It is well known that 18 U.S.C. § 1836, et seq. (the Defend Trade Secrets Act or “DTSA”) finally provides a mechanism for pursing trade secret claims in federal court. A recent decision, however, serves as an excellent reminder that failure to establish personal jurisdiction over a defendant will nevertheless result in dismissal of your DTSA claim—and potentially your entire case. So, before you rush off and file that DTSA claim in your local federal court, carefully consider if it’s really the right court after all.
In Gold Medal Products Co. v. Bell Flavors and Fragrances, Inc., 1:16-CV-00365, 2017 WL 1365798 (S.D. Ohio Apr. 14, 2017), the plaintiff filed suit in the U.S.D.C. for Southern District of Ohio against its former employee, William Sunderhaus, and his new employer, Bell Flavors, alleging misappropriation of trade secrets and confidential information. As part of its lawsuit, Plaintiff asserted a DTSA claim, which Defendants moved to dismiss for lack of personal jurisdiction.
Gold Medal’s lawsuit alleged that Bell Flavors hired Mr. Sunderhaus to work as a “savory flavorist” with knowledge that he had been employed by Gold Medal in Ohio and had acquired Gold Medal’s trade secrets. It further alleged that Bell Flavors directed Mr. Sunderhaus to work on products competitive with Gold Medal’s products.
Despite the fact that Bell Flavors is not an Ohio company, Gold Medal contended that the Ohio court had jurisdiction because its employee, Mr. Sunderhaus, worked for Gold Medal in Ohio, Mr. Sunderhaus obtained Gold Medal’s trade secrets in Ohio, and Bell Flavors instructed Mr. Sundershaus to use or disclose those trade secrets for its benefit knowing that Gold Medal would suffer tortious injury in Ohio. The Court focused on two particular aspects of Plaintiff’s argument: (1) Gold Medal’s argument that the state in which the plaintiff felt the effects of the tortious conduct is materially relevant to the jurisdiction argument; and (2) Gold Medal’s argument that the conduct of Mr. Sunderhaus in Ohio, before he was Bell Flavors’ agent, is attributable to Bell Flavors.
In its decision, the Court noted that “Gold Medal errs by placing too much emphasis on the fact that Gold Medal felt the effect of Bell Flavors’s allegedly tortious conduct in Ohio. The Supreme Court in Walden ‘rejected’ the theory that personal jurisdiction can be based on intentional acts taken outside a forum state which the defendant knows will cause effects inside the forum state.” Id. (citing Maxitrate Tratamento Termico E Controles v. Super Sys., Inc., 617 Fed.Appx. 406, 408 (6th Cir. 2015), cert. denied sub nom. Maxitrate Tratamento Termico E Controles v. Allianz Seguros S.A., 136 S. Ct. 336 (2015).) Instead, the court held that “jurisdiction over Bell Flavors must be based on the contacts that ‘defendant [it]self’ creates with Ohio.”
In this situation, the Court found that Bell Flavors had no direct contacts with Ohio giving rise to trade secrets claims. Gold Medal’s Complaint did not allege that Bell Flavors traveled to Ohio to recruit, interview, or hire Mr. Sunderhaus. It also did not allege that Mr. Sunderhaus took actions in Ohio as Bell Flavors’s agent, nor did it allege that Bell Flavors hired Mr. Sunderhaus for the purpose of obtaining Gold Medal’s trade secret information or for the purpose of helping Gold Medal’s competitors formulate competing food products. Instead, Mr. Sunderhaus acquired the trade secret information in Ohio by legitimate means and only was alleged to have taken wrongful acts outside of the forum state more than one year later.
For all of these reasons, the Court ultimately concluded that it could not exercise personal jurisdiction over Bell Flavors as to the DTSA claim. In so doing, the Court also dismissed the DTSA claim against Mr. Sunderhaus because Gold Medal conceded at oral argument that Bell Flavors was an indispensable party to the claim. Based on this position, the Court held that it could not “in equity or good conscience proceed with [the DTSA claim] against Sunderhaus, even assuming the Court can exercise personal jurisdiction over Sunderhaus.”
Simply asserting a DTSA claim does not guarantee that you will remain in a particular federal court. Always be careful to ensure that personal jurisdiction exists or you will run the risk of having your trade secret case dismissed before it ever gets off the ground.