trade secret misappropriation

In Seyfarth’s fourth webinar in its series of 2017 Trade Secrets Webinars, Seyfarth attorneys Robert Milligan and Joshua Salinas were joined by Jim Vaughn, one of California’s leading computer forensics experts, presented Trade Secret Protection: What Every Employer Needs to Know. The panel focused on how to help employers navigate the tricky trade secrets waters and provided best practices for trade secret protection.

As a conclusion to this well-received webinar, we compiled a summary of takeaways: Continue Reading Webinar Recap! Trade Secret Protection: What Every Employer Needs to Know

shutterstock_314177504Uber’s ongoing battle with Waymo in the Northern District of California federal court over technology used in self-driving cars provided another significant decision concerning the broad scope of trade secret preemption under California state law.

Waymo accused Levandowski (a former employee) of taking more than 14,000 company files before leaving Waymo and starting his own self-driving truck company (which Uber bought for $680 million). Waymo asserted several claims against Uber for misappropriation of trade secrets under the federal Defend Trade Secrets Act (“DTSA”) and the California Uniform Trade Secrets Act (“CUTSA”). In addition to the trade secret claims, Waymo asserted four claims for patent infringement and one claim for violation of section 17200 of California’s Business and Professions Code. Continue Reading California Federal Court Finds CUTSA Preemption on Unfair Competition Claim in Uber Row

In Seyfarth’s third webinar in its series of 2017 Trade Secrets Webinars, Seyfarth attorneys Justin Beyer, Marcus Mintz, Dean Fanelli, and Thomas Haag focused on how to define and protect trade secrets in the pharmaceutical industry, including: reviewing significant civil and criminal cases in the industry, discussing how federal and state trade secret statutes and decisions may impact the protection of trade secrets, and suggested best practices for protecting trade secrets from invention through sale.

As a conclusion to this well-received webinar, we compiled a summary of takeaways: Continue Reading Webinar Recap! Protecting Your Trade Secrets in the Pharmaceutical Industry

shutterstock_511683898On May 11, 2017, a Northern District of Illinois federal court ruled that a Plaintiff properly alleged misappropriation under both the federal Defend Trade Secrets Act (DTSA) and the Illinois Trade Secrets Act (ITSA) in a case where the employee downloaded files onto a personal thumb drive and then went to a competitor.

Plaintiff  Molon Motor and Coil Corporation (“Molon”) contended that its former Head of Quality Control, Manish Desai, downloaded confidential data onto a portable data drive before leaving Molon for a competitor, Nidec Motor Corporation (“Nidec”). Molon further contended that Desai provided the confidential data to Nidec and Nidec then used (and continues to use) the confidential data to compete with Molon. Nidec filed a Motion to Dismiss Molon’s Complaint against Nidec (Molon did not sue Desai) on the basis that Molon could not state a claim under the DTSA or the ITSA because a) Desai downloaded the trade secrets while still employed by Molon, and b) Molon did not make a plausible allegation that Nidec used the trade secrets. Continue Reading Illinois Federal Court Allows Inevitable Disclosure Theory in Defend Trade Secrets Act Case

shutterstock_494317324On May 19, 2017, Texas Governor Greg Abbott signed into law several amendments to the Texas Uniform Trade Secrets Act (“TUTSA”), located in Chapter 134A of the Texas Civil Practice & Remedies Code. The amendments go into effect on September 1, 2017.  In doing so, Texas has aligned its statute more closely with federal law and codified recent judicial interpretations of the law.

