By Robert Milligan and Jeffrey Oh
In today’s dynamic environment of interstate commerce, including internet transactions, deciding on the proper venue for a trade secret misappropriation dispute can be a complicated process involving a number of different factors particularly if the parties are domiciled and/or transact business in different states.
In the case of GLT Technovations, LLC v. Fownes Brothers & Co., 2012 WL 1380338 (N.D.Cal.), District Judge Ronald M. Whyte of the U.S. District Court for the Northern District of California granted the Defendant’s Motion to Transfer pursuant to 28 U.S.C. § 1404(a) and sent the case to the Southern District of New York where a related case was already pending. Section 28 U.S.C. § 1404(a) provides that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought or to any district or division to which all parties have consented."
According to the pleadings, the Plaintiff, GLT Technovations, LLC (“GLT”), is a California based company registered in Nevada that has developed a “capacitive leather” technology called TouchTec. This technology allows TouchTec glove-wearers to control devices with capacitive touch screens, such as the iPhone, without having to expose their hands to the elements. According to the pleadings, while GLT developed the technology independently, it has partnered with Massachusetts based Broleco Worldwide, Inc. (“Broleco”) to handle the exclusive manufacturing of TouchTec. Broleco is authorized by GLT to handle marketing of the technology to third party apparel manufacturers. In addition, GLT allows Broleco to share its trade secret information, including “capabilities, functionality, upcoming products and techniques related to the use of capacitive leather,” with potential third party partners after said parties have signed non-disclosure agreements (“NDA”).
According to the pleadings, in September 2009, the Defendant, Fownes Brothers & Co. (“Fownes”), expressed interest in licensing TouchTec after witnessing GLT’s presentation of the technology at New York City’s “Fashion Week.” GLT and Fownes entered into an NDA, delivered to Fownes by Broleco, soon after in April 2010 while the two companies explored pursuing a business relationship. In the subsequent months, Broleco sales representatives visited Fownes’ offices in New York to sell them on the idea of using the technology. In February 2011, Fownes purchased two orders of TouchTec leather from Broleco, and also visited Broleco’s warehouse located in Johnstown, New York. Not long after, Fownes announced the development of its own technology similar to TouchTec, and has not placed any additional orders for GLT’s product since.
Reacting to what it believes is the misappropriation of its proprietary trade secret information, GLT distributed a letter to Fownes’ potential retail partners in January 2012 informing them of its claims and the potential dangers of selling Fownes’ products. In response, Fownes filed a complaint before the U.S. District Court for the Southern District of New York alleging “violations of the Lanham Act, unfair competition and tortious interference with business relations.” Just four hours later, GLT filed a complaint before the U.S. District Court for the Northern District of California “seeking a declaratory judgment that it did non violate the Lanham Act,” and alleging the misappropriation of its trade secrets, breach of the NDA and unfair competition. Fownes then filed a Motion to Transfer the suit to the U.S. District Court for the Southern District of New York, which Judge Whyte granted on April 20, 2012.
In consideration of transfer under 28 U.S.C. § 1404(a), Judge Whyte evaluated the eight factors “to determine whether transfer is appropriate” laid out in Williams v. Bowman, 157 F.Supp.2d 1103, 1106 (N.D.Cal.2001). They include: “(1) the plaintiff’s choice of forum, (2) convenience of the parties, (3) convenience of the witnesses, (4) ease of access to the evidence, (5) familiarity of each forum with the applicable law, (6) feasibility of each forum with the applicable law, (7) any local interest in the controversy, and (8) the relative court congestion and time of trial in each forum.”
For the first factor, Judge Whyte noted that “a plaintiff’s choice of forum should be afforded substantial weight[,]” but that this should be given less consideration when the activities alleged in the complaint have little to no connection to the forum. Although GLT is based out of California, all of its interactions with Fownes – including those done through Broleco – occurred in New York. Given that the “center of gravity” of the dispute is in New York, the court weighed this factor in favor of the Defendant.
The second and third factors, or so-called “convenience factors,” do not only take into account the number of witnesses who would be inconvenienced by hearing the suit in either forum, but also the potential quality and relevance of their testimony to the issues in the case. GLT’s complaint is almost entirely based on Fownes’ interactions with Broleco, which occurred in New York between companies based out of New York and Massachusetts, respectively. Since the Southern District of New York would undeniably be more convenient to the employees of these two entities, as well as to any non-party witnesses yet to be named, Judge Whyte weighed these two factors in favor of the Defendant.
For the same reasons used to weigh factors one through three in favor of the Defendant – namely the relevant interactions between Fownes and Broleco all taking place in New York – the court weighed factor four (ease of access to the evidence) in favor of the Defendant.
Arguing its case for weighing the fifth and sixth factors in its favor, GLT asserted that the case should be heard in a California court because its claims arise under California statutes and common law. In response, Judge Whyte cited multiple district court decisions where federal courts were deemed “fully capable of applying California law.” Similarly, although the NDA contained a California choice-of-law provision, the court noted that the provision, unlike a forum selection clause, was not “determinative in resolving a motion to transfer.” With Fownes’ own suit against GLT still pending in the Southern District of New York, the court stated its preference for both cases to be heard and decided by a single judge familiar with the facts and arguments of the case.
Evaluating the final two factors, Judge Whyte did not find a compelling reason to deny the Defendant’s Motion to Transfer. Although Judge Whyte agreed with GLT that California has a distinct interest in protecting the intellectual property rights of local businesses, “the bi-coastal nature of the transactions…and the parties impacted by this case” make it so that neither forum has a greater interest or right to hear the case than the other. With regards to the final factor, since neither GLT nor Fownes argued for or against transfer based on the congestion of either court, the court considered “that factor to be neutral.”
Taking all eight factors into account, Judge Whyte determined the overall weight of the facts to be overwhelmingly in favor of transfer to the U.S. District Court for the Southern District of New York. In particular, the court focused on “the convenience to the witnesses, the ease of access to evidence, and the possibility of consolidation with other litigation” in granting the Motion to Transfer.
The court’s decision underscores the importance of including mandatory forum selection clauses in non-disclosure agreements to secure a party’s desired forum and filing first in contentious trade secret disputes.