Trade Secret Misappropriation

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

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.
Continue Reading The Dropout: Trade Secrets in Pop Culture

The regular readers of this blog certainly remember the usual suspects of trade secret misappropriation are employees, former employees, and self-employed consultants. In our series of blog posts about international trade secret misappropriation and trade secret enforcement under the Belgian Trade Secrets Act, we also explained that actions based on trade secrets misappropriation are in principle heard by the Enterprise Court. However, if the defendant is an employee or an ex-employee suspected of trade secret misappropriation during the course of employment, then the labor court has jurisdiction.
Continue Reading International Issues in Trade Secret Law Series: Longer Statute of Limitations Confirmed in Cases of Trade Secrets Misappropriation by Former Employees

The Sedona Conference, Working Group 12 on Trade Secrets, has issued guidance on protecting trade secrets throughout the employment life cycle. This significant Commentary analyzes the tension between an employer’s interest in protecting its trade secrets and an employee’s interest in engaging in future employment.
Continue Reading The Sedona Conference Issues Commentary on Protecting Trade Secrets Throughout the Employment Life Cycle

Earlier this month, the Second Circuit clarified the requirements for alleging a trade secret misappropriation claim under the Defend Trade Secrets Act (“DTSA”). The decision affirmed the Eastern District of New York’s dismissal of a trade secret misappropriation lawsuit against a formerly licensed software user. In short, the Second Circuit’s decision affirmed a more stringent view of DTSA requirements to find that a trade-secret plaintiff alleging misappropriation of software functionality must have direct allegations it had confidentiality and non-disclosure agreements with software’s vendors and end users.
Continue Reading Second Circuit Rejects DTSA Claim Due to Weak Software Licensing Agreement

The Sedona Conference, Working Group 12 on Trade Secrets, has issued guidance on protecting trade secrets in litigation about them. This important Commentary recommends courts:

  • Balance the risk of disclosure and harm to the producing party with the need for the other party and to have the information to prepare its case when determining a

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.”
Continue Reading Multi-Level Marketing Company Sufficiently Alleges Reasonable Efforts Despite Posting Trade Secret Materials to Thousands