Under the California Uniform Trade Secrets Act (CUTSA), and many other states’ trade secret acts, a plaintiff must identify its alleged trade secrets as a prerequisite to conducting discovery. Cal. Civ. Code § 2019.210. The Ninth Circuit recently held that the Defend Trade Secrets Act (DTSA) also includes this requirement to identify alleged trade secrets with sufficient particularity. The Ninth Circuit was considering whether the U.S. District Court for the Central District of California had abused its discretion in granting summary judgment for a defendant on CUTSA and DTSA claims by finding that the plaintiff had not identified its trade secrets with sufficient particularity without any discovery. (Spoiler alert: It did.)
Continue Reading Ninth Circuit Opens the Door to Modifying a Trade Secret Identification After Discovery
ITC Administrative Law Judge Decision Implicates Scope of Trade Secret Protections
On August 6, 2020, the U.S. International Trade Commission (“ITC”) released a public version of the Final Initial Determination (“ID”) in the Matter of Botulinum Toxin Products (Inv. No. 337-TA-1145), that, if upheld by the ITC Commission, might signal an expansive view of the ITC’s territorial jurisdiction and the scope of trade secret protection. The ITC’s jurisdiction in trade secret investigations is limited to matters that destroy or substantially injure a “domestic industry in the United States.” An interesting aspect of the ID is that it recommends banning importation of a Botox-competitor product (Jeuveau®) that was found to incorporate misappropriated trade secrets of a foreign Complainant whose domestic licensee and Co-Complainant have yet to make any sales of that product in the United States. The ID also found “domestic injury” based on the licensee’s industry, not the licensed trade secret’s industry. The Commission will issue a final decision in November.
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Caught between a rock and a hard place; that is, a subpoena and a protective order
A federal judge in Colorado declined to sanction Plaintiff DTC Energy Group Inc. (“DTC”) for disclosing information governed by a civil protective order. DTC Energy Group, Inc. v. Hirschfeld, 1:17-cv-01718 (D. Colo. July 27, 2020).
DTC, a consulting and staffing firm serving the oil and gas industry across the United States, filed suit in July 2017 against Defendants Ally Consulting, LLC (“Ally”), a former business partner and direct competitor of DTC, and two former DTC employees.
The amended complaint alleged a variety of claims, including trade secret misappropriation, unfair competition, breach of employment contract, and civil conspiracy to steal trade secrets.
During discovery, and subject to an oral protective order issued by the court, Ally produced to DTC documents and information that contained certain of Ally’s trade secrets. DTC later shared documents produced as “confidential” in the litigation with both its outside criminal attorney and with a Denver assistant district attorney after receiving a grand jury subpoena for those documents. Ally and the other defendants accused DTC of malfeasance and of willful violation of the protective order, and sought sanctions in the litigation.
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DOJ Step-by-Step Guidance to Determine if Trade Secrets are Confidential Under the Freedom of Information Act (FOIA)
On October 7, 2019, the U.S. Department of Justice (“DOJ”) issued a Step-by-Step Guide for Determining if Commercial or Financial Information Obtained from a Person is Confidential Under Exemption 4 of the FOIA. The Step-by-Step Guide is used by agencies, in conjunction with guidance from the Office of Information Policy (“OIP”) to determine whether commercial or financial information provided by a person is “confidential” under FOIA Exemption 4. FOIA Exemption 4 protects trade secrets and commercial information that is privileged or confidential. The DOJ Guidance is another tool that can be used by practitioners to determine when information must be disclosed under a FOIA Request.
The DOJ Guidance followed on the heels of the Supreme Court’s decision in in Food Marketing Institute v. Argus Leader Media (described in a previous blog post) where the Supreme Court addressed the question of “when does information provided to a federal agency qualify as confidential.” The Supreme Court held that information is confidential and protected if: (1) the information is “customarily kept private, or at least closely held” and (2) where the receiving party provides “some assurance” that the information will be kept secret.
The DOJ Guidance outlines three questions to help determine if information is confidential under FOIA Exemption 4.
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China Proposes Harsher Penalties for Trade Secret Theft in Draft Amendment
China’s National People’s Congress has released a draft law for comment that would impose harsher criminal penalties for any trade secret theft from Chinese companies that benefits foreign companies.
China’s current law imposes a maximum sentence of 3 years imprisonment for “serious” instances and 10 years for “particularly serious” instances of trade secret theft. The proposed law would impose harsher sentences for trade secret theft benefiting a foreign entity, resulting in 5 years for “serious” instances and a minimum of 5 years with no maximum for “particularly serious” instances.
