Defend Trade Secrets Act (DTSA)

In Dunster Live, LLC v. LoneStar Logos Mgmt. Co., LLC, 17-50873, 2018 WL 5916486 (5th Cir. Nov. 13, 2018), the United States Court of Appeals for the Fifth Circuit recently dealt a blow to parties seeking to recover attorneys’ fees under the fee shifting provision of the Defend Trade Secrets Act (“DTSA”). In the underlying case, plaintiff sued defendants, a competitor company and its owner who was formerly a member of the same LLC, for winning state contracts to construct and install road signs formerly held by the LLC after purportedly stealing proprietary software in violation of the DTSA. Defendant spent over $600,000 in out-of-pocket litigation costs defending against this “baseless” lawsuit and ultimately plaintiff agreed to voluntarily dismiss the case without prejudice. Defendant moved for attorneys’ fees under § 1836(b)(3)(D) of the DTSA which states “[a court may] award reasonable attorney’s fees to the prevailing party” where “a claim of… misappropriation is made in bad faith.” The District Court refused to award fees, and the Fifth Circuit agreed, finding where a party is free to refile a case, there is no material change in the “legal relationship of the parties,” and therefore no prevailing party. Id. at *1 (citing Buchananon Bd. and Care Home, Inc. v. W.V. Dept.of Health and Human Res. 532 U.S. 598, 604 (2001)). The Fifth Circuit reasoned “[any] dismissal without prejudice thus does not make any party a prevailing one.” Id.

LoneStar provides a few lessons for other DTSA defendants, namely that securing a voluntary dismissal without prejudice may not be enough to warrant fee shifting and encouraging them to pursue other independent bases for protection beyond the DTSA including Fed. R. Civ. P. 41 which permits a court to refuse to grant a motion to dismiss that was made in bad faith and Fed. R. Civ. P. 11 which permits sanctions for violations of pleading standards which would apply regardless of whether the defendant “prevail[ed].” Id.

It remains to be seen how other circuits will interpret this DTSA provision.

Two New England craft beer companies are dealing with a hangover from a contentious trade secret dispute. Massachusetts-based franchisor Craft Beer Stellar, LLC recently filed a complaint in Massachusetts federal court against Maine-based franchisee Hoppy Days, LLC. Plaintiff brought breach of contract claims in addition to alleging violations of the Defend Trade Secrets Act, the Computer Fraud and Abuse Act, Massachusetts trade secret law under M.G.L. C. 93, §§ 42 & 42A, and the Massachusetts Consumer Protection Act under M.G.L. c. 93A §§ 2 and 11. The parties executed a franchise agreement in 2015 and defendant’s franchisee store opened its doors in early 2016. Plaintiff sent a notice of default for failure to comply with the franchise agreement to Defendants in October 2017. However, after sending the notice of default, according to Plaintiff, Defendants started posting Plaintiff’s trade secrets and confidential and proprietary information including secret formulas, patterns, and compilations of information used to operate its franchise on Glassdoor.com – a public job recruitment forum. Plaintiff seeks monetary and punitive damages as well as injunctive relief.

However, this is not the only trade secret litigation spawned by this franchisor-franchisee relationship. Plaintiff also brought suit – unsuccessfully – against Glassdoor for Defend Trade Secrets Act violations. The U.S. District Court for the District of Massachusetts dismissed Plaintiff’s Defend Trade Secrets Act claims after finding that Section 230 of the Communications Decency Act (“CDA”) protects website operators from lawsuits relating to a third party’s publication of defamatory content. See Craft Beer Stellar, LLC v. Glassdoor, Inc., 2018 WL 5505247 (D. Mass. Oct. 17, 2018) (finding “[a]lthough § 230(e)(2) of the CDA provides an exclusion for “intellectual property” laws, the Defend Trade Secrets Act expressly provides that it “shall not be construed to be a law pertaining to intellectual property for purposes of any other Act of Congress”) (citing Defend Trade Secrets Act, §2(g)).

One can only hope that hoppier days are ahead for future franchisors and franchisees facing trade secret disputes.