Two events precipitated the amendments, one legislative, one judicial.  In the first, Congress passed the Defend Trade Secrets Act (“DTSA”) in May 2016, which provides a federal cause of action for trade-secret misappropriation. In the second, the Texas Supreme Court announced in In re M-I L.L.C., 505 S.W.3d 569 (Tex. 2016) that a presumption exists that a party is authorized to participate and assist in the defense of a trade-secret misappropriation claim under TUTSA, which presumption cannot be surmounted unless the trial court considers a seven-factor balancing test.  These events resulted in the following key changes to the TUTSA: Continue Reading Texas Legislature Clarifies and Expands the Texas Uniform Trade Secrets Act

shutterstock_534162337A Northern District of California court recently held a plaintiff could amend its complaint to add a Defend Trade Secrets Act (“DTSA”) claim when discovery showed continued misappropriation after the enactment of the DTSA on May 11, 2016.

In VIA Technologies, Inc. v. ASUS Computer International, No. 14-CV-03586-BLF, 2017 WL 491172 (N.D. Cal. Feb. 7, 2017), VIA filed suit against ASUS, alleging infringement of VIA’s patent and trade secret misappropriation of VIA’s intellectual property related to its USB technology. VIA’s second amended complaint was filed in July 2015 prior to the enactment of the DTSA on May 11, 2016.

During discovery, ASUS produced data related to sales of products that allegedly incorporated VIA’s trade secrets. This data was produced in supplemental productions on November 16, 2016, and on December 22, 2016. VIA claims this data supports the alleged continuation of trade secret misappropriation after the enactment of the DTSA, and therefore, requests to add the claim. VIA claims it also inadvertently overlooked the sales data believing the November 16, 2016, production was merely a “re-production.” VIA filed the instant motion on January 4, 2017, after ASUS refused to stipulate to an amendment to add a claim under DTSA. Continue Reading Court Allows Plaintiff to Amend Complaint to Add Defend Trade Secrets Act Claim After Discovery Reveals Alleged Continued Misappropriation

shutterstock_287601008A California federal district court has recently given employers a small victory against former employees who misappropriate trade secrets and assert whistleblower immunity or the litigation privilege as after-the-fact defenses. The federal district court for the Eastern District of California recently rejected, for a second time, a defendant’s anti-SLAPP motion to strike a trade secret lawsuit brought against him by his former employer. Notably, the court rejected the defendant former employee’s whistleblower and litigation privilege defenses as inapplicable, thereby allowing the beer company’s trade secret action to proceed.

On March 1, 2013, the beer company sued the former employee for, among other things, trade secret misappropriation and breach of nondisclosure agreements. The former employee subsequently filed a motion to dismiss and strike the Complaint under California’s anti-SLAPP statute. Specifically, the former employee argued that the Complaint was an attempt to punish him for purportedly exercising his constitutional rights of petition and free speech in connection with a consumer class action litigation that he filed against the company exactly one week before.

The federal district court denied the former employee’s anti-SLAPP motion and concluded that the company’s claims did not arise out of the former employees protected litigation activity. The former employee appealed.

The Court of Appeals for the Ninth Circuit reversed the district court and remanded back so the district court could consider the next prong of the anti-SLAPP analysis, the plaintiff’s probability of prevailing on its claims.

Upon its second review of the former employee’s anti-SLAPP motion, the federal district court concluded that the company had demonstrated a likelihood of prevailing on its trade secret misappropriation and breach of contract claims. The court then turned to and rejected the former employee’s substantive legal defenses of public policy, whistleblower immunity, and the litigation privilege.

First, the court rejected the former employee’s argument that confidentiality agreements are unenforceable as a matter of public policy. The court refused to adopt such a sweeping rule that would render confidentiality agreements unenforceable that would allow former employees to disclose trade secret or confidential information.

Second, the court acknowledged that California provides protection to whistleblowers but only when the employee discloses reasonably based suspicious of illegal activity to a governmental agency. The court concluded that such protections did not apply to employees who disclose information to their attorneys in order to further a class action against an employer.

Lastly, the court rejected the former employee’s argument that the misappropriation of documents in furtherance of anticipated litigation was protected under the litigation privilege. The court reasoned that the litigation privilege does not protect against illegal activity that causes damage and to protect such threats is inconsistent with the purposes of the anti-SLAPP statute.

