The Ninth Circuit recently added to the small body of appellate court precedent interpreting the Defend Trade Secrets Act (DTSA), reversing an attorney fee award which had been granted by a district court in Washington. The reversal stemmed from the appellate court’s de novo determination that no circumstances existed to support a finding that the suit was brought and maintained in bad faith. In RJB Wholesale, Inc. v. Castleberry, the plaintiff sued a former sales representative for violation of the DTSA, claiming misappropriation of a customer list and company cell phone programmed with customer contact information. After the close of discovery, the defendant moved for summary judgment that the plaintiff had not proven any damages caused by the alleged misappropriation. The district court granted the motion, and the Ninth Circuit affirmed. The Ninth Circuit reversed, however, the district court’s fee award to the prevailing defendant. The decision follows on the heels of a decision from the Fourth Circuit, Akira Technologies, Inc. v. Conceptant, Inc., affirming the denial of attorney fees where the plaintiff “had at least some chance of success” on its DTSA claim and the Fifth Circuit in Dunster Live, LLC v. Lonestar Logos Mgmt. Co., LLC, where the...
Category: Trade Secrets
Federal Court Denies Order to Show Cause with Temporary Restraints in Recent Defend Trade Secrets Act Case
A recent federal trade secret decision may spur employers to conduct forensic analyses of the computers of departing executives either before or immediately after their departures. In McKinsey & Co., Inc. v. Shi, a consulting firm sued a former senior partner asserting violation of the federal Defend Trade Secrets Act (DTSA), among other claims. McKinsey alleged that the defendant misappropriated confidential McKinsey and client documents over the thirteen week period preceding his last day of work. Shi had worked at McKinsey or one of its affiliates for ten years before he began working for a competitor three days after his departure. In an unusual fact pattern for DTSA cases, before McKinsey’s federal lawsuit was filed, the former employee had sued McKinsey in state court, alleging his entitlement to almost $1 million in discretionary compensation and asserting claims for fraud, misrepresentation, and breach of contract, among other claims. In the process of reviewing documents for discovery in the state court action, McKinsey allegedly discovered the misappropriation. It then filed a verified complaint in New Jersey federal court with an order to show cause for temporary restraints and request for expedited discovery. The court declined to enter the order to show cause,...
Following a national trend, another Defend Trade Secrets Act (DTSA) claim has survived a motion to dismiss filed in a California district court. The DTSA enables trade secret owners to pursue trade secret misappropriation claims in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. In the recent Volans-i, Inc. v. SpektreWorks, Inc. case, the parties both developed and built long-range high-payload aircrafts known as drones. Pursuant to a consulting agreement, the defendant allegedly assisted Volans-i with design, engineering, testing and other work related to Volans-i’s C-10 and C-20 drones and had access to Volans-i’s trade secrets related to the same. The consulting agreement allegedly prohibited SpektreWorks from using Volans-i’s confidential information or its consultant work product other than to provide consulting services to Volans-i. Volans-i alleged that in violation of the DTSA and in breach of the parties’ agreement, the defendant sold a knockoff of its C-10 containing an avionics board which copied the design of Volans-i’s avionics board and utilized many identical components—thereby “copying plaintiff’s design and component choice[.]” 2019 U.S. Dist. LEXIS 90923, at *5. In its motion to dismiss, SpektreWorks argued...
Is Employer to Whom Trade Secrets are Allegedly Disclosed a Necessary Party in DTSA Claim Against Former Employee?
Given increased employee mobility, claims under the Federal Defend Trade Secrets Act (DTSA) are on the rise. The DTSA provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). When considering a complaint against a former employee for violations under the DTSA, is the new employer to whom information is allegedly disclosed a necessary and indispensable party? A Massachusetts district court recently said no. In Phio Pharms. Corp. v. Khvorova, the plaintiff Phio Pharmaceuticals Corporation (PPC) sued the defendant—the company’s former Chief Scientific Officer—for misappropriation under the DTSA. PPC alleged that the defendant assigned to U Mass Medical School (defendant’s new employer and competitor of PPC) a patent application describing a class of molecules that PPC and the defendant allegedly investigated while the defendant was working for PPC. PPC sought the return of all trade secret information allegedly in the defendant’s possession and an injunction against further use or disclosure of its confidential information. The defendant moved to dismiss claiming that U Mass was an indispensable party under Federal Rule of Civil Procedure 19. The court...
