A Kansas District Court judge recently dismissed a trade secrets misappropriation action between two competing livestock nutrition companies.

In Biomin Am. Inc. v. Lesaffre Yeast Corp., Plaintiff Biomin America, Inc. (“Biomin”) sued competitor Lesaffre Yeast Corporation (“Lesaffre”) and two former Biomin employees who now work for Lesaffre, asserting trade secret misappropriation under the Federal Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836 (“DTSA”) as well as a handful of state law claims, including breach of contract, tortious interference, civil conspiracy, and unfair competition.

Specifically, Biomin alleged that the two employees misappropriated trade secrets and violated restrictive covenants contained within their Biomin employment agreements by soliciting Biomin employees and customers and marketing Lesaffre’s competing products at a lower price.

To establish a claim for trade secret misappropriation under the DTSA, a plaintiff must show: (1) the existence of a trade secret; (2) the acquisition, use, or disclosure of the trade secret without consent; and (3) that the individual acquiring, using, or disclosing the trade secret knew or should have known the trade secret was acquired by improper means.

According to the complaint, while the two companies employ different technological strategies for reducing or removing of mycotoxins and pathogens in livestock, Lesaffre and Biomin market their products to the same customers, customers view Lesaffre and Biomin as industry competitors, and at least two of Lesaffre’s products directly compete with those of Biomin. However, as the Court concluded, simply being industry competitors is not, on its own, sufficient to establish improper use under the DTSA.

In granting the motion to dismiss, the court reasoned that even if Biomin adequately alleged the existence of trade secrets (a point the parties vigorously disputed), and that, by virtue of their employment with Biomin, both employees had access to and acquired knowledge of Biomin’s confidential and trade secret information, Biomin must still allege disclosure or misuse of the trade secret information by the defendants.

The Court found that Biomin’s allegations boiled down to a single allegation that one of the employee defendants, while employed by Lesaffre, told Biomin customers that Lesaffre’s products had the same effect on livestock but at a lower price point. As the Court explained, the allegation did not sufficiently plead the elements of a trade secret misappropriation claim: “[b]ut accepting such a statement as use of a trade secret would potentially convert every case where an employee leaves to take a job with an alleged competitor and then offers to sell their new product at a lower price to a potential trade secret misappropriation case.” The remaining allegations consisted of legal conclusions and/or were speculative at best. Ultimately, the Court held that Biomin failed to plausibly allege the requisite “link” between the Lesaffre employees’ mere knowledge of Biomin’s purported trade secrets (acquired during their former employment with Biomin) and any improper use or disclosure of those trade secrets. The Court’s dismissal of the complaint was without prejudice to Biomin filing an amended complaint to address the deficiencies, but, based on the lack of factual allegations in the dismissed complaint, it is unclear whether Biomin will be able to adequately allege trade secret misappropriation by Lesaffre or either of the individual defendants.

The court declined to exercise supplemental jurisdiction over the remaining state law claims, which were consequently dismissed for lack of subject matter jurisdiction.

This case demonstrates the importance of employers documenting the access to and disclosure of trade secret information by their employees, both during the scope of their employees’ employment and after. Trade secrets may be a company’s strongest and most powerful resource, but in the hands of a competitor can be detrimental, creating an unfair and illegal competitive advantage. Without adequate documentation, litigants risk showing up to court in a future dispute without sufficient allegations to survive the pleading stage.