Last week, airplane manufacturer Bombardier filed a complaint against Mitsubishi Aircraft Corporation and former Bombardier employees in the Western District of Washington alleging violations of the federal Defend Trade Secrets Act and the Washington Uniform Trade Secrets Act, tortious interference, and breach of contract. Bombardier claims as trade secrets its designs, testing, and regulatory “certification approach” for obtaining approval from aviation safety agencies, as well as the underlying regulations themselves, which it claims are identified “only after an aircraft manufacturer meets in confidence with certifying authority representatives… to reach agreement on which specific subset of regulations must be satisfied.”

Bombardier alleges its employees were actively recruited to help the defendants obtain regulatory approval for a new line of regional jets, and that several engineers sent confidential Bombardier documents and regulatory certification reports to their personal email accounts in the weeks preceding their departure. Bombardier claims that this information provides invaluable guidance in meeting “innumerable exacting” regulatory standards.

The complaint seeks monetary and punitive damages, as well as injunctions preventing the defendants from using proprietary Bombardier information or recruiting Bombardier personnel.

In May 2018, U.S. District Judge Katherine B. Forrest of the Southern District of New York granted PepsiCo, Inc.’s (“Pepsi”) summary judgment motion against ScentSational Technologies, LLC (“ScentSational”).

ScentSational, a company that develops methods of delivering scents in food and beverage packaging to alter a consumer’s taste perception, alleged that Pepsi learned its trade secrets in the course of their business relationship that it included in a patent application that caused Coca-Cola (“Coke”) to terminate a $70 million dollar project with ScentSational. Pepsi argued it was actively pursuing parallel in-house development at the same time it was in discussions to use ScentSational’s aroma release technology.

The court granted Pepsi’s summary judgment motion on trade secret misappropriation and breach of contract claims because there was no causation where ScentSational and Coke’s lone statement of work had already expired and chances of commercializing the project were “well below 50%” such that no reasonable juror could conclude that Pepsi’s patent application caused Coke to terminate its project with ScentSational, and no damages where ScentSational failed to put forward sufficient record evidence to support its $70 million dollars in alleged lost profit damages.

As we previously posted, in June 2018 Tesla filed suit against a former employee, Martin Tripp, alleging trade secret misappropriation. Mr. Tripp has now filed an answer to Tesla’s accusations expanding on his whistleblower defense and bringing three intentional tort counterclaims against Tesla. According to his answer, Mr. Tripp was driven to act as whistleblower in response to numerous manufacturing practices at Tesla’s Nevada facility that allegedly posed a risk to both employees and customers. For example, Mr. Tripp alleges that Tesla used a non-validated manufacturing line to produce automotive parts and that his supervisors allowed workers to leave hazardous amounts of scrap metal throughout the manufacturing area. Mr. Tripp alleges that when his supervisors failed to address these concerns, he brought them to Tesla’s CEO Elon Musk directly. But rather than take corrective action, Tesla reassigned Mr. Tripp to Tesla’s battery assembly line. That’s where Mr. Tripp alleges to have learned that a defective manufacturing robot punctured over a thousand batteries and that Tesla knowingly installed hundreds of these defective batteries in Model S vehicles. Mr. Tripp also denies accessing Tesla’s operating system to steal trade secrets—although he admits to using Tesla’s manufacturing software to track which parts were installed in automobiles.

Additionally, Mr. Tripp brings three counterclaims based, in part, on Tesla’s allegations of trade secret misappropriation. For instance, Mr. Tripp claims Elon Musk defamed him in an email to Tesla employees that accused him of “extensive and damaging sabotage” and of “exporting large amounts of highly sensitive Tesla data to unknown third parties.” In addition to defamation, Mr. Tripp asserts invasion of privacy and intentional infliction of emotional distress claims based on statements made by Elon Musk and a spokesperson for Tesla about his actions as well as a accusations that Mr. Tripp threatened to “shoot . . .up” the Tesla facility.

We’ll keep watching and report how Tesla responds to Mr. Tripp’s counterclaims.