Another District Court Addresses Viability of “Continuing Misappropriation” Under the Federal Defend Trade Secrets Act
The Federal Defend Trade Secrets Act (DTSA) provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). The DTSA applies to any trade secret misappropriation for which any act occurred “on or after the date of the enactment” of the DTSA. See P.L. 114-153 § 2(e). A Missouri district court recently held that the DTSA applies to trade secret misappropriation that continues after the DTSA enactment date (May 11, 2016)—even if the misappropriation began before the enactment date, see Roeslein & Assocs. v. Elgin, Civ. No. 17-1351(JMB), 2019 U.S. Dist. LEXIS 6981, at *36 (E.D. Mo. Jan. 15, 2019), adding to mounting precedent concluding the same. In Roeslein, developers of energy production facilities sued one individual (a former employee) and three corporate defendants for violation of the DTSA, among other claims. The corporate defendants moved to dismiss claims asserted against them under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that the plaintiffs’ DTSA claims were not cognizable because the plaintiffs failed to allege misappropriation on or after the DTSA’s enactment date. The court granted-in-part...
Propping Open Cracks in Secret Depths of Fracking Chemicals: How the Wyoming Supreme Court Is Demanding More of Companies Seeking Trade Secret Protection
In Powder River Basin Resource Council v. Wyoming Oil and Gas Conservation Commission, 2014 WY 37 (2014), the Wyoming Supreme Court recently held that state district courts receiving appeals of denied record requests must independently determine whether the information must be disclosed or not, rather than merely reviewing the determination of the Commission as an administrative decision. Further, when determining whether the disclosed chemicals qualify as trade secrets protected under the Wyoming Public Records Act (WPRA), Wyo. Stat. Ann. § 16-4-203, the Wyoming high court held that district courts must apply the more narrow definition of what constitutes a trade secret under the Freedom of Information Act (FOIA) as developed through federal case law when determining if the chemical formulations used in fracking qualify as trade secrets protected under the Wyoming Public Records Act (WPRA), Wyo. Stat. Ann. § 16-4-203.
Trade Secrets Theft By Former Employee Results in a Criminal Conviction Under the Federal Computer Fraud and Abuse Act but Still Leaves Uncertainty Over the Scope of the Act
In United States v. Nosal, a federal jury in California convicted a former employee of Korn/Ferry for violating the Computer Fraud and Abuse Act (“CFAA”). The evidence showed that the defendant directed his co-conspirators within the firm to use a borrowed password to gain access to trade secrets to be used in establishing their own business. The use of the borrowed password was critical to the successful prosecution under the CFAA because earlier in the case the Ninth Circuit Court of Appeals issued an opinion that narrowly interpreted the statute to prohibit only “unauthorized procurement or alteration of information, not its misuse or misappropriation.” The significant aspect of the Ninth Circuit’s interpretation of the CFAA in Nosal is the Court’s conclusion that a violation of the statute does not occur merely because an employee initially uses his authorized access to obtain his employer’s proprietary information even if he does so with the intent to misappropriate it. Presumably, had Nosal’s co-conspirators who accessed the computerized information in question been able to do so using their own passwords, there would have been no “unauthorized procurement” in violation of the CFAA.
Trade Secrets Litigation: DuPont Wins Property from U.S. Subsidiary as Part of its $920M Damages Award Against the Parent
Kolon USA, Inc., the U.S. subsidiary of South Korea-based Kolon Industries Inc. (“Kolon”), recently was ordered by New Jersey District Court Judge Esther Salas to turn over its property to DuPont as part of DuPont’s efforts to enforce the $920 million damages award that DuPont won against Kolon during a 2011 trade secrets litigation in the Eastern District of Virginia.
The Obama Administration recently released a report outlining a new strategy to combat the theft of U.S. trade secrets, by ramping up business, diplomatic, law enforcement and legislative efforts to protect this vital category of intellectual property. The “Administration Strategy on Mitigating the Theft of U.S. Trade Secrets” included inputs from the Departments of Commerce, Defense, Homeland Security, Justice, State, Treasury, the Office of the Director of National Intelligence and the Office of the United States Trade Representative.
Is your company’s hard earned, valuable confidential data at risk? Are you taking all the steps you should to safeguard this information? In a recent global report by Symantec, 50% of employees who lost or left their jobs in the past 12 months indicated they kept confidential company data. Of these, 40% indicated they planned to use the proprietary information in their new jobs. Exacerbating the situation is the perception on the part of employees that it is acceptable to take confidential corporate information, and that their companies do not care.