On March 15, 2018, HouseCanary, a data-analytics startup, was awarded $706 million in damages by a jury in Texas in its lawsuit against Title Source, an affiliate of Quicken Loans. The jury found Title Source misappropriated trade secrets including HouseCanary’s technology and appraisal analytics and breached both confidentiality and other agreements between the parties. While Title Source engineers were building the automated valuation model (“AVM”), HouseCanary alleged they helped themselves to other intellectual property, algorithms, analytics, and proprietary data without paying for it. In fact, an email from a Title Source employee encouraged colleagues to “think big and wide about how to maximize the value of the HouseCanary data to our business.” The jury found that a combination of lost profits and the benefit that Title Source obtained from the trade secrets misappropriation warranted $235 million in damages but tripled the damages due to a finding of deliberate conduct resulting in a final damages award to over $700 million. A big number indeed.
On June 14, 2018, six former and current Fitbit employees were indicted in the Northern District of California for alleged federal trade secrets offenses. The individuals are accused of either stealing market research regarding fitness tracker opportunities from Jawbone, or stealing internal studies – including a comparison study of consumer behavior in which consumers wore both Jawbone and Fitbit devices. The employees are charged with felony Possession of Stolen Trade Secrets (18 USC §1832(a)(3)), for which the maximum sentence is 10 years in prison.
This indictment is interesting because in 2015 Jawbone sued Fitbit, including these same individuals, for “systematically plundering” trade secrets, including over 300,000 confidential files. After a nine-day trial, the International Trade Commission (ITC) ruled in favor of Fitbit and the individuals. The federal administrative law judge determined on the merits that no Jawbone trade secrets were misappropriated or used in any Fitbit product. Nevertheless, U.S. federal prosecutors decided to move forward with a criminal prosecution. The indictment states that the defendants received confidential documents “knowing them to have been stolen and appropriated, obtained, and converted without authorization…for the economic benefit of someone other than Jawbone.”
This criminal case is worth following to see how it unfolds in light of the findings in the ITC proceeding.
The dichotomy between patent and trade secret cases is as old as time. But, Lex Machina’s newest platform – trade secrets – reveals some interesting new insights on key differences between patent and trade secret cases that will matter to plaintiffs and defendants alike. In trade secrets cases, 71% of cases that resolve at trial are won by claimants whereas 29% are won by claim defendants. LexMachina Article. By contrast, in patent cases filed between 2000 to 2018, 7% were won by the claimant whereas 4% were won by the defendant while 68% of those cases resulted in a likely settlement and 14% resolved on a procedural resolution. This stark contrast in outcomes when comparing the different types of intellectual property is useful to clients who are assessing how best to protect these valuable resources. Lex Machina offers evidence about the success of different types of remedies in trade secret cases, revealing 51% of cases granted a temporary restraining order (“TRO”), 86% of cases granted a Permanent Injunction, and 63% of cases denied a Preliminary Injunction which can be further refined by jurisdiction to provide useful intel on case strategy when bringing these cases. Lex Machina also offers empirical data on the outcome of patent litigation, notably the relative proportion of infringement versus no infringement findings at trial. With this data, attorneys can make more informed strategic decisions for their clients for both patent and trade secret cases.
Just last week, Lex Machina introduced its newest module which will cover trade secrets litigation – one of the most requested additions to this valuable analytical platform.
Lex Machina is an important tool for all trade secret litigators, drawing from nearly 10,000 trade secret cases in federal court since 2009 to provide in-depth strategic insights on cases with allegations ranging from state trade secret misappropriation to Defend Trade Secrets Act (“DTSA”) violations.
Lex Machina offers analytical data on key aspects of trade secret cases, including the size of damages awards in a given jurisdiction to the likelihood of securing a preliminary injunction to the most common law firms representing plaintiffs in trade secret cases. Lex Machina can be used to both track trends in trade secret cases over time and drill into specific cases and download copies of relevant pleadings or motions.
Lex Machina also can be a valuable tool both to advise clients who are interested in how long it takes to resolve a trade secrets case either on dispositive motions or at trial and develop a solid legal strategy on issues like whether to file in a certain jurisdiction based on a judge’s track record with trade secrets cases.
