The First Circuit’s decision in TLS Mgmt. & Mktg. Servs., LLC v. Rodriguez-Toledo, 966 F.3d 46 (1st Cir. 2020) is an important reminder that trade secret owners must take great care to understand the nature of their trade secrets, how they satisfy the legal definition of trade secrets, and how they differ from other forms of intellectual property as early as possible in a case in order to create the factual record required for full enforcement and recovery.
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First Circuit
First Circuit Reverses Misappropriation Verdict, Citing Lack of Specificity
On July 21, 2020, the First Circuit clarified the high burden that a plaintiff faces when asserting that certain types of business materials are protected trade secrets. In TLS Mgmt. & Mktg. Servs., LLC v. Rodriguez-Toledo, No. 19-1104, 2020 WL 4187246, at *6 (1st Cir. July 21, 2020), the court reversed a district court’s bench trial verdict in favor of the plaintiff in a trade secret misappropriation case on the ground that the business materials at issue did not constitute trade secrets. Plaintiff TLS Management and Marketing Services, LLC, a Puerto Rico-based tax planning and consulting firm, argued that the defendants misappropriated two of its protectable trade secrets: (1) a portion of its “Capital Preservation Reports,” which contained tax recommendations specific to an individual TLS client based on an analysis of applicable statutes and regulations; and (2) its “U.S. Possession Strategy,” which consisted of a scheme that would allow Plaintiff’s clients to take advantage of a lower tax rate on outsourced services by contracting with Plaintiff and buying its shares.
Defendant Rodriguez-Toledo was the founder of Plaintiff’s competitor, Defendant ASG Accounting Solutions Group, Inc., and for some time worked for Plaintiff TLS as a Managing Director under a subcontract between Plaintiff and ASG. After departing from TLS, Rodriguez-Toledo provided tax advice to Plaintiff’s former clients regarding how to avoid certain tax penalties triggered by terminating their relationships with TLS, which TLS’s U.S. Possession Strategy was also intended to avoid. Rodriguez-Toledo also allegedly downloaded the Capital Preservation Reports from TLS’s Dropbox account without authorization before he left TLS. TLS filed suit against both ASG and Rodriguez-Toledo for misappropriation of the two trade secrets and violation of a nondisclosure agreement. The district court found they had misappropriated both trade secrets following a bench trial, and the defendants appealed.Continue Reading First Circuit Reverses Misappropriation Verdict, Citing Lack of Specificity