Last year saw many important trade secret developments in the court. Here is our Top 5:
1. DuPont v. Kolon
This case had it all. What appeared at first to be the actions of one disgruntled employee turned out to be a long-standing high-level initiative of Kolon to target former DuPont employees in order to develop its fledgling para-aramid fiber using the secrets behind industry standard Kevlar. There was spoliation, 400 page expert reports arguing all of DuPont’s trade secrets were disclosed in its own patents, antitrust counterclaims, criminal charges, Korean investigations, a two-month jury trial culminating in a damages award just shy of a billion dollars, an appeal, and finally—in 2015—resolution. This epic battle came to end with Kolon being criminally indicted, paying $275 million to DuPont in restitution, and settling the civil case under undisclosed terms. Read about it here.
2. Sergey Aleynikov
In another longstanding dispute well known to trade secret practitioners, the government was once again rebuffed after obtaining a conviction against Sergey Aleynikov, the ex-Goldman Sachs programmer. Prior convictions under the federal National Stolen Property Act (NSPA) (18 USC § 2314) and Economic Espionage Act (18 USC § 1832) were reversed in years past. So, the government brought claims under state law. A New York jury convicted the programmer of Unlawful Use of Secret Scientific Material under New York Penal Law § 165.07 for stealing high-frequency trading source code. Last year those convictions were also overturned. The state court judge reversed the jury verdict on the grounds that Aleynikov did not make a “tangible reproduction” of the source code when he sent a digital copy of the code to a foreign server. The decision is likely to lead the state legislature to amend state law to capture such behavior in the future. Read more about this latest chapter here.
3. InnoSys v. Mercer
InnoSys sued its former employee for trade secrets misappropriation in state court in Utah. Despite clear evidence of misappropriation including sending confidential information to her personal Gmail account, copying a business plan to a thumb drive on her last day of employment, and disclosing the plan in an administrative proceeding, the lower state court granted summary judgment to the former employee based on its finding that InnoSys had failed to prove that it was damaged. The court also granted Rule 11 sanctions against InnoSys and awarded the former employee nearly $230,000 in attorney’s fees. Commentators argued that the decision demonstrates the need for access to federal courts in complex trade secret cases. Last year the Supreme Court of Utah reversed, holding that upon establishing a prima facie case of trade secret misappropriation under the Utah’s Uniform Trade Secret Act, the trade secret holder is entitled to a rebuttable presumption of irreparable harm. And because the former employee failed to rebut this presumption, summary judgment was not proper. Read the Court’s opinion here.
4. Williams-Sonoma Direct v. Arhaus
In this federal diversity case in Tennessee, despite finding that “[t]he record is replete with evidence that establishes a likelihood of success in demonstrating that Defendants misappropriated Plaintiffs’ trade secrets” (and granting a limited injunction preventing Defendants from using the misappropriated confidential information), the Court refused to preliminary enjoin Plaintiff’s former employee from continuing his employment with the Defendant. In analyzing the traditional four factor injunction test, the Court reasoned that the requested relief was too severe a restraint on the former employee and his new employer—rejecting the Plaintiff’s argument that the former senior vice president would inevitably disclose additional trade secret information related to Plaintiff’s supply chain management to his new employer. The Court reasoned that the type of information that the former employee was likely to have memorized was unlikely to be constitute trade secrets, distinguishing a former employee that knew the formula for Coca-Cola or other highly technical details. Read the Court’s decision here.
5. Golden v. California Emergency Physicians Medical Group
At issue in Golden was whether the California statute against unlawful restraints of trade was limited to prohibiting non-compete agreements. The parties had settled a racial discrimination case that Dr. Golden, an emergency-room doctor, had brought against his former employer, CEP, a large consortium of over 1000 physicians that manages and staffs many emergency rooms in several states. Under the settlement, Dr. Golden agreed that he had no right to employment at CEP or at any facility CEP may acquire or contract with in the future. The agreement specifically stated that if Dr. Golden was working at a facility that CEP later acquired, CEP could and would fire him with no legal repercussions. When Dr. Golden tried to back out of the settlement, the Northern District of California held it was enforceable. The district court reasoned that Cal. Bus. & Prof. Code § 16600 was limited to non-compete provisions and because the subject agreement did not restrict Dr. Golden from competing with CEP it was not void under 16600. On appeal, the Ninth Circuit, applying California law, held as a matter of first impression that code 16600 is not so limited. The Court reasoned that the key issue was whether the agreement constitutes a “restraint of a substantial character to Dr. Golden’s medical practice.” If it does then it violates 16600, which declares “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The Court therefore reversed and remanded to the district court to answer this question. Read more about the case here.