Trade Secrets

Trade Secret Misappropriation Claim Dismissed Where Plaintiff Failed to Prove Damage

An element of a claim of trade secret misappropriation is that the theft has caused damage, a lesson reinforced by the defendant’s successful motion for summary judgment in 3PD, Inc. v. U.S. Transport Corp., Case No.: GJH-13-2438 (D. Md. July 9, 2015). Even if trade secrets were wrongly taken by the defendant, the plaintiff failed to demonstrate actual damages under the Maryland Uniform Trade Secret Act (“MUTSA”). The plaintiff, 3PD, Inc., is a logistical support company with a nationwide customer data base comprised largely of major consumer product retailers. Rose was a manager in charge of supervising and organizing all of 3PD’s centralized customer dispatching and routing for Lowe’s Home Centers. Rose gave 3PD 12 days’ notice of his resignation to take a position with the defendant, one of 3PD’s competitors. During that time, Rose forwarded “to his personal e-mail account confidential 3PD information that 3PD contends was trade secret.” That information included price and task sheets, budgets, forecasts, meeting notes, scheduling methods, and contact information. 3PD terminated Rose upon discovering his activities. Without analyzing whether the information that Rose downloaded to his personal e-mail account was included trade secrets, the court concluded that 3PD did not adequately demonstrate it… Read More »Trade Secret Misappropriation Claim Dismissed Where Plaintiff Failed to Prove Damage

Internal Website Can Be a Trade Secret

Allegations that a customer database and an inter-office call center website were trade secrets survived a Rule 12(b)(6) motion to dismiss in Capital Meats, Inc. v. The Meat Shoppe, LLC, Civil No. JFM-15-212 (D. Md. July 9, 2015). The court ruled that the plaintiff had stated a plausible claim under the Maryland Uniform Trade Secrets Act (“MUTSA”), thus providing a useful illustration of how even information widely shared within a company can be protected as a trade secret. The plaintiff, Capital Meats, Inc. (“CMI”), maintains a customer data base and call center website, both of which are used to track inventory, sales, customer payment processing, and outstanding balances owed by the retailers purchasing CMI’s frozen meat. CMI’s auditor resigned and, with as dozens of retail dealers, formed The Meat Shoppe, a door-to-door seller of frozen meat. CMI’s complaint alleged that the defendants “directly obtained the information contained in the Database and Call Center Website through ‘improper means,’” and then distributed “that information to former Retail Dealers who joined The Meat Shoppe.” CMI further alleged that it lost significant business due to the defendants using the information to their competitive advantage. The defendants moved to dismiss the count of violating the… Read More »Internal Website Can Be a Trade Secret

Pleading Trade Secret Misappropriation Requires Detail, Even If Not All Support Needed for the Plaintiff to Ultimately Prevail

In Vesta Corp. v. Amdocs Mgmt., No. 3:14-cv-1142-HZ (D. Or. Jan. 13, 2015), the plaintiff survived a Rule 12(b)(6) motion to dismiss a claim of alleged trade secret misappropriation.  The plaintiff alleged that the defendant stole its confidential information during a joint development effort, and used that information to develop a competing product. Both the plaintiff and defendant provided services to mobile phone network operators (MNOs). Metro PCS, a large MNO, was the target customer for collaboration efforts between the two parties. The plaintiff specialized in electronic payment solutions and fraud prevention technology that assist the MNO in receiving payments from the end-user of the mobile device. The defendant offered mobile telephone billing software and services as a billing platform that maintains account status and account information for the MNO and its customers. MNOs “generally require both payment solutions and billings platforms to serve their customers.” With this premise in mind, the parties underwent a joint effort to “integrate their services and platforms in order to appeal to their shared customer base.” After the relationship ended, the plaintiff alleged that the defendant used its confidential information to develop and sell a competing product to Metro PCS. A threshold question was… Read More »Pleading Trade Secret Misappropriation Requires Detail, Even If Not All Support Needed for the Plaintiff to Ultimately Prevail

