Cases from Uniform Trade Secrets Act

United States District Court of the District of Colorado
Colorado Hospital Sues WebMD for Missappropriating Trade Secrets Related to "Tobacco Cessation and Weight Management" Software Programs

On October 25, 2012, National Jewish Health (“NJH”) brought suit against WebMD Health Services Group, Inc. and WebMD Health Corp.(collectively “WebMD”) in the United States District Court of the District of Colorado. The suit claims copyright infringement and contributory copyright infringement, misappropriation of trade secrets, tortious interference with prospective business relations, conversion, and unjust enrichment under Colorado law, and breach of contract under New York law.

NJH is a Colorado-based nonprofit hospital; U.S. News & World Report has ranked NJH the #1 respiratory hospital in the nation for fifteen consecutive years. According to the Complaint, between 2002 and 2008, NJH developed “a set of software implemented wellness programs, including its FITLogix® and QuitLogix® programs.” (collectively “Programs”) The Programs help assist users with obesity and tobacco addiction, respectively. On February 4, 2010, NJH entered into a non-disclosure agreement (“NDA”) with WebMD related to “Tobacco Cessation and Weight Management programs.” (“T&W programs”) Pursuant to the NDA, NJH presented WebMD with “Confidential Information” related to the Programs, including “operations, finances, plans and trade secrets . . . .” – all of which were proprietary information not known to the public.

In May 2010, NJH began negotiations with Lowes, Inc. (“Lowes”) to implement one or both of the Programs. After a “trial period,” during which NJH satisfied all of Lowes “approval criteria,” Lowes opted not to implement the Programs. NJH later learned that Lowes contracted with WebMD to implement WebMD’s program “My Lifetrack,” which “highly resemble(s)” the Programs. NJH alleges “My Lifetrack” uses “substantial portions of the [Programs’] sequencing, screen displays, textual material, and other content." Prior to its agreement with NJH, WebMD did not “offer either stand-alone obesity or smoking cessation programs.”

In its NDA with NJH, WebMD was only permitted to use the Confidential Information related to the Programs for an “Authorized Purpose” – this was loosely defined in the Complaint as relating to “a potential business relationship or transaction [between NJH and WebMD] related to [T&W programs].” NJH’s misappropriation of trade secrets claim is based on WebMD’s alleged use of NJH’s Confidential Information (including its trade secrets) for unauthorized purposes, including “enter[ing] into the market for [T&W programs] . . . .” NJH seeks to enjoin WebMD from further implementing “My Lifetrack,” and also seeks damages (including punitive), and reasonable attorney’s fees.

This is the second trade secret misappropriation suit that WebMD is currently litigating. The first, WebMD Health Corp. v. Anthony T. Dale, is pending trial in the Eastern District of Pennsylvania. It features WebMD in a reversed role - suing a former employee for alleged misappropriation of WebMD's trade secrets.

Court of Appeals for the Tenth Circuit
Tenth Circuit Upholds Reasonable Royalty Award Regardless of Defendant's Motivation

On March 11, 2014, The Tenth Circuit held that a plaintiff may recover damages under a reasonable royalty theory, even in cases where the defendant had not profited financially from the misappropriation.

StorageCraft Technology Corp. (StorageCraft), a developer of data storage and recovery software, brought suit against James Kirby, a former officer and director who was also one of the company’s original founders. The complaint alleged that Kirby had misappropriated StorageCraft’s trade secrets, and had subsequently shared this information with NetJapan, one of StorageCraft’s main competitors. The complaint did not allege that Kirby had profited financially from the misappropriation. A jury awarded StorageCraft $2.92 million in damages based on the estimate of what would constitute a reasonable royalty for use of the misappropriated trade secrets. Kirby appealed, arguing that the award was excessive because he had not profited from the misappropriation.

The Tenth Circuit rejected Kirby’s argument and affirmed the award, noting that the Utah Uniform Trade Secrets Act “doesn’t distinguish between a misappropriator’s venial motives.” While reasonable royalty damages are commonly sought in cases where the defendant has profited financially from the misappropriation of the plaintiff’s trade secrets, this decision makes clear that, at least in Utah, such damages are available regardless of the defendant’s motive in the misappropriation.