It would be interesting to see the court’s analysis and decision, however, had the alleged misappropriation occurred after the enactment of the new Defendant Trade Secrets Act (“DTSA”), which appears to provide broader whistleblower protections. The court in this case highlighted that California’s whistleblower statute protected only disclosures to government agencies and not a defendant’s attorneys. The DTSA, however, protects individuals from criminal and civil liability under any federal or state trade secret law for the disclosure of a trade secret that: (a) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. (For additional information on the DTSA and its implications regarding whistleblowers, please see our DTSA Guide.)

Nonetheless, this case confirms that employees do not have an unfettered right to surreptitiously take documents from the workplace for their own use in litigation or otherwise. Indeed, the Ninth Circuit has rejected the concept of “blanket” protection for whistleblowers for violation of confidentiality agreements and misappropriation of confidential documents. See Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047 (9th Cir. 2011).

With the likely broader whistleblower protections under the recently enacted DTSA, however, employers that utilize agreements and policies to protect trade secrets and other confidential information should ensure such documents have been updated to comply with the DTSA and its important employee and whistleblower notification provisions

 

shutterstock_465124364Seyfarth continues to be at the forefront of issues involving the Defend Trade Secrets Act (“DTSA”). On March 17, 2017, two Seyfarth attorneys, Andrew Boutros and Alex Meier, published the first-ever in-depth analysis of the intersection between the DTSA and the Racketeer Influenced and Corrupt Organizations Act (“RICO”) in Bloomberg’s White Collar Crime Report.

The article, “An Endangered Claim Reemerges: The Defend Trade Secrets Act Breathes New Life Into Trade-Secrets-Based RICO Claims,” examines how the DTSA, in certain circumstances, may create liability under RICO for the misappropriation of trade secrets. Pre-DTSA, courts were hesitant to impose RICO liability based on trade-secrets misappropriation, because even fraudulent acts with the end goal of misappropriating trade secrets did not present a threat of ongoing criminal activity (“continuity,” in RICO parlance). With the DTSA’s passage, however, the misappropriation, copying, disclosure, and use of trade secrets constitute “predicate acts” that may satisfy RICO’s continuity requirement. The article analyzes two scenarios that may create civil RICO liability: First, a coordinated departure involving multiple employees defecting to join the same competitor; and, second, when a company repeatedly hires key employees in an attempt to acquire its competitors trade secrets.

An Endangered Claim Reemerges: The Defend Trade Secrets Act Breathes New Life Into Trade-Secrets-Based RICO Claims” is reproduced with permission from White Collar Crime Report, 12 WCR 243, 03/17/2017. Copyright 2017 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com.

shutterstock_481529074The San Antonio Court of Appeals recently held that an applicant for a temporary injunction in a trade-secret-misappropriation case under the Texas Uniform Trade Secrets Act is not required to show the defendant is actually using trade-secret information. Instead, the applicant need only show that the defendant possesses trade secrets and is in a position to use them.

Age Industries, Ltd. (“AI”) is a manufacturer of packaging materials for whom Christopher Michael Hughes worked for nearly 20 years as a general manager. In late June 2016, Hughes resigned his employment with AI. Hughes never signed an agreement restricting him from competing with AI. Prior to resigning, Hughes had discussed creating a business to compete with AI. In early June, Diamondback Corrugated Container, LLC (“Diamondback”) was created and, shortly after his resignation, Hughes was hired to be its operations manager.

Two months later, AI sued Hughes and Diamondback for, inter alia, misappropriation of trade secrets under the Texas Uniform Trade Secrets Act, and obtained a temporary restraining order. Following the hearing on AI’s application for a temporary injunction, the trial court granted a temporary injunction against Hughes that (1) required Hughes to account for all documents in his possession belonging to AI, and (2) enjoined Hughes from disclosing AI’s proprietary or trade-secret information, including AI’s sales journals, customer lists, or pricing information.

