Cases from Other state statute

Cal. Super. Ct.
Guardsmark Wins Noncompete Order in California

In a settlement, former employees of Guardsmark and their current employer agreed to not solicit Guardsmark's customers and to not use Guardsmark's trade secrets for a period of one year. Guardsmark sued Derick Bowman, the former manager of its San Francisco branch for founding a competing security company. The settlement agreement, published in May, came after the court granted Guardsmark a preliminary injunction in February.

U.S. Court of Appeals for the Eighth Circuit
$31 Million Trade Secrets Verdict Affirmed

The Eighth Circuit affirmed a $31.1 million jury verdict, including $10 million in putative damages, in favor of Hallmark Cards, Inc. against a private equity firm that misappropriated confidential information including Hallmark’s Power Point presentations on consumer behavior which constituted trade secrets. This appellate ruling is merely the latest development in a long-running legal battle between Hallmark and Clipper, coming more than a year after U.S. District Judge Ortrie D. Smith awarded Hallmark $103,000 — slightly under 20% of the greeting card company's $519,000 it sought in court fees.

Central District of California (Western Division - Los Angeles)
Are LinkedIn Contacts Protectable Trade Secrets?

In a recent District Court opinion in the Central District of California, Judge Pregerson denied a defendant's motion for summary judgment on the issue of trade secret misappropriation under the California Uniform Trade Secrets Act (“CUTSA”), Cal. Civil Code § 3426 et seq. Central to the trade secret claim, is the controversial issue of whether and to what extent LinkedIn contacts are trade secrets.

In the opinion, Judge Pregerson explains that while a list of business contacts can be protected as a trade secret, certain conditions must be met. Essentially, the list must have been difficult to create, and the list cannot be easily obtained through public sources. In this situation, it remains unclear how difficult it was to obtain the information, since many of the individuals the Defendant had contacted, had already been contacted by competitors, and "LinkedIn suggested contacts to [the defendant] automatically."

Also unclear, is the issue of whether the contacts were permissibly made available to the public. Defendant argues the company encouraged him to have a LinkedIn account, and his LinkedIn contacts would have been viewable to "any other contact he has on LinkedIn." In contrast, Plaintiff argues that LinkedIn information is "only available to the degree that the user chooses to share it."

These issues will likely be decided when the case goes to trial, and could have a serious impact on the role that LinkedIn currently plays in the corporate world.

New Castle County Superior Court
Delaware Superior Court Denies Exemplary Damages

In this case during a twelve day trial, the jury found that Plaintiff, Professional Investigating & Consulting Agency, Inc.’s (“PICA”) Channel Management Program, was a trade secret and that Defendant, Hewlett-Packard Company (“HP”) wilfully and maliciously misappropriated the Channel Management Proposal. On the Channel Management Proposal misappropriation claim, the jury awarded PICA $300,000 in damages for out of pocket expenses and lost profits as well $700,000 for HP’s unjust enrichment.

On March 23, 2015, the New Castle County Delaware Superior Court decided on the parties’ post-trial motions. The court granted in part and denied in part PICA’s motions for exemplary damages and attorneys’ fees, attorneys’ fees and expenses, and costs and interest. The court also denied HP’s motion for a new trial or remittitur and renewed motion for judgment as a matter of law. Regarding the trade secret misappropriation verdict, HP argued that PICA did not present evidence that it derived any economic value from the Channel Management Program not being generally well-known because “every aspect of PICA’s proposal was generally known”, and that PICA attempted to keep the program confidential. The court, however, applied Delaware’s Uniform Trade Secret Act (“DUSTA”) and found that PICA provided extensive evidence at trial that though some of the components of PICA’s program was a trade secret, the program as a whole was a trade secret and that the jury’s damage award was not duplicative.

The court also applied the DUSTA when it granted in part and denied in part PICA’s motion for exemplary damages and attorneys’ fees. Although PICA moved for the court to grant two million dollars in exemplary damages (the maximum amount allowed under the DUSTA), the court followed the guidance of Agilent Technologies, Inc. v. Kirkland and denied exemplary damages. Agilent took the approach of making the plaintiff “whole and to deprive [the defendant] of unjust rewards.” The court here analogized this case to Agilent, where further punishment through exemplary damages were unnecessary because the court had already granted a “stringent remedy that [would] sufficiently vindicate the interests of [the plaintiff] and those more generally protected by the Delaware Uniform Trade Secrets Act.” In the current case, the court held that “the jury’s $1 million award reasonably compensates PICA for misappropriation of its trade secrets… [and] in light of the total jury verdict, the Court decline[d] to impose an additional amount for exemplary damages for punitive purposes.”
This case is significant because the court demonstrates that though the DUTSA permits a court to award exemplary damages in cases where wilful and malicious misappropriation exists, the bar for granting exemplary damages will be set high in cases where the total jury verdict already reasonably compensates the plaintiff for the misappropriation. Though the bar is set high for exemplary damages, this wasn’t much of a total loss for the plaintiff because the court granted the plaintiff’s requested 75% of attorneys’ fees for the entire litigation of the Channel Management Program misappropriation claim as well as 75% of attorneys’ fees and expenses incurred by PICA since July 29, 2013 due to HP’s bad faith throughout the discovery process. Although PICA was not able to obtain exemplary damages, the court did grant PICA to recover for most of the costs incurred with the claims which it prevailed on.