For anyone practicing in the trade secrets space who wants a leg up on the latest trends and authoritative insights backed by data, Lex Machina could be a game changer and won’t remain secret for long.
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
On April 19, a divided Texas appellate panel reversed a jury’s $4.5 million award of exemplary damages, finding no evidence of malice in a hydraulic fracturing trade secret misappropriation case. Shale Exploration, an independent Oil and Gas Exploration company, accused Eagle Oil & Gas of breaching a confidentiality agreement and engaging in theft of trade secrets (Shale’s identification and compilation of mineral interest owners). However, the Court found no evidence of malice despite even testimony of Shale’s own President. The panel affirmed all other findings of the lower court’s decision.
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.
In Krawiec v. Manly, owners of a ballroom dance studio sued two former employees pursuant to a non-compete clause in their employment contracts. The plaintiffs claimed their former employees began working at a competing dance studio where they shared “original ideas and concepts for dance productions, marketing strategies and tactics, as well as student, client and customer lists and their contact information.” However, the studio’s claim under North Carolina’s Trade Secrets Protection Act was dismissed by the North Carolina Business Court based on the pleadings, which did not specifically state each of the required components of a trade secrets claim. In upholding the dismissal, the North Carolina Supreme Court stated, “To plead misappropriation of trade secrets, a plaintiff must identify a trade secret with sufficient particularity so as to enable a defendant to delineate that which he is accurse of misappropriating and a court to determine whether misappropriation has or is threatened to occur.”
On Monday, April 9, Facebook settled a trade secrets case brought against it in California federal court by BladeRoom Group Limited.
BladeRoom, a data center construction company, alleged that Facebook had used and divulged its trade secrets, specifically its methodology regarding efficient construction and implementation of pre‑fabricated data centers. BladeRoom had first presented to the social network giant in confidential discussions in 2011. BladeRoom sought damages in excess of $300 million.
After voluminous discovery and a week of trial, the parties settled the case, although BladeRoom’s case against another defendant based on similar allegations is still proceeding.
The settlement amount and terms were not immediately disclosed to the United States District Court for the Northern District of California, where the case was being tried.
PharMerica Corporation (“PharMerica”) is a Delaware corporation headquartered in Louisville, Kentucky that provides institutional and hospital pharmacy services throughout the United States. The company filed a lawsuit in September 2016 in the Federal District Court of Pennsylvania alleging several employment and tort-related claims, and claims of misappropriation of Trade Secrets under the Pennsylvania Uniform Trade Secrets Act (“PUTSA”) and the Federal Defend Trade Secrets Act (“DTSA”) against former Pharmaceutical executive, Lena Sturgeon (“Sturgeon”) and ContinuaRx. ContinuaRx is a start-up, long term care pharmacy that serves facilities and institutions with pharmaceutical needs. While the DTSA and the PUTSA use different wording to define a trade secret, they essentially protect the same type of information, and create a private right of action for the misappropriation of trade secrets.
Sturgeon and ContinuaRx filed a Joint Motion for Summary Judgment alleging that PharMerica failed to show it has protectable trade secrets. At issue is whether PharMerica’s internal information about PharMerica’s service methods, market opportunities, marketing plans, current and prospective customers, and pricing information constitute protected trade secrets. On March 16, 2018, the judge sided with Sturgeon and ContinuaRx stating that while “PharMerica may have certain ‘trade secrets’ that deserve protection … in this instance [the company] failed to identify a single quality, attribute, or feature of any of these alleged trade secrets.”
Furthermore, PharMerica admitted that the majority of underlying materials that create its services, marketing opportunities, and pricing information are publically available, and “largely fixed by Medicare and Medicaid reimbursement rates.” Therefore, the court not only found that PharMerica failed to prove it had a protectable trade secret but also that there was no evidence that Sturgeon and/or ContinuaRx improperly acquired, disclosed, used, or threatened to use any specific trade secret.
Remember: “to warrant legal protection, a trade secret must be, in fact, a secret.”