Defend Trade Secrets Act

Social distancing, a term which few of us had heard of before this year (despite the fact that it has been used since at least the early 2000s), is stretching into its third month. Notwithstanding some loosening of shelter-in-place advisories, and the fact that some employers are starting to open up offices and invite their workforce back in, a majority of employees are still working from home. This has broad implications for protection of employers’ trade secrets and confidential information—in many cases, a company’s most precious asset.
Continue Reading Security From Afar: How Best to Protect Trade Secrets in a World of Remote Working, Zoombombing, and Uncertainty

Legal analytics powerhouse Lex Machina recently released its 2020 Trade Secret Litigation Report, which highlights federal litigation trends in the last decade, as well as the last year specifically. While it’s very much an open question whether these trends will continue in light of the COVID-19 pandemic (more on that in our next  post), the report identifies some interesting data. In addition to some of the highlights contained in the official report, a deep dive of Lex Machina’s case repository reveals even more granular trends, demonstrating the wealth of information that can be gleaned and theories that can be tested from the data compiled from the more than 1.7 million federal cases in Lex Machina’s database. In fact, we have to admit that many of our own assumptions were turned upside down upon digging into the voluminous data available on the Lex Machina website! Expect to see a guest post from Lex Machina soon explaining how this data is sourced and what subscribers can do with it.

Some of the key findings in the report and/or associated data:
Continue Reading A Decade of Data Whets the Appetite for Data Nerds: Lex Machina Releases 2020 Report on Trade Secret Litigation

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Hon. Elizabeth D. Laporte (Ret.)

Trade secret litigation in California is growing, in both volume and impact. The second-largest plaintiffs’ verdict in 2019 was $845 million, as reported by the Daily Journal, which was awarded to ASML, a Dutch semiconductor chip processing software company, in its case against XTAL, a company founded by two ex-employees of the plaintiff’s subsidiary in Santa Clara who allegedly worked in secret for XTAL using stolen trade secrets to get a head start in development and siphon off a major customer contract (ASML US Inc. v. XTAL Inc.). Another large verdict was a $66 million jury award, including a worldwide injunction, given to a San Jose LED manufacturer that sued a company for allegedly poaching its top scientist so that it could transfer its technology to China (Lumileds LLC v. Elec-Tech International Co. Ltd.). In these types of cases, plaintiffs have the advantage of being able to craft a compelling narrative of theft—most commonly, former employees surreptitiously appropriating the plaintiff company’s trade secrets for their own benefit in a rival venture—and to overcome employees’ general freedom to switch employers under California law, which voids almost all non-compete agreements (Bus. & Prof. Code Sec. 16600) and does not recognize the doctrine of inevitable disclosure (Schlage Lock Company v. Whyte, 101 Cal.App.4th 1443 (2002)). Moreover, trade secrets do not expire automatically; they allow broad protection without disclosure, unlike copyrights and patents.
Continue Reading Trade Secret Litigation on the Rise in California: How ADR Can Help

As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Neil Eisgruber, Director in the Disputes, Compliance & Investigations group at Stout.

For decades, companies have turned to federal courts to protect valuable business assets, such as trade secrets. Legal action has expanded over the years and recent trends have set the foundation for a continuing surge in federal trade secret litigation.
Continue Reading Trade Secret Litigation: Activity on the Rise

As we have previously reported, courts across the country are adjourning most appearances, including trials, and hearing only “emergency matters” during the current COVID-19 crisis. As a result, obtaining emergency injunctive relief may be more difficult than in normal circumstances. And attempting to obtain injunctive relief to enforce non-compete agreements against employees who are laid off, while permissible in a majority of states, may be particularly difficult now given that we are quickly entering (if not already in) a period of high unemployment. At the same time, some employers are loosening security measures in the name of convenience and efficiency for remote workers, potentially making trade secret misappropriation easier (we have provided tips for avoiding just that). But that does not mean employers are out of luck if an employee (or someone else) misappropriates its trade secrets or steals its customers. Companies that are genuinely and immediately harmed by trade secret misappropriation and breach of restrictive covenants should still seriously consider seeking injunctive relief, particularly if the activity is causing significant harm to their business. Damages are always an available, if not immediate, remedy, however, where injunctive relief may not be practical.
Continue Reading Emergency Injunction Not in the Cards? Damages May Be Your Winning Hand