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Eastern Division, Northern District of Illinois
Social Media Group Membership Lists May Be Trade Secrets

In CDM Media, the Defendant, former employee Robert Simms, was granted in part and denied in part a motion to dismiss the multiple claims filed in CDM’s complaint. CDM sued its former employee, Simms, for refusing to transfer control of a LinkedIn group allegedly owned by CDM and allegedly wrongfully retaining CDM’s confidential information after Simms left CDM and using it in competition with CDM. The court denied the motion with regard to one claim, but granted the motion regarding the remaining two claims.
CDM asserted Trade Secret protection under the Illinois Trade Secret Act over three separate aspects of CDM’s business. First, CDM asserts Trade Secret protection over a LinkedIn group called “the CIO Speaker Bureau,” a private online community of chief information officers and senior Information Technology executives interested in participating in or speaking at CDM events. Second, CDM asserts Trade Secret protection over the confidential information contained in this LinkedIn group. Lastly, CDM asserts Trade Secret protection over information from CDM’s Event Logistic Management database (“ELM”), which included CDM’s sensitive information including CDM vendor and customer lists, pricing and cost data regarding its products and services and profit or loss information. The court also denied Defendant’s motion to dismiss based on common law misappropriation.
The Northern District of Illinois denied the motion to dismiss, holding that there was a question of fact which a jury must decide regarding the Speaker Bureau membership list. The court denied the Defendant’s motion to dismiss regarding the confidential information contained in the LinkedIn group, holding that “[w]hile a private communication can contain a trade secret, it is not itself a trade secret. It is therefore insufficient for plaintiff to allege that the LinkedIn group’s private communications were trade secrets under the Illinois Act.” The court also denied the motion to dismiss regarding the ELM database, holding that the Plaintiff failed to allege that the defendant actually used the data from the ELM database after he left CDM, and therefore this claim was not viable.
Moving forward, cases that involve business development though social media will continue to mold the landscape of trade secret jurisprudence. Here, the Nothern District of Illinois court is willing to extend trade secret protections to cover social media business development and holds the defendant to a high bar to have the claims dismissed. The court is willing to consider the confidential nature of communications via social media and recognizes that a jury can find that business development through social media may have required a significant investment of time and money. It will be interesting to see in the future how other states interpret its own trade secret statutes as it applies to social media.

United States Court of Appeals for the Fifth Circuit
The Fifth Circuit holds that Trade Secrets Fixed Within Software Fall within Copyrightable Subject Matter

On June 30, 2015, the Fifth Circuit affirmed the lower court's decision which found Spear Marketing's (SMI) Texas Theft Liability Act and trade secret misappropriation claims precluded by the Copyright Act.

Spear Mktg., Inc. v. Bancorpsouth Bank involved a dispute over cash management software. SMI, producer of the software VaultWorks, alleged that its competitor, Argo, had stolen both technical and business trade secrets related to VaultWorks. On April 1, 2010, SMI had approached Argo to measure Argo's interest in acquiring SMI. In the pursuit of this deal, SMI provided a demonstration of its software and sent Argo screenshots of its software interface. The instant controversy arose when Argo launched its own cash management software at the end of 2011 and SMI's client, BancorpSouth Bank (BCS), had informed SMI that it had no intention of renewing its licensing contract with SMI.

An issue of first impression for the Fifth Circuit, the court confronted the intersection of trade secrets and the preemption purview of federal copyright law. Because processes and methods are excluded from copyright protection per section (102)(b) of the Copyright Act, SMI argued that their trade secrets fell outside the scope of the Act. Thus, the court was presented with whether processes and systems that had been fixed in a tangible medium of expression may be copyrightable subject matter for purposes of preemption, even though such matter may not be copyrightable matter generally.

The court addressed the issue by noting the current circuit split and followed the majority of its sister circuits,* holding that ideas fixed within tangible matter falls within the scope of copyright subject matter for preemption purposes, even if some of the underlying matter is not copyrightable. The court first stated that the Copyright Act protects computer software as a tangible medium. Then the court noted that the ideas that were allegedly stolen were fixed within the provided screenshots and the overall computer software. Therefore, SMI's trade secrets were fixed within the software, falling under the scope of the Copyright Act's preemption provision.