Superior Court of the State of California
Zynga Alleges Ex-Employee Used a Personal Dropbox Account to Steal the Company's Trade Secrets

On October 12, 2012, Zynga Inc. (“Zynga”) brought suit in California Superior Court against former employee Alan Patmore for Misappropriation of Trade Secrets and Breach of Contract. The suits concerns theft of confidential information related to Zynga’s online games, and includes additional defendants (“DOES 1 through 50”) whom Zynga does not yet know the identity of, but who allegedly aided and abetted Patmore’s wrongful conduct.

Zynga, Inc. is a San Francisco-based online social gaming company, responsible for popular games such as CityVille and Words With Friends. Patmore was the General Manager for CityVille at Zynga, and signed a Confidentially Agreement with Zynga pursuant to his employment. The contract obligated Patmore to protect Zynga’s confidential, proprietary, and trade secret information. However, on August 16, 2012, Patmore resigned from Zynga. Zynga alleges that at that time (if not earlier), Patmore had been recruited by, and agreed to join, Zynga’s competitor Kixeye. On the day of his departure, Patmore allegedly transferred 760 confidential Zynga files to his personal Dropbox account without Zynga’s consent, which he intended to provide to Kixeye. During Patmore’s exit interview, he refused to sign a Termination Certification that he had complied with his prior contractual obligations.

Zynga alleged that the stolen information – which includes “unreleased game design documents” and other “strategic roadmaps”– could be used to improve Kixeye’s “internal understand and know-how of core game mechanics and monetization techniques, its execution, and ultimately its marketing standing to compete more effectively with Zynga.” According to the complaint, Patmore attempted to cover up his conduct by uninstalling Dropbox. However, Patmore’s attempts were apparently unsuccessful, and “he left a forensics trial of his wrongful conduct.” Both the relatively new subject matter of the claim (i.e. “free-to-play online social games”), as well as the defendant’s alleged use of cloud technology to misappropriate his employer’s trade secrets, make this an interesting case and one to follow as the litigation moves forward.

UPDATE: Kixeye's CEO Will Harbin fired back at Zynga: "Zynga is burning to the ground and bleeding top talent and instead of trying to fix the problems -- better work environment and better products -- they are resorting to the only profit center that has ever really worked for them: their legal department." Two weeks after making that statement, Zynga expanded the suit to include Kixeye as named Defendants.

United States District Court N.D. Georgia (Atlanta Division)
Software Experience as a Trade Secret Claim Survived a Motion to Dismiss

The Northern District court of Georgia (Atlanta Division) denied a motion to dismiss a trade secret claim based on an end user license agreement (EULA). Plaintiff AirWatch provided sufficient evidence (for the purpose of defeating a motion to dismiss) that defendants, employees of Mobile Iron, had electronically signed a contract for a free trial that incorporated the EULA by reference. The EULA said, “the Software is provided to User for evaluation purposes,” that it was a “license to use the software solely for the purposes of testing and evaluating the software,” and that the user “shall not engage in competitive analysis.”

The court refused to dismiss all of plaintiff’s five claims. In addition to the breach of contract claim concerning the EULA, plaintiff brought claims under the Computer Fraud and Abuse Act (CFAA), under the Georgia Trade Secrets Act, under the California Unfair Competition Law, and a tort claim for fraudulent misrepresentation.

234th Judicial District Court of Harris County, Texas
Trade Secret Holder Files for Injunctive Relief After Employee Confesses to Accepting Bribe from Competitor

On October 4, 2012, National Oilwell Varco LP (“NOV”) petitioned for a Temporary Restraining Order (TRO) and Injunction against its competitor Ceram-Kote, Inc., (“Ceram-Kote”), Ceram-Kote’s President Kevin Freeman, and former NOV employee Nelson Calderon (collectively “Defendants”). NOV brought the suit in Texas State court to stop Ceram-Kote from producing a “knock-off blast unit” that Ceram-Kote allegedly misappropriated from NOV.

NOV claims that “Ceram-Kote along with its president, Kevin Freeman, secretly recruited and paid Nelson Calderson – while he was still working at [NOV] --to build a knock-off of a . . . sophisticated piece of [NOV] industrial machinery,” which was an NOV trade secret. Calderon had access to highly confidential information by virtue of his employment with NOV, and had signed multiple confidentially agreement with the company. After NOV received an anonymous tip about a possible knock-off blast unit at Ceram-Kote, it approached Calderon, who confessed to accepting a bribe from Freeman and providing him with confidential designs.

