The legal battle between VANDA Pharmaceuticals, Inc. and the United States government provides guidance on the minimum requirements that the government must meet to protect trade secrets provided during the regulatory approval process for pharmaceuticals. The case, which involves alleged unlawful disclosure of trade secrets by government officials to generic drug competitors, presents several issues
Non-Disclosure Agreements
Trade Secrets Food Fight Spotlights Importance of Comprehensive Agreements
A judge in the Northern District of Texas recently declined to dismiss a lawsuit, CiCi Enterprises LP et al. v. Mucho Pizza, LLC et al., alleging a pizza franchisee failed to maintain the confidentiality of Texas pizza chain CiCi Enterprises LP’s trade secrets after two affiliates inked a development deal with competitor, Papa John’s. This case highlights the importance of comprehensive agreements and the reduction of agreement modifications to writing.
Beginning in 2010, CiCi Enterprises[1] and Mucho Pizza, LLC[2] entered into 17 franchise agreements, which provided Mucho Pizza access to CiCi Enterprises’ trade secrets and other confidential information, including confidential financial and store performance information, pricing, supplier contacts, strategic marketing research, and sales techniques. Each agreement required Mucho Pizza commit to not communicating, divulging, or otherwise using for another party’s benefit these trade secrets and confidential information. The agreements also required Mucho Pizza not to directly or indirectly hold an interest in a competitive pizza restaurant during or immediately after the agreements’ term. These agreements were signed by Mucho Pizza and Mucho Pizza’s personal guarantor, Guillermo Perales. CiCi Enterprises asserts both were bound by the agreements’ terms.Continue Reading Trade Secrets Food Fight Spotlights Importance of Comprehensive Agreements
Restrictive Covenants in the First Circuit
To continue our series on trade secret employee contract clauses, we’ve surveyed the First Circuit for updates to the law relating to restrictive covenants. Such covenants remain predominantly governed by statutes in Maine, Massachusetts, New Hampshire, and Rhode Island, while Puerto Rico continues to govern them by common law. And with no significant updates since 2020, restrictive covenants remain disfavored and under increased scrutiny in the First Circuit. Generally, these courts will only enforce noncompete agreements that are reasonable, no broader than necessary to protect an employer’s legitimate business interests, properly noticed, and in line with public policy. The applicable law for each state is set forth below.
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Second Circuit Reminds Practitioners That A Plausible Claim for Trade Secret Misappropriation Must Detail the Reasonable Measures Used to Protect the Alleged Secret
A recent decision by the Second Circuit reminds litigants that a party asserting a trade secret misappropriation claim under the federal Defend Trade Secrets Act (DTSA), or New York law, must detail in a pleading “the “reasonable measures” employed to maintain the secrecy of the alleged trade secret. In Turret Labs USA, Inc. v. CargoSprint, LLC, No. 21-952, Dkt. No 106-1 (2nd Cir. Mar. 9, 2022), the Second Circuit affirmed the District Court’s grant of a motion to dismiss, concluding that plaintiff Turret Labs failed to adequately allege that reasonable measures were taken because, although there was an agreement giving the plaintiff’s customer exclusive access to the alleged trade secret, this agreement (as well as all surrounding security policy documents) failed to contractually obligate the customer to maintain confidentiality of the alleged secret.Continue Reading Second Circuit Reminds Practitioners That A Plausible Claim for Trade Secret Misappropriation Must Detail the Reasonable Measures Used to Protect the Alleged Secret
Restrictive Covenants in the Seventh Circuit
As a part of our series on trade secret employee contract clauses, we have surveyed the Seventh Circuit for updates on the law pertaining to Restrictive Covenants. Each state’s laws are set forth below. But generally in the Seventh Circuit, states focus on reasonableness, geographic, and income restraints in restrictive covenant agreements. Indiana applies a reasonableness-standard common law approach to enforcing covenants, strictly construed against the employer. Wisconsin’s restrictive covenant statute also focuses on reasonableness restraints, and will void all parts of the covenant even if remaining portions are reasonable. Illinois recently passed a restrictive covenant statute in 2021, the Illinois Freedom to Work Act, which codifies the state’s longstanding common law, adding provisions restricting covenants against certain incomes and professions.