Under the Defend Trade Secrets Acts (DTSA), 18 U.S.C. §1836 et seq., a “trade secret” is any type of “financial, business, scientific, technical, economic, or engineering information” that “derives independent economic value … from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”

The Democratic National Committee (“DNC”) filed a lawsuit against Russia, Wikileaks, the Trump Campaign, and several individuals (including Julian Assange, Jared Kushner, and a hacker named “Guccifer 2.0”) on April 20, 2018 in Federal District Court for the Southern District of New York. The DNC alleges that Russia, Guccifer 2.0, Wikileaks, and Assange violated the DTSA, and that all of the defendants violated the Washington D.C. Uniform Trade Secrets Act, D.C. Code Ann. §§ 36-401-46-410. The complaint defines the stolen secrets as “confidential proprietary documents related to campaigns, fundraising, and campaign strategy.” Specific documents include:  (1) a DNC-authored opposition research report on Donald Trump from December 2015; (2) DNC strategy documents related to the DNC’s “counter-convention” to the RNC convention; (3) personal information-including social security and passport numbers-of individuals who communicated with or donated to the DNC; and (4) Clinton campaign chairman John Podesta’s hacked emails. Continue Reading The DNC Tests the Meaning of Trade Secrets in the Political Arena

In what is likely the first case of its kind, the United States District Court for the Eastern District of Pennsylvania dismissed a counterclaim for infringement of trade secrets, which the pharmaceutical company Lanett brought in the context of a wrongful termination suit initiated by a former employee. The Defend Trade Secrets Act was passed in May 2016 and allows the holder to a trade secret to bring suit in federal court when their trade secret has been misappropriated. However, in Christian v. Lannett Co., Inc., the alleged misappropriation happened during a document production made pursuant to a court order, which the court held is immunized by the Defend Trade Secrets Act.

Counsel Anne Elise Herold Li will be speaking at the 2017 BIO International Convention on a panel titled, “Keeping it Under Wraps: Protecting, Asserting and Creating Value from Your Trade Secret” that will begin at 1:45 pm on June 21.

The 2017 BIO International Convention will take place June 19 – 22 at the San Diego Convention Center.

Trade secrets are valuable IP assets and can create significant revenue opportunities for companies. Their importance in today’s global economy is growing in an age of digitalization and data sharing. So much so that on May 11, 2016, Congress passed the Defend Trade Secrets Act (DTSA). The DTSA is the product of years of growing concern over the threats to trade secrets in the information economy where companies have lost value due to the loss of trade secrets. This panel will discuss best practices for protecting company innovation and trade secret processes, data and communications in business transactions and day-to-day operations. Particular attention will be focused on best practices to maintain trade secrets, assert trade secrets under the DTSA and recommended language for employee agreements so that they comply with this new law.

Waymo’s recently filed case against Uber continues to unfold with some potentially important developments.  The case, which began in late February when Waymo (which shares a corporate parent with Google) accused Uber of misappropriation of trade secrets under the DTSA, patent infringement, and unfair business practices (covered by this blog here) had three recent decisions issue, all on the same day.

First, on May 11, U.S. District Judge William Alsup issued an order granting in part and denying in part Waymo’s motion for a preliminary injunction.  The court’s order is sealed, and neither Uber nor Waymo have commented on its contents.

Second, Judge Alsup sua sponte referred the case to the United States Attorney for investigation of possible trade secret theft.  Judge Alsup based this decision on the evidentiary record, which was described in detail in the aforementioned injunction decision (and therefore sealed). Continue Reading Waymo v. Uber: An Update on the Ongoing Trade Secret Dispute

The America Invents Act, the Defend Trade Secrets Act, and recent Court decisions demonstrate the ongoing changes affecting intellectual property. The new Trump administration is expected to continue this trend from the legislative perspective, and is expected that Congress will consider further legislation that may rival the size of the America Invents Act. At the same time, there are several key cases before the Federal Circuit and the Supreme Court that will continue to shape how the courts interpret the laws that Congress enacts. IP practitioners need to be aware of the state of play and how it may affect their business. What challenges could you face?

Tune into the Trump Administration’s Focus on IP Webinar, and join Terry Rea and Mike Songer from Crowell & Moring as they discuss key issues and trends affecting intellectual property including a discussion of the administrative and judicial trends that have a direct impact on all forms of intellectual property, including patents and copyrights. Please click here to listen to the webinar or here to access the webinar event page.