this information by requiring its employees to sign nondisclosure and confidentiality agreements.

“Despite being under agreement not to disclose LMI trade secrets, Bourgeois and the other individual defendants took LMI’s proprietary information like pricing strategies and used them so that Excelas could solicit and underbid LMI clients. The evidence showed that Bourgeois used information compiled by LMI on existing customer preferences to win jobs for Excelas that, as an upstart, it might not have qualified enough to acquire... LMI’s trade secrets were undeniably misappropriated and used by the defendants to LMI’s disadvantage. Without an injunction, it is plain that those trade secrets would continue to be used in the future against LMI.” (Opinion at Paragraphs 15, 19.)

The appeals court held that the trial court had erred as a matter of law by finding that an award of compensatory damages showed that LMI’s harm was not “irreparable” for purposes of an injunction.

United States District Court for the Eastern District of New York (Brooklyn)
GEO Group sues former executive for misappropriating its trade secrets to secure a multi-million dollar contract from the U.S. Government

On April 7, 2011, GEO Group Inc. (GEO), a corrections services agency, sued a former executive, Jack A. Brown III, claiming Brown misappropriated its trade secrets to secure a multi-million dollar government contract from the U.S. Department of Justice's Bureau of Prisons. Brown was employed at GEO as Vice President of Community Corrections from October 2005 to March 2009. During this period, he allegedly was running another business on the side, Community First Services Inc. (CFS), without GEO's knowledge. GEO claims that it planned to submit a bid for the Bureau of Prisons project, but Brown accessed GEO’s confidential proposal materials and information in order to compose a lower bid for CFS. Brown then abruptly resigned from GEO and submitted the CFS bid. CFS was awarded the contract by the Department of Justice. GEO claims that its proposal materials and information were a trade secret.

District of Oregon
Music festival producer settles suit against competitor after alleging misappropriation of trade secrets

The plaintiff, a music festival producer, claimed that the defendant, the organizers of a competing festival, misappropriated trade secrets such as customer lists, leases, and contracts with providers. Defendant contacted providers and told them it would be putting on the plaintiff's annual music festival under new management, when in fact the festival had no relation to the plaintiff. The defendant obtained contracts in excess of $60,000.

The case was conditionally settled on April 13, 2011. The matter is stayed pending completion of the settlement agreement.

Southern District of New York
2FA's claims against Oracle for misappropriation of trade secrets is stayed pending partial summary judgment in a related action

In 2010, 2FA Technology sued Oracle Corporation and Oracle Systems Corporation, formerly Passlogix, a wholly-owned subsidiary of Oracle merged with Oracle Systems Corporation, for misappropriation of trade secrets and breach of contract. 2FA alleges that Passlogix's senior engineers misappropriated 2FA's source code and incorporated the code into Passlogix's products. 2FA alleges that Oracle continued to knowingly sell products containing misappropriated 2FA technology after it acquired Passlogix.

On January 31, 2011 the defendants filed a motion to stay the proceedings pending the outcome of a partial summary judgment motion filed by Passlogix in an earlier related action in the Southern District of New York, Oracle Systems Corporation v. 2FA Technology, LLC, docket number 08–cv–10986. There, the partial summary judgment motion seeks to dismiss each of 2FA’s counterclaims in the entirety, which could spell doom for the pending similar claims in this action. 2FA filed a memorandum in opposition to the motion to stay on March 17, 2011 but the motion was granted on April 6, 2011.

On July 25, 2011, the parties stipulated that the action be dismissed with prejudice, with each side bearing its own costs and expenses, including attorneys' fees, incurred in connection with the action. The related action was similarly dismissed.

United States District Court for the Middle District of Alabama Northern Division
Fruit of the Loom and Russell Brands stipulate to dismiss (with prejudice) the action against a former employee for breach of a non-compete clause

Fruit of the Loom, Inc. (Fruit of the Loom) and Russell Brands, LLC (Russell) sued Lonnie Bishop, a former employee, for violating a Trade Secrets and Non-Competition Agreement that he signed in July 2010. Bishop served as manager of a Russell distribution center in Alabama and helped develop a system of managing inventory. According to the Agreement, Bishop would not work for a competitor of Fruit of the Loom or Russell Brands for twelve months after his employment terminated. Shortly after resigning from his position at Russell’s in November 2010, Bishop went to work for Gildan Activewear, Inc. a competitor of the plaintiffs.

On January 21, 2011, Fruit of the Loom and Russell’s motion for a preliminary injunction was denied. Although a denial of a preliminary injunction is typically considered outcome determinative, often resulting either in settlement or withdrawal of the complaint, Fruit of the Loom and Russell persisted. However, the parties stipulated to dismiss the case with prejudice on May 12, 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.

Southern Division, United States District Court for the Western District of Michigan
How One Auto Parts Company Successfully Defended a Misappropriation Suit

Dana, a maker of car parts such as axles, recently lost a trade secrets misappropriation action against American Axle, a fierce competitor in the auto-parts industry, after three Dana employees downloaded Dana’s files and then went to work for American Axle. Dana's unsuccessful attempt to protect its trade secrets provides a useful lesson to practitioners about how to defend a misappropriation case.

The court’s decision was based on the following three main criteria: (1) Dana did not make a strong enough showing that American Axle was a direct and fierce competitor and American Axle successfully argued that it targets a different market segment (Asia instead of the United States); (2) Dana failed to show that American Axle used the trade secrets, and failed to show that the employees misused them. The court made this point by saying, “the fact that [some of the defendants] copied their work files before departing their employment does not create an inference that they did so in an attempt to steal confidential information from Dana or to bring that information to American Axle. Copying work files at the conclusion of employment does not, in and of itself, support an inference of suspect behavior”; and (3) American Axle was able to show that it did not poach the employees it hired since those employees had been laid off by Dana.

Additionally, “Dana had not previously enforced any prohibition against copying Dana files for personal use.” Defendant Adelman “said he copied the files so that he could review all the projects he had worked on before he updated his resume.” To remedy what might otherwise seem like a valid reason to copy such files, a company policy that states that company property cannot be taken for personal use could have strengthened Dana’s case. Dana lacked such a policy. To that effect, a company has to enforce its policy, not just print it and distribute it. Defendant Wenstrup testified that he was accompanied by a Dana HR employee when he went to his office after he was terminated and copied the entire contents of the “My Documents” file from his office computer to his personal computer. This type of corporate behavior opens the door for defendants to successfully argue that such behavior is tolerated by the plaintiff corporation.

Lastly, Dana's lawyers failed to properly organize the large volume of data that they claimed was stolen. The court noted that “[t]he manner in which the evidence was presented tended to blur the distinctions between what was confidential and what was not, what was reasonably protected and what was not, what was used and what was merely downloaded, what was copied and what was returned.” Since the first step of a successful misappropriation claim is to establish the existence of a trade secret, practitioners should be thorough and methodical about parsing out and encapsulating the confidential information and tracing a direct connection the defendants’ use of that information.