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An NDA Leads to the Loss of Trade Secrets, a Failed Deal and No Recourse
Trade secrets are always at risk when engaging in corporate deals that require the disclosure of confidential information. Though there is no sure-fire solution to protecting a company’s trade secrets, if handled properly, there is legal recourse to help mitigate any loss and deter trade secret theft. In a recent decision, the 8th Circuit affirmed the grant of a motion to dismiss a breach of contract action between a company and its financial advising firm. The facts, as presented in the District Court’s September 29, 2020 decision (19-cv-03125-JRT-HC, EFC No. 73), are instructive:
Protégé specializes in researching and developing blood-clotting products and maintains its work as trade secrets. In late 2017, looking to sell its business, Protégé entered into an Engagement Agreement with Duff & Phelps. The Engagement Agreement required Duff & Phelps to keep confidential any of Protégé’s non-public information, as well as provided immunity for certain corporate and individual liability and disclaimed a fiduciary duty. Smith reached out to Doug Schillinger, a Managing Director at a private equity firm, and board member at Z-Medica, which is also in the blood-clotting products space, to coordinate a meeting between Z-Medica and Protégé.
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The Dropout: Trade Secrets in Pop Culture
In 2004, 19-year-old college sophomore Elizabeth Holmes dropped out of Stanford University to create a company that would change the world. Theranos, Inc. was going to revolutionize medicine with its proprietary blood testing devices that could detect high cholesterol, cancer, and other medical conditions with a single finger pinprick. In 2014, the company’s valuation peaked at over $9 billion, making Holmes the youngest self-made female billionaire in the world with a net worth of about $4.5 billion. Four years later, in June 2018, Holmes was indicted on eleven counts of fraud. On January 3, 2022, Holmes was convicted on one count of conspiracy to defraud investors and three counts of wire fraud. She faces a maximum sentence of twenty years in prison, and a fine of $250,000, plus restitution, for each count.
Hulu’s new limited series, The Dropout, chronicles the rise and fall of Theranos through the lens of its CEO, played by Amanda Seyfried. Episode 7, Heroes, touches on Holmes’s well-documented preoccupation with trade secrets. During its first decade, Theranos operated in stealth mode – no media communications, no public disclosures, and no product releases.
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Multi-Level Marketing Company Sufficiently Alleges Reasonable Efforts Despite Posting Trade Secret Materials to Thousands
Last week, the Western District of Washington concluded that a multi-level marketing beauty company sufficiently alleged that it exercised reasonable efforts to maintain the secrecy of its training materials, and network salespeople and contact lists, despite the salespeople using their personal Facebook accounts, and despite making the training materials available to a Facebook group comprising thousands of members. Accordingly, the court denied defendants’ motion to dismiss with respect to defendants’ alleged trade secret misappropriation in violation of the Defend Trade Secrets Act.
Plaintiff, Tori Belle Cosmetics LLC (“Belle Cosmetics”), sells its cosmetics and false eyelashes through a network of salespeople, allowing each salesperson to earn a portion of any revenue generated by any salespeople they recruit to join their sales network, i.e., a multi-level marketing business. Defendants are five former network salespeople of Belle Cosmetics, who plaintiff alleges, helped design and launch a competing product line for a company called Juvanae LLC. Belle Cosmetics alleges its trade secrets include, inter alia, lists containing contact information of customers and network salespeople including in the form of social media contacts, and training materials in the form of videos, photos, informational posts, webinars and other instructional materials that it makes available to thousands of its network salespeople through a Facebook group called “Team Lash Out.”
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Curiosity Killed A Motion to Dismiss: A Biotech Company’s Business Negotiations Turn into a Trade Secrets Fight
The District Court for the Southern District of California held that despite not alleging direct evidence of misappropriation, a complaint’s allegations about a company’s lack of experience in the particular industry coupled with its purported behavior during business negotiations were sufficient to state a claim that an allegedly competing product misappropriated trade secrets under the Defend Trade Secrets Act (DTSA) and to defeat a motion to dismiss. According to the Complaint, Applied Biological Laboratories (ABL), a biotechnology company that researches, develops, manufacturers, and distributes healthcare products, developed an antiviral nasal technology using immunoglobulin G, a common antibody in body fluids. ABL’s antiviral nasal spray is allegedly effective against rhinoviruses and novel respiratory pathogens, such as COVID-19. With an application to the mouth and nose, the antiviral spray allegedly aids in naturally flushing pathogens and foreign particles in the digestive tract.
Continue Reading Curiosity Killed A Motion to Dismiss: A Biotech Company’s Business Negotiations Turn into a Trade Secrets Fight
Employees may come and go. But will your trade secrets follow them?
Tips for European employers on how to protect company trade secrets.
7 to 12 years. According to an Organisation for Economic Co-operation and Development study, this is the average amount of time spent by an employee with any one European Union employer. However, in some countries, regions and sectors, employees move around more frequently than this, and the current COVID-19 pandemic will also have had an impact on these numbers.
In any event, if one of your employees leaves, you do not want your company’s trade secrets and other confidential information to leave with them.Continue Reading Employees may come and go. But will your trade secrets follow them?