Keep Your Enemies Closer Part 1

The popular press has successfully raised the profile of trade secret misappropriation during the past several years. However, this high profile was primarily directed to: (i) criminal international espionage and the Waymo v. Uber litigation. The prosecution of international theft is ongoing while the Waymo litigation terminated in a 2018 confidential settlement. Beginning in 2016 the federal Defendant Trade Secrets Act [hereinafter “the Act”] provides original subject matter jurisdiction for civil trade secret misappropriation lawsuits between private parties.  Original subject matter exists if a plaintiff’s products and services in interstate or international commerce are related to the disputed trade secrets. Several hundred such lawsuits have already been filed nationally.

The vast majority of lawsuits under the Act arise when former employees wrongfully take their former employer’s trade secrets to (i) their next employer, or (ii) begin a competing business.  The Act explicitly states that threatened misappropriation is actionable although it does not explicitly address inevitable disclosure. Unfortunately, decisions under the Act to date show inconsistency for evidence or allegations necessary to prevent threatened disclosure or inevitable disclosure.  For example, In Primesource Building Products, Inc. v. Huttig Building Products et al., No. 16CV 11468 (N. D. Ill. December 9, 2017) the magistrate judge denied a preliminary injunction to prevent use and disclosure of business information because (i) there was no evidence of wrongful taking, (ii) the defendant employees could perform in new positions without accessing their former employer’s trade secrets and (iii) alleged trade secrets were already stale in a rapidly changing industry.

In Executive Consulting Group LLC v. Baggot, 2018 WL 1942762(D. Colorado April 25, 2018) the court granted a preliminary injunction for actual and threatened misappropriation, because the defendant forwarded confidential information to her personal e-mail account in violation of her employment agreement. In Industrial Packing Supplies, Inc. v. Channell et al., 2018 WL  2560993 (N.D. Ill. June 4, 2018) the court squarely held that an employee would not inevitably misappropriate trade secrets merely because he or she merely moved to a business competitor for similar employment. Instead this court held that there should be evidence to support the former employer’s suspicions.  Recently a Minnesota district court provided criteria for inevitable disclosure, and based in part upon state law these criteria include a subsequent employer’s failure to prevent improper disclosure and use. PrimeTherapeutics LLC v. Beatty et al., 2018 WL 5669270(D. Minn. November 1, 2018).

However, other courts hold that the mere act of accepting employment with an employer’s business competitor is sufficient to trigger liability under the Act. For example, in TFC Partners, Inc. Stratton Amenities, LLC et al., 2019 WL. 369152 (W.D. Texas January 30, 2019), the court granted a temporary restraining order against several defendants, because under Texas state law an employee’s move to a competitor for similar employment establishes a presumption of threatened misappropriation. Similarly,  in Fres-Co Systems USA, Inc. Hawkins et al., 690 Fed. Appx. 72 (3rd Cir. 2017) the court stated that allegations of threatened misappropriation may justify a preliminary injunction if an employee’s previous employment and subsequent employment substantially overlap (i) geographically and (ii) in job description.  The takeaway for practitioners is to review state law for threatened or inevitable misappropriation outcomes, because federal courts often rely at least in part upon state law to interpret the federal Act.

©2019 Adrienne B. Naumann, Esq., all rights reserved. Ms. Naumann does not sponsor or endorse the advertisements and announcements at adriennebnaumann.wordpress.com.

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