Trade Secret Misappropriation

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A Central District of California court recently denied a defendant’s motion for summary judgment where the defendant argued that the plaintiff’s claims for trade secret misappropriation were barred by the applicable statute of limitations. The court determined that the statute of limitations did not bar the plaintiff’s claim because a reasonable jury could find that the plaintiff did not have reason to believe that all of the elements of its trade secret misappropriation claim were met prior to the bar date. In particular, the court concluded that a reasonable jury could find that the plaintiff did not have reason to believe that the defendant possessed the required knowledge of the trade secrets themselves, despite having knowledge that the product was manufactured using the trade secrets.…

Continue Reading Pinkerton Tobacco v. Kretek Int’l: Defendant’s Statute of Limitations Argument Goes Up in Smoke

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

The Defend Trade Secrets Act (DTSA) was enacted in 2016. The DTSA allows an owner of a trade secret to sue in federal court when seeking relief for trade secret misappropriation related to a product or service in interstate or foreign commerce, and does not preempt any state law. A goal of the DTSA is to “provide a single, national standard for trade secret misappropriation with clear rules and predictability for everyone involved.” S. Rep. No. 114-220, at 14 (2016). For the majority of the time, this goal is upheld. Aside from establishing a relation to a product or service in interstate or foreign commerce, state trade secret laws are typically almost identical to the DTSA. However, if states trade secret laws do differ from the DTSA, they are usually in regard to remedy.…

Continue Reading The Defend Trade Secrets Act and How it Differs from State Trade Secret Laws

NBA star Zion Williamson has more to celebrate than his recently announced five-year maximum rookie contract extension with the New Orleans Pelicans, worth up to $239 million. Williamson was also victorious in a lawsuit he filed against his former agent Gina Ford, and her agency Prime Sports Marketing LLC (“Prime Sports”). The case is Williamson v. Prime Sports Marketing LLC et al. in the District Court for the Middle District of North Carolina, No. 1:19-cv-00593.

Williamson entered into a marketing agreement with Ford and Prime Sports when he was just a freshman at Duke University. He brought suit in 2019, seeking to void the marketing agreement on the grounds that it violated North Carolina’s Uniform Athlete Agent Act (“UAAA”), by failing to include a “conspicuous” warning to the student athlete that execution of the contract would result in a loss of intercollegiate eligibility. In January 2021, the court ruled in favor of Williamson, holding that Williamson’s agreement with Ford and Prime Sports failed to contain the required warning, and also failed to meet the UAAA’s requirements in several other respects. The court thus deemed the marketing agreement void and unenforceable.…

Continue Reading NBA Star Zion Williamson Secures Wins on the Basketball Court and in the Courtroom, After Defeating Claims of Trade Secret Misappropriation

Restrictive covenants and non-compete agreements have been a frequent topic of this blog in recent months, and rightfully so. Non-competes are generally thought to be effective tools to help firms protect trade secrets and competitive advantages. However, these agreements are falling out of favor across the country – the DOJ recently file a Statement of Interest in a state court case taking the position that non-competes may violate the Sherman Antitrust Act. Further, states continue to pass laws limiting or banning the use of noncompete agreements, including Illinois, Oregon, Nevada, D.C., and Colorado. 

But one Texas court seems to buck this trend. Last month, Fort Bend County District Judge J. Christian Becerra granted a temporary restraining order (“TRO”) in a trade secret misappropriation case, forcing multiple former employees to stop work for a competing business, and limiting one particular employee from engaging in any competing work for any competitor. The catch? Not a single employee had a non-compete agreement.…

Continue Reading No Non-Compete? No Problem. Texas Court Grants TRO Forcing Former Employees to Stop Working for Competing Business.

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.
Continue Reading Restrictive Covenants in the First Circuit

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Earlier this week, a Virginia jury awarded software company Appian Corp. more than $2 billion in damages after finding that competitor software company Pegasystems Inc. had misappropriated its trade secrets. The complaint alleged that Pegasystems engaged in corporate espionage and trade secrets theft in an effort to better compete with Appian. Pegasystems hired Youyong Zou, an employee of a government contractor and former developer for Appian. In exchange for payment, Zou provided Pegasystems with copies of Appian’s confidential software and documentation in violation of confidentiality restrictions that barred him from sharing Appian’s trade secrets. In 2020, Appian filed suit against both Pegasystems and Zou.
Continue Reading $2B Jury Verdict in Trade Secrets Suit

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.
Continue Reading Restrictive Covenants in the Seventh Circuit

Use of an algorithm disclosed in a textbook in a different field may warrant trade secret protection according to a recent Federal Circuit decision in Masimo Corp. v. True Wearables, Inc., No. 2021-2146, 2022 WL 205485 (Fed. Cir. Jan. 24, 2022). In this case, the Federal Circuit upheld a preliminary injunction to prevent an optimization algorithm from being released even though the defendants presented that the equivalent of the algorithm had been published in a conference paper cited more than 1,200 times and in statistic textbooks since 1960s.

Masimo and Cercacor filed a suit against True Wearables and Dr. Lamego and requested for a preliminary injunction to prevent the plaintiff’s trade secret from being released to the public. The purported trade secret is an optimization algorithm used by the plaintiff on medical devices for measuring blood characteristics. Dr. Lamego is a former employee of Cercacor, who developed the purported trade secret for Cercacor and left Cercacor to found True Wearables (TW). Masimo’s preliminary injunction requested to bar TW’s patent application, which bears Masimo’s trade secret of the optimization algorithm as alleged by Masimo, from issuing. …
Continue Reading Trade Secrets Not So Secret: Conventional Technique, New Application

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. …
Continue Reading An NDA Leads to the Loss of Trade Secrets, a Failed Deal and No Recourse