Fear of the coronavirus is causing many employers to permit—or in some cases mandate—employees to work remotely. While this measure is designed to minimize the risk of virus transmission, it presents an altogether different risk when it comes to protecting trade secrets, as employees have ripe opportunities to remove trade secrets and other sensitive information from company systems and databases. While remote access is ostensibly provided so that employees can perform their job functions from home, and may even be a necessity in that regard, some employees may take the opportunity to exploit the situation to more nefarious ends, and others may just be careless, which can lead to equally bad outcomes. In addition, employees’ external home networks may not have robust security on par with in-office network security.
Continue Reading Love in the Time of Coronavirus: Protecting Trade Secrets During a Pandemic

On February 25, 2020, Plaintiff Mustard Girl LLC (“Mustard Girl”), an award-winning mustard manufacturer, filed a lawsuit in the Circuit Court of Cook County for damages against its former co-packing partner, Olds Products Co. of Illinois, LLC (“Olds”), for misappropriation of trade secrets and other derivative claims. According to Mustard Girl, Olds engaged in a multi-year scheme to steal Mustard Girl’s recipes and then use those recipes to sell its own mustard products at lower cost to Mustard Girl’s largest accounts.

This mustard dispute presents a common trade secrets misappropriation scenario—the alleged misappropriator had lawful access to the trade secrets but then misused its access for an improper purpose. An additional wrinkle in this case is that Mustard Girl provided the mustard recipes to Olds under a confidentiality agreement, but admittedly lacks a counter-signed copy. Proving that reasonable measures were taken to keep trade secrets protected is necessary to prevail on a claim for misappropriation. If Mustard Girl is unable to prove that the recipes were provided to Olds under a confidentiality agreement, it may face a significant hurdle in proving that its recipes are, in fact, trade secrets.
Continue Reading Pardon Me, Co-Packaging Partner Accused of Stealing Dijon Mustard Recipes

On Tuesday, January 28 at 12:00 p.m. Central, in the first installment of the 2020 Trade Secrets Webinar Series, Seyfarth attorneys will review noteworthy legislation, cases and other legal developments from across the nation over the last year in the area of trade secrets and data theft, non-competes and other restrictive covenants, and computer fraud.

Courts have long lamented that “computing damages in a trade secret case is not cut and dry,” Am. Sales Corp. v. Adventure Travel, Inc., 862 F. Supp. 1476, 1479 (E.D. Va. 1994), meaning that “every [trade secret] case requires a flexible and imaginative approach to the problem of damages,” Univ. Computing Co. v. Lykes-Youngstown Corp., 504 F.2d 518, 538 (5th Cir. 1974).

The federal Defend Trade Secrets Act (“DTSA”) and virtually every state’s version of the Uniform Trade Secrets Act (“UTSA”) (only New York has not adopted the UTSA) permits recovery of damages for (1) actual loss caused by the misappropriation; (2) unjust enrichment that is not addressed in computing damages for actual loss; or (3) a reasonable royalty for the misappropriator’s unauthorized disclosure or use of the trade secret. There has been little guidance from the courts, however, as to how to calculate these different, and sometimes competing damages calculations, many relying on the “flexible and imaginative approach” set forth in the Fifth Circuit’s 1974 pre-UTSA University Computing decision. Even more difficult is the case where a plaintiff’s damages are based on the defendant’s anticipated future use of the trade secret, given that those damages necessarily will involve speculation about the revenues the defendant will generate from its use of the trade secret.
Continue Reading Can a Party Recover Damages for the Anticipated Future Use of Trade Secrets?

The United States District Court for the Eastern District of Louisiana recently held that, under the Defend Trade Secrets Act, 18 U.S.C. § 1836, et seq., information included in a patent application remains an actionable trade secret, thereby extending the time for potential misappropriation until the patent’s publication.

DTSA

The DTSA was enacted in 2016 to expand trade secret law beyond its traditional roots as a state law doctrine, creating the first federal cause of action for trade secret misappropriation. To succeed in bringing a DTSA claim, a plaintiff must prove (1) the existence of a trade secret; (2) the misappropriation of a trade secret by another; (3) and the trade secret’s relation to a good or service used or intended for use in interstate or foreign commerce. Additionally, the owner must take reasonable measures to keep the trade secret a secret. 18 U.S.C. § 1836(b)(1).
Continue Reading Louisiana Federal Court Rules Information in Patent Application Remains Actionable Trade Secret Under DTSA