Hughes appealed the trial court’s temporary injunction against him, contending, among other things, that AI failed to produce sufficient evidence of a probable, imminent, and irreparable injury, because AI only established a fear of possible misappropriation of trade secrets. The court of appeals noted that “the very purpose of an injunction is to prevent disclosure of trade secrets pending trial, [so AI] is not required to show [Hughes] is actually using the information.” Relying on authority from the Dallas, Austin, and Fort Worth Courts of Appeals, the San Antonio Court of Appeals required AI to instead show only that Hughes possesses the trade secrets and is in a position to use them.

Drawing all legitimate inference in favor of the trial court’s order granting the temporary injunction, the court of appeals concluded that AI made the proper showing under this standard. AI presented evidence during the temporary-injunction hearing that shortly before he resigned, Hughes downloaded a large quantity of data from his AI computer onto a USB storage device. Additionally, AI offered evidence that certain financial information Hughes maintained while working for AI could not be located after his resignation, and that Hughes had some of AI’s confidential information on his home computer. Moreover, at the temporary-injunction hearing, Hughes could not testify that emails he sent to a co-worker at Diamondback did not contain AI’s proprietary information.

This evidence—combined with the fact that Hughes left AI to become the operations manager of a company that was formed to compete with AI—established that Hughes was in a position to use AI’s trade secrets to gain an unfair market advantage. Therefore, the appellate court held the trial court did not abuse its discretion in concluding that AI established a probable, imminent, irreparable injury.

This case demonstrates that it is not necessary to present evidence of trade-secret use; mere possession and an opportunity to use is sufficient at the temporary injunction stage.

Hughes v. Age Industries, Ltd., 04-16-00693-CV, 2017 WL 943423 (Tex. App.—San Antonio Mar. 8, 2017, no. pet. h.)

texas-imageApplying new Texas Supreme Court precedent, a Texas Court of Appeals recently held that a six-year-old cease-and-desist letter alleging trade-secret misappropriation did not constitute proof of knowledge for purposes of the discovery rule. By allowing for the accrual date of this claim to be deferred, the court appears to have made it easier for trade-secret plaintiffs to overcome the statute-of-limitations defense in the future.

According to the opinion issued by the First Court of Appeals in Houston, Garner Environmental Services, Inc. (“Garner”) provides disaster-response training and related services. In 2008, Garner’s then-vice president quit, formed a competing company called First in Rescue, Safety and Training, LLC (“FIRST”), and hired several Garner employees. In January 2009, Garner sent FIRST a letter accusing it of wrongfully using Garner’s customer lists, contacts, and other trade secrets to solicit Garner’s customers. Garner based these allegations solely on the fact that, shortly before sending this letter, Garner had learned that a client scheduled to attend one of Garner’s training classes switched at the last minute to attend a class held by FIRST instead. Later that month, FIRST responded that it had not stolen Garner’s trade secrets because Garner’s customer lists and contacts were readily available to the general public, could be replicated from memory, and were therefore not confidential information in the first instance. FIRST’s letter also pointed out that none of the former Garner employees had entered into non-compete or non-solicitation agreements while employed by Garner, so they were not prohibited from contacting Garner’s customers. Apparently, this mollified Garner because it did not file suit against FIRST at this time.

Fast-forward nearly five years: In late 2013, FIRST filed suit against a former employee that had gone to work for another competitor. At an unspecified time in 2014, after reviewing documents the employee had filed in that suit, Garner determined that FIRST had unlawfully used Garner’s confidential information. So, in July 2015—more than six years after sending the initial cease-and-desist letter in January 2009—Garner filed suit against FIRST asserting, inter alia, a claim for misappropriation of trade secrets. FIRST filed for summary judgment, arguing that all of Garner’s claims were barred by the statute of limitations because it discovered or should have discovered the nature of its injury in January 2009. Garner argued in response that the discovery rule applied and, as such, limitations did not begin to run until it discovered the injury in 2014 when it reviewed the documents filed in connection with the lawsuit FIRST’s former employee had asserted against a third party. The trial court granted FIRST’s motion and dismissed Garner’s claims with prejudice.