Per NOV’s filing: “Rather than investing in research and development themselves, they decided to cheat — by paying a [NOV] employee $40,000 to design a large scale blast unit for them by using [NOV's] proprietary technology.” In addition to NOV’s claim for misappropriation of trade secrets pursuant to the Texas Uniform Trade Secrets Act, NOV brought additional causes of action for breach of contract[s], tortious interference with a contract, conversion, conspiracy, unjust enrichment and constructive trust.

Court of Appeals for the Seventh Circuit
Seventh Circuit Allows Attorney's Fees under UTSA for Suits Maintained in Bad Faith

§ 4 of the UTSA provides that “[i]f a claim of misappropriation is made in bad faith . . . the court may award reasonable attorney’s fees to the prevailing party.” A recent decision by the Seventh Circuit suggests that this provision applies to suits maintained in bad faith, even when the initial claim may have been meritorious.

In Tradesman, International, Inc. v. Black, a Seventh Circuit panel reversed and remanded a decision of the District Court for the Central District of Illinois denying a request of attorney's fees. The district court found that while the plaintiff had not initiated the suit in bad faith, bad faith had developed over the course of the litigation, as it became clear that the plaintiff’s claims were without merit. Nonetheless, the district court found that the phrase “made in bad faith” in UTSA § 4 applied only to the initial filing of a lawsuit, and denied the request accordingly

In reversing, the Seventh Circuit took a broader “common sense” reading of § 4, holding that “[a] claim is made in bad faith [under UTSA § 4] when it is initiated in bad faith, maintained in bad faith, or both.” The Seventh Circuit's decision suggests a new avenue for collecting attorneys' fees in trade secret cases.

Superior Court of the State of California
Former Stage Designer Sues Mötley Crüe Over Idea For "Tommy Lee Loop Coaster"

On September 20, 2012, Howard Scott King brought suit against popular rock band Mötley Crüe (itself, its touring company and bassist Tommy Lee as an individual, collectively “MC”), for misappropriation of trade secrets in the Superior Court of California. The suit relates to MC’s allegedly unlawful use of King’s proposal for a “Tommy Lee Loop Coaster” (“Coaster”).

According to his complaint, King developed the idea for the Coaster as part of his now defunct business “Stages ‘N’ Motion.” King described it as “a track on which [Tommy Lee] would play his drums on a platform on wheels which follow the track until Lee was in an upside down position playing the drums and he would continue playing the drums as the platform followed the track in a complete loop.” On or about November 21, 1991, King alleged that he discussed a proposal for the Coaster with Top Rock Development Corp. (MC’s agents). King claims that both the proposal, as well as a signed confidentiality agreement (which has since been lost or misplaced), expressly stated that the ideas were confidential, and that King was to be compensated should MC implement the Coaster. In June 2011, MC begin using the Coaster, or a substantially similar device, as a centerpiece for concerts, as well as in commercials and other promotions.

(link to video of device in question)

King brings trade secret misappropriation actions under both the California Uniform Trade Secret Act (CUTSA), as well as common law. The key difference between the claims is that the CUTSA claim seeks relief in the form of actual damages ($400,000), or in the alternative, a “reasonable royalty”; conversely, the common law claim does not seek a reasonable royalty damages award. Both claims seek injunctive relief, as well as punitive damages in light of MC’s alleged “willful and malicious” conduct.

Delaware Chancery Court
Remedies available for Employer Despite Lack of Non-Compete Agreement or Misappropriation of Trade Secrets

On March 5, 2014, the Delaware Chancery Court awarded damages to an employer against a former employee who, using the employer’s information, had started to compete directly with the employer, despite the absence of any non-compete agreement or any finding of trade secret misappropriation. Wayman Fire Protection (Wayman) brought suit against former employee Weitzel and others. Wayman alleged that after being fired by Wayman, Weitzel started competing directly with Wayman by bringing Wayman employees to his firm, and that those employees had taken with them Wayman’s proprietary information. The complaint alleged that, using this information, Weitzel won a bidding war against his prior employer.

After dismissing Wayman’s claims for tortious interference and misappropriation of trade secrets, the Chancery Court went on to find that Weitzel had indeed violated the Delaware Misuse of Computer System Information Act, and had also violated his fiduciary duty to Wayman. In addition, the court found Premium Fire liable as a conspirator, resulting in joint and several liability, and awarded Wayman over $85,000 in damages as well as attorney’s fees.

Thus, the court found that even absent a non-compete agreement or misappropriation of trade secrets, Wayman was still entitled to relief. This creative damages award suggests that new avenues for relief may be available for plaintiff employers seeking recovery from past employees, even in cases that fall short of trade secret misappropriation, and even where the company has failed to obtain a non-compete agreement from the employee at issue.

Superior Court of New Jersey
New Jersey UTSA Does Not Displace Common Law Misappropriation

The Superior Court of New Jersey, Chancery Division, considered the applicability of the New Jersey Trade Secrets Act (NJTSA). The act, recently passed by New Jersey, enacted the widely endorsed and adopted Uniform Trade Secrets Act (UTSA).

The issue in SCS Healthcare v. Allergan was one of first impression and considered whether the NJTSA “preempts common law causes of action which are based on the same set of operable facts.” The court held that the NJTSA does not preclude parties from seeking relief under both the NJTSA and the common law. The court cited the legislature’s intent regarding the provision and the final statutory language that stated the NJTSA supplemented, but did not displace, common law remedies. Accordingly, claimants may seek relief via the statute and traditional common law avenues. This decision makes New Jersey a particularly friendly forum for trade secret plaintiffs. Moreover, the courts interpretation affords misappropriated information that does not rise to the level of “trade secret” protection under common law.

Indiana Court of Appeals
Indiana Appellate Court Adopts Majority "All or Nothing" Approach to UTSA Preemption, Denies Protection for Information Not Rising to the Level of Trade Secrets

On August 10, the Court of Appeals of Indiana in HDNET LLC v. North American Boxing Council joined states which have held that their enactment of the UTSA preempts related common law claims pertaining to trade secret misappropriation. The court reversed a lower court’s grant of partial summary judgment which held that the Indiana Uniform Trade Secrets Act did not preempt common law claims for idea misappropriation and civil conversion.

The North American Boxing Council (“NABC”), a mixed martial arts (“MMA”) sanctioning body, sued Mark Cuban’s HDNET television channel for misappropriation of a branded fight series concept that the parties had tried to develop in partnership. NABC also alleged misappropriation of trade secrets, but there had been no determination of whether the series concept met the IUTSA’s statutory definition of a trade secret because the Court of Appeals first heard an interlocutory appeal on the question of preemption.

The court’s analysis focused on a provision of Indiana’s enactment which it noted was “stronger than that found in either the 1979 or 1985 versions of the UTSA.” Indiana’s version provides that “the IUTSA ‘displaces all conflicting law of this state pertaining to the misappropriation of trade secrets, except contract law and criminal law.’” Although NABC’s claims all related to the same subject matter, i.e. the series concept, it argued that its alternative claims did not “pertain” to trade secrets under the statute’s meaning because they were not predicated on the existence of a trade secret.

The court, reasoning that the legislature intended the UTSA to be construed consistent with other UTSA jurisdictions, followed the Supreme Court of Hawai’i in holding that the UTSA “abolishes all free-standing alternative causes of action for theft of misuse of confidential, proprietary, or otherwise secret information falling short of trade secret status (e.g. idea misappropriation, information piracy, theft or [sic] commercial information, etc.).” (quoting BlueEarth Biofuels, LLC v. Hawaiian Elec. Co., 123 Hawai’i 314, 321 (Haw. 2010)) (internal quotation marks omitted).

The court emphasized that the IUTSA “does not preempt claims for misappropriation of information or ideas that are protected by contract.” Nevertheless, under similar circumstances where no express obligation has been created, the decision bars recovery for a defendant’s use of confidential information that does not rise to the level of a trade secret.

The court also rejected NABC’s argument that its conversion claim was “derivative” of criminal law, and thus entitled to the statute’s exception. In so holding, the court distinguished civil conversion claims from civil claims brought under RICO, which are not preempted.