*The Second, Fourth, Sixth, Seventh and Ninth Circuits recognize that the Copyright Act's preemption provision, § 301(a), covers ideas fixed in tangible media. See Forest Park Pictures v. Universal Television Network, Inc., 683 F.3d 424 (2d Cir. 2012); U.S. ex rel. Berge v. Bd. of Trustees of the Univ. of Ala., 104 F.3d 1453 (4th Cir. 1997); Stromback v. New Line Cinema, 384 F.3d 283 (6th Cir. 2004); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996); Montz v. Pilgrim Films & Television, Inc., 649 F.3d 975 (9th Cir. 2011) (en banc). The Eleventh Circuit disagrees, finding that ideas are categorically excluded from copyright protection, even if the matter is fixed in a tangible medium. See Dunlap v. G&L Holding Grp., Inc., 381 F.3d 1285 (11th Cir. 2004).

United States District Court Central District of California
LinkedIn Contacts May Be Trade Secrets

Operating under the California Uniform Trade Secrets Act, the Central District of California denied summary judgment in favor of the defendant and found that there was a material issue of fact regarding whether LinkedIn contacts that a former employee made while working for Cellular Accessories For Less (“Cellular”) are Cellular’s protectable trade secrets. The defendant argued that the LinkedIn contacts are not a trade secret because “Cellular encouraged its employees to create and use LinkedIn accounts, and [the defendant’s] LinkedIn contacts would have been ‘viewable to any other contact he has on LinkedIn.’” On the other hand, Plaintiff argued that the LinkedIn contacts are only available “to the degree that the user chooses to share it.”

The Central District found that the parties’ statements did not make it sufficiently clear whether and to what degree defendant’s LinkedIn contacts were public and if so, whether this was done with Cellular’s explicit or implicit permission. The court held that this dispute regarding the publicity of LinkedIn contacts was an issue of fact which a jury must decide.

For a primer on the development of social media and trade secrets click here.

United States District Court for the District of Massachusetts
Zebra Enterprise Solutions Changes Venue and Files for Declaratory Judgment

On June 10, 2015, Lynx Systems Developers Inc. (“Lynx”) sued Zebra Enterprise Solutions Corp. (“Zebra”) in the United States District Court for the District of Massachusetts for a number of claims including misappropriation of trade secrets, breach of contract, and fraud. The dispute between the two parties stemmed from a joint venture the parties engaged in to build a system that would track NFL football players’ actions in real time using hardware installed in players’ shoulder pads. The business relationship between the parties disintegrated and the parties then developed competing tracking systems independently. After Zebra won a contract with the NFL, Lynx brought the initial suit in Massachusetts District Court.

Last week, in response to the complaint, Zebra filed a motion to dismiss the suit in Massachusetts District Court and on August 20, 2015, brought a new complaint against Lynx in Santa Clara County Superior Court in Santa Clara, California. Zebra’s complaint pleads for declaratory relief of no (1) trade secret misappropriation, (2) breach of contract, (3) interference with existing and advantageous business relationships, (4) fraud, (5) breach of fiduciary duty, (6) unfair competition or unfair or deceptive acts, (7) unjust enrichment, (8) conversion, and (9) intentional interference with prospective contractual and advantageous business and economic relationships. The California case is filed under docket number 115CV284620.

United States District Court for the Fourth Circuit
Fourth Circuit Shoots Down Overbroad Noncompete Agreement

Plaintiff RLM Communications, Inc. (“RLM”) is a government contractor that provides cyber security, information technology and information assurance services. Defendant Amy Tuschen (“Tuschen”) worked at RLM for six years. During her time with RLM, Tuschen managed an information assurance contract with the U.S. Government. She resigned from RLM in 2013, roughly one year before the government contract expired, and joined Defendant eScience and Technology Solutions, Inc. (“eScience”) a competing company. While RLM did not initially object to Tuschen’s new job, it took issue with her new employment when it discovered that eScience was bidding against it on a government contract. The contract at issue was similar to the one Tuschen managed at RLM.

RLM filed suit in North Carolina state court against Tuschen and eScience (collectively “defendants”) seeking a temporary restraining order and asserting multiple claims, including unfair and deceptive trade practices, misappropriation of trade secrets, and several other breach of contract claims. After the state court granted the temporary restraining order, defendants removed the case to federal court and moved to for summary judgment. The district court granted defendants’ motion on all claims and denied RLM’s motion for a permanent injunction.

On appeal, the United States Court of Appeals for the Fourth Circuit affirmed the district court’s decision. First, the Fourth Circuit rejected RLM’s claim that Tuschen violated her noncompete agreement, which was a part of her employment contract. The court found that the noncompete agreement was invalid because it prohibited direct and indirect participation in similar businesses, and was therefore overly broad. Second, the court stated that RLM failed to provide sufficient evidence that Tuschen breached her confidentiality agreement with the company. Similarly, the court rejected RLM’s misappropriation-of-trade-secrets claim because it admittedly gave Tuschen access to its trade secrets, and does not establish that she accessed them without its authorization. The court also affirmed the district court’s decision with respect to the remaining breach of contract and tort claims.