On appeal, the sole issue before the Court of Appeals was when Garner discovered, or in the exercise of reasonable diligence should have discovered, the nature of its injury. Under the discovery rule, the accrual of a claim is deferred until the injured party learned of, or in the exercise of reasonable diligence should have learned of, the wrongful at causing the injury. Garner argued that the court of appeals was bound by the Texas Supreme Court’s recent decision in Southwestern Energy Production Co. v. Berry-Helfand, 491 S.W.3d 699 (Tex. 2016), which involved the discovery rule in the context of trade-secret misappropriation. In that case, the court held that surmise, suspicion, and accusation, even if sufficient to make one aware of a potential for misuse of trade secrets, are not facts that in the exercise of reasonable diligence would lead to the discovery of theft of trade secrets. Furthermore, the Southwestern court held that the defendant asserting the limitations defense “ha[d] not identified any evidence revealing what [the plaintiff] would have discovered had she made further inquiry.”

Finding “no meaningful differences between Southwestern and this case,” the Garner court noted that although Garner alleged in its January 2009 letter that FIRST had stolen its trade secrets, it had no facts to support these allegations other than mere suspicion that FIRST was competing with Garner’s clients. As in Southwestern, accusations were insufficient to establish knowledge of injury, the discovery rule applied. The Court of Appeals further noted that FIRST did not explain why it is entitled to have Garner’s statements of accusation construed as proof of knowledge while having its own statements of denial construed as “lawyer posturing” upon which Garner could not reasonably rely. The court thus rejected FIRST’s attempt to have its cake and eat it too.

FIRST also argued that Garner could have discovered the injury had it conducted presuit depositions under Texas Rule of Civil Procedure 202, which it did not do. In order to take a presuit deposition under Rule 202, the petitioner must show that there is a reason that the deposition must occur before the anticipated lawsuit is filed, and not after. The Court of Appeals, however, reiterated that Garner lacked any proof of its suspicions and thus had no basis to establish that FIRST had any information in its possession that could justify a Rule 202 deposition. A petitioner is also entitled to conduct a Rule 202 deposition if it demonstrates that the likely benefit of the requested deposition to investigate a potential claim outweighs the procedure’s burden or expense. The Court of Appeals stated: “To allow a rule 202 deposition in th[is] situation would require the other party to reveal the confidential information in their possession,” which the court concluded was too heavy a burden on FIRST. Thus, FIRST failed to establish a date (prior to Garner’s stated discovery date in 2014) by which Garner knew or, with reasonable diligence, could have discovered the nature of its injury. Accordingly, the Court of Appeals reversed the judgment of the trial court, and remanded for further proceedings.

The take-away from this case is that potential plaintiffs who, although suspicious, lack concrete proof that a potential defendant has misappropriated its trade secrets, will, on account of the Southwestern and Garner decisions, likely find it easier to assert the discovery rule to defer the accrual date of its misappropriation claim. Moreover, according to Garner, such potential plaintiffs will find it difficult, if not impossible, to meet their burden to establish the necessity of the information to be entitled to conduct a Rule 202 presuit deposition. It remains to be seen, however, if this case might decrease the use of Rule 202 depositions in trade-secret cases. Still, the boot-and-suspenders approach of attempting a Rule 202 deposition may be the better course to preserve the legal rights of a potential misappropriation plaintiff.

Garner Envtl. Services, Inc. v. First In Rescue, Safety & Training, LLC, 01-16-00388-CV, 2016 WL 7671377 (Tex. App.—Houston [1st Dist.] Dec. 22, 2016, no. pet. h.)