Author: Wendy R. Stein

New Decision on Asserting the Defend Trade Secrets Act Against Foreign Entities

A recent federal court decision concluding that a Defend Trade Secrets Act (“DTSA”) claim could go forward against a UK-based defendant should be read both by foreign entities doing business in the United States and by U.S.-based entities that work with foreign affiliates. The case highlights the DTSA’s strong reach over both activity and actors residing outside the United States. In vPersonalize Inc. v. Magnetize Consultants Ltd., Civ. No. 18-CV-01836-BJR, 2020 U.S. Dist. LEXIS 18491 (W.D. Wash. Feb. 3, 2020), a UK-based defendant moved to dismiss a DTSA claim arguing that the Economic Espionage Act’s extraterritorial provision should not apply to private civil actions under the DTSA, should not apply to a foreign entity, and should not apply unless a foreign defendant is alleged to have committed “an act in furtherance” of the violation. The court rejected these arguments and declined to dismiss the DTSA claim. The dispute centers on the relationship between 18 U.S.C. § 1837 entitled, “Applicability to conduct outside the United States” and 18 U.S.C. § 1836, which provides a private right of action under the DTSA. Section 1837 states that “this chapter” (which includes sections 1831-1839 of Title 18) applies to conduct outside the U.S. if the offender is a U.S. citizen or permanent resident alien or an organization organized under...

Ninth Circuit Reverses Fee Award in DTSA Case

The Ninth Circuit recently added to the small body of appellate court precedent interpreting the Defend Trade Secrets Act (DTSA), reversing an attorney fee award which had been granted by a district court in Washington. The reversal stemmed from the appellate court’s de novo determination that no circumstances existed to support a finding that the suit was brought and maintained in bad faith. In RJB Wholesale, Inc. v. Castleberry, the plaintiff sued a former sales representative for violation of the DTSA, claiming misappropriation of a customer list and company cell phone programmed with customer contact information. After the close of discovery, the defendant moved for summary judgment that the plaintiff had not proven any damages caused by the alleged misappropriation. The district court granted the motion, and the Ninth Circuit affirmed. The Ninth Circuit reversed, however, the district court’s fee award to the prevailing defendant. The decision follows on the heels of a decision from the Fourth Circuit, Akira Technologies, Inc. v. Conceptant, Inc., affirming the denial of attorney fees where the plaintiff “had at least some chance of success” on its DTSA claim and the Fifth Circuit in Dunster Live, LLC v. Lonestar Logos Mgmt. Co., LLC, where the court held fees were properly denied because a dismissal without prejudice did not render defendants...

Federal Court Denies Order to Show Cause with Temporary Restraints in Recent Defend Trade Secrets Act Case

A recent federal trade secret decision may spur employers to conduct forensic analyses of the computers of departing executives either before or immediately after their departures. In McKinsey & Co., Inc. v. Shi, a consulting firm sued a former senior partner asserting violation of the federal Defend Trade Secrets Act (DTSA), among other claims. McKinsey alleged that the defendant misappropriated confidential McKinsey and client documents over the thirteen week period preceding his last day of work. Shi had worked at McKinsey or one of its affiliates for ten years before he began working for a competitor three days after his departure. In an unusual fact pattern for DTSA cases, before McKinsey’s federal lawsuit was filed, the former employee had sued McKinsey in state court, alleging his entitlement to almost $1 million in discretionary compensation and asserting claims for fraud, misrepresentation, and breach of contract, among other claims. In the process of reviewing documents for discovery in the state court action, McKinsey allegedly discovered the misappropriation. It then filed a verified complaint in New Jersey federal court with an order to show cause for temporary restraints and request for expedited discovery. The court declined to enter the order to show cause, but did order expedited discovery. Judge Shipp reasoned that although loss of a trade secret...

Another Motion to Dismiss Federal Defend Trade Secret Act Claim is Denied

Following a national trend, another Defend Trade Secrets Act (DTSA) claim has survived a motion to dismiss filed in a California district court. The DTSA enables trade secret owners to pursue trade secret misappropriation claims in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. In the recent Volans-i, Inc. v. SpektreWorks, Inc. case, the parties both developed and built long-range high-payload aircrafts known as drones. Pursuant to a consulting agreement, the defendant allegedly assisted Volans-i with design, engineering, testing and other work related to Volans-i’s C-10 and C-20 drones and had access to Volans-i’s trade secrets related to the same. The consulting agreement allegedly prohibited SpektreWorks from using Volans-i’s confidential information or its consultant work product other than to provide consulting services to Volans-i. Volans-i alleged that in violation of the DTSA and in breach of the parties’ agreement, the defendant sold a knockoff of its C-10 containing an avionics board which copied the design of Volans-i’s avionics board and utilized many identical components—thereby “copying plaintiff’s design and component choice[.]” 2019 U.S. Dist. LEXIS 90923, at *5. In its motion to dismiss, SpektreWorks argued that Volans-i failed to sufficiently define its trade secrets or properly allege misappropriation