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Companies Protecting Trade Secrets Should Consider Role of NIST’s Enhanced Security Requirements
Companies looking to protect valuable trade secrets and confidential information routinely employ multiple precautions ranging from employee training to technological safeguards.
Another potential tool in the arsenal, and worth careful consideration for companies operating in the government contract space, is the National Institute of Standards and Technology’s (NIST) recently released final public draft of enhanced security requirements. NIST Special Publication (SP) 800-172, formerly known as Draft NIST SP 800-171B, provides 34 enhanced requirements to protect Controlled Unclassified Information (CUI) associated with critical programs or high value assets from the risks posed by advanced persistent threats (APTs).
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Misappropriation Claims Brought Over Tax Trade Secrets
A recent case is a helpful reminder to companies with valuable intellectual property to be diligent in protecting trade secrets and monitoring compliance by employees with access to this confidential information.
On June 15, 2020, Ryan, LLC (“Ryan”) filed a lawsuit in Texas state court against S.K. Thakkar (“Thakkar”), who was employed by a company acquired by Ryan, and Ernst & Young, LLP (“Ernst & Young”), his new employer, seeking a temporary restraining order and permanent injunction based on alleged (1) trade secret misappropriation, (2) tortious interference with contract, and (3) breach of contract.
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Under Alcom v. Temple, Speculative Harm Does Not Meet the Irreparable Harm Requirement
On May 6, 2020, the U.S. District Court for the District of Maine denied plaintiff Alcom’s request for a temporary restraining order (“TRO”), which sought to enjoin a competitor’s alleged misappropriation of trade secrets. The court denied the request for a TRO, holding that Alcom’s speculation about the potential harm it would suffer absent the TRO was not enough to show a likelihood of irreparable harm, as required to obtain a TRO. The case serves as a reminder that when proving irreparable harm, courts require more than just speculation.
In 2015, Alcom (a trailer manufacturer) hired Mr. Temple (defendant) as a sales representative for its horse and livestock trailers. As the sole salesperson in North America for the Frontier line of trailers, Mr. Temple gained significant responsibilities including developing and maintaining sales leads, as well as growing Alcom’s customer base for those trailers. Mr. Temple signed various agreements as conditions to his employment, including (i) confidentiality agreement, (ii) non-disclosure agreement, (iii) non-compete agreement, and (iv) a non-solicitation agreement. Alcom required Mr. Temple to sign the agreements as a precondition for accessing highly valuable and confidential company information relating to customer incentive program details, sales and marketing information, and unique insights into the needs and operational requirements of the trailer dealers he solicited.
Continue Reading Under Alcom v. Temple, Speculative Harm Does Not Meet the Irreparable Harm Requirement
Two Tests for Trade Secret Preemption under California Law
When does a cause of action come close enough to a trade secret claim to become preempted by the California Uniform Trade Secrets Act (“CUTSA”)? CUTSA preempts statutory and common law claims “based upon misappropriation of a trade secret.” In other words, with some exceptions, claims predicated on trade secret misappropriation allegations may only be asserted through a CUTSA claim.
California courts have articulated two different CUTSA preemption tests: (1) the “common nucleus” test and (2) the “dependence” test. In many cases, the two tests will yield the same result. Sometimes, however, the tests will produce divergent outcomes.
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“Authorized Access”: The Supreme Court’s First Foray Into The Computer Fraud and Abuse Act
On April 20, 2020, the Supreme Court granted cert in Van Buren v. United States, to resolve an important circuit split over the meaning of “authorized access” under the Computer Fraud and Abuse Act (CFAA). This is the Court’s first foray into analyzing the precise contours of CFAA liability. Van Buren may have far-reaching implications for any individual or business operating in the digital domain, as the scope of civil and criminal liability under the CFAA can impact just about any sort of relationship involving access to computer systems, whether it be employer-employee relationships or third-party relationships.
The CFAA was enacted in 1986 as a first-of-its-kind statute designed to combat computer-related crimes, and has become an important and powerful tool for not only for the government but any business seeking to protect its intellectual property and computer systems. The CFAA imposes criminal liability on any person who “intentionally accesses a computer without authorization” or “exceeds authorized access” and, in doing so, obtains information from any protected computer. The CFAA also provides a civil cause of action for similar conduct. See 18 U.S.C. §§ 1030(a)(2), 1030(a)(4), 1030(a)(5)(B)-(C).
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