Trade Secret Protection Requires Steps to Protect Trade Secrets

A defendant who misappropriated a plaintiff’s designs could not be liable for trade secret misappropriation no matter how nefarious the defendant’s conduct, where the plaintiff had not taken reasonable steps to protect prototypes embodying the designs. Accordingly, in Direct Technologies, LLC v. Electronic Arts, Inc., No. SACV 10-1336 AG (PJWx) (C.D. Cal. Aug. 4, 2014), the court granted summary judgment for the defendant on the plaintiff’s claim for trade secret misappropriation under California’s Uniform Trade Secrets Act (“CUTSA”). This case presented simple facts. Electronic Arts hired Lithomania to make a USB drive based on a SimCity character. Lithomania subcontracted design work for the USB drive to Direct Technologies. Then, after Direct Technologies provided prototypes embodying a design, Lithomania hired a different company to produce USB drives based on Direct Technologies’ design. Electronic Arts argued in its summary judgment motion that Direct Technologies had not taken reasonable steps to protect the prototypes, and therefore they were not trade secrets. Direct Technologies argued in response that it had provided “substantial communication” about an NDA to Lithomania and had tried to get Lithomania to enter into an NDA, that Lithomania knew sending the designs to Direct Technologies’ competitor was wrong, and that Direct… Read More »Trade Secret Protection Requires Steps to Protect Trade Secrets

Reasonable Steps Protect Software Trade Secrets

A software owner must take steps to preserve trade secrets in software, but those steps need only be reasonable, rather than including every conceivable action.  That is the lesson from PQ Labs, Inc. v. Qi, No. 12-0450 CW (N.D. Cal., Jan 29, 2014), denying the defendants summary judgment on the plaintiff’s claim brought under the California Uniform Trade Secrets Act (CUTSA), Cal. Civ. Code §§ 3426 – 3426.11. Under CUTSA, “a plaintiff must show that (1) it owned a trade secret; (2) the defendant acquired, disclosed, or used that trade secret through improper means, and (3) the defendant’s actions damaged the plaintiff.”  Here, the court rejected the defense that the plaintiff allegedly had “failed to present sufficient evidence to support an inference that it took reasonable steps to maintain the secrecy of its alleged trade secrets.” The plaintiff’s CEO had averred that one of the defendants had been explicitly told about the plaintiff’s trade secrets.  That defendant had signed a nondisclosure agreement acknowledging the confidentiality of the plaintiff’s software and source and object code.  Another of the defendants had likewise been warned to keep the plaintiff’s technical information secret. Further, the plaintiff had given similar warnings regarding its trade secrets… Read More »Reasonable Steps Protect Software Trade Secrets

Jury Award for Software Trade Secrets Theft Affirmed by Fifth Circuit

Wellogix sued Accenture (and other parties) for misappropriating trade secrets related to software that helped manage the process of constructing an oil well. A jury awarded $26.2 million in compensatory damages, and $68.2 million in punitive damages, the punitive award having subsequently been reduced to $18.2 million by a remittitur. On appeal, the Fifth Circuit affirmed the jury’s verdict that Wellogix’s trade secrets had been misappropriated, and also affirmed the damages awards. Wellogix, Inc. v. Accenture, L.L.P., No. 11-20816 (5th Cir. May 15, 2003). Facts In 2005, Wellogix entered into an agreement with SAP to integrate its software with SAP’s accounting software. Under that agreement, Wellogix provided its source code to SAP. Wellogix also entered into marketing agreements with Accenture. Further, Wellogix conducted pilot programs with oil companies and Accenture.  In the pilot programs, subject to confidentiality agreements, Wellogix shared its technology, including source code, with the oil companies and Accenture. Later, in developing a component for software for BP, Accenture and SAP “apparently accessed Wellogix technology—including flow diagrams, design specifications, and source code critical to Wellogix’s software.” Wellogix sued BP and SAP in addition to Accenture. SAP was dismissed for lack of proper venue, and claims against BP were resolved in an… Read More »Jury Award for Software Trade Secrets Theft Affirmed by Fifth Circuit

When Does Internet Use Create Personal Jurisdiction?

A defendant’s use of computers in Canada to access servers in Connecticut was sufficient to give rise to personal jurisdiction in Connecticut, the Second Circuit Court of Appeals has held. MacDermid, Inc. v. Deiter, No. 11-5388-cv (2nd Cir. Dec. 26, 2012). A district court had held that the defendant’s conduct was not covered under Connecticut’s long arm statute. The Second Circuit reversed. MacDermid, the plaintiff, was headquartered in Connecticut. MacDermid employed the defendant, Deiter, as an account representative in Canada. Deiter learned that MacDermid was about to terminate her employment. In advance of her termination, she downloaded and forwarded to her personal e-mail account certain data files that MacDermid alleged were confidential and proprietary. MacDermid then sued Dieter, “alleging unauthorized access and misuse of a computer system and misappropriation of trade secrets.” Dieter brought a Rule 12(b)(2) motion to dismiss, alleging lack of personal jurisdiction. Connecticut’s long arm statute, Conn. Gen. Stat. § 52-59b(a), allows Connecticut courts to exercise personal jurisdiction over anyone who “uses a computer . . . located within the state.” The District Court had reasoned that Deiter had not used a Connecticut computer, but rather had simply sent e-mails from one computer in Canada to another… Read More »When Does Internet Use Create Personal Jurisdiction?

Patent Applications and Stolen Trade Secrets

The court in VasoNova, Inc. v. Grunwald, No. C 12-02422 WHA (N.D. Cal. Sept. 18, 2012), addressed the classic scenario of a departing employee allegedly stealing trade secrets.  In a not wholly unusual twist, the departing employee, Grunwald, filed patent applications containing the alleged trade secrets.  Grunwald then sold the technology, including the patent applications, to a third-party, Bard Access Systems, Inc.  The plaintiff, VasoNova, sued Grunwald, Grunwald’s company (Romodex), and Bard alleging various causes of action including trade secret misappropriation.  The court denied Bard’s motion to dismiss insofar as it related to the trade secret claim. The California Uniform Trade Secrets Act (CUTSA) requires a plaintiff to identify allegedly stolen trade secrets with “reasonable particularity.”  However, at the pleading stage the “trade secret designation is to be liberally construed, and reasonable doubts regarding its adequacy are to be resolved in favor of allowing discovery to go forward.”  Here, patent applications were alleged to include misappropriated trade secrets.  Trade secret information was identified as relating to software and its operation, as well as “and implementation information such as the ‘devices, algorithms, and processes useful for catheter guidance.’”  Software could be a trade secret under the CUTSA.  Therefore, “[t]he first amended… Read More »Patent Applications and Stolen Trade Secrets

Plaintiff Must Identify Software Trade Secrets

Here is a reminder that plaintiffs have an obligation to identify allegedly stolen trade secrets.  In MSCI, Inc. v. Jacob, 945 N.Y.S.2d 863 (April 20, 2012), a New York state court held that the plaintiffs were required to affirmatively identify features of their software that included trade secrets, rather than simply identify aspects of the software that did not include trade secrets. The court had previously ordered the “plaintiffs to supplement their responses to defendants’ interrogatories by providing a list of source code components: (i) that are covered by third party licenses; (ii) that are in the public domain; or (iii) over which plaintiffs do not claim trade secret  status.”  The plaintiffs argued that it was sufficient for them to comply with this discovery order, and also “that their identification of the entirety of the source code in their interrogatory responses as a trade secret, is adequate because the source code underlying their products constitutes a compilation and sequencing of component parts.” The court rejected the plaintiffs’ arguments.  Its prior order had been preliminary.  Further, it was necessary for the plaintiffs to distinguish between their trade secrets and knowledge generally in the public domain in order for the court to… Read More »Plaintiff Must Identify Software Trade Secrets

Plaintiff Goes First In Trade Secrets Discovery

A classic tension in trade secrets cases lies between plaintiffs’ reluctance to identify their trade secrets and defendants’ contentions that plaintiffs will tailor their accusations of trade secrets theft to match information produced by the defendants.  Acknowledging this tension, a Nevada magistrate judge has held that a plaintiff had not identified allegedly stolen trade secrets with sufficient particularity, and that the defendant need not respond to discovery requests until the plaintiff had done so.  Switch Communications Group v. Ballard, No. 2:11-cv-00285-KJD-GWF (D. Nev. June 19, 2012). Ballard, the defendant, had been the plaintiff’s chief financial officer for two years prior to being terminated.  Switch, the plaintiff and an operator of computer data centers, alleged that the defendant had possessed its trade secrets, and was planning to use them to build a competing data center.  Ballard admitted involvement in a project to build a competitor’s data center, and that he had knowledge of the plaintiff’s business.  He denied, however, that this information constituted trade secrets or confidential information, or information that was confidential under his employment agreement with Switch. After Switch’s original interrogatory answers concerning its alleged trade secrets were vague, Ballard brought a successful motion to compel more specific answers. … Read More »Plaintiff Goes First In Trade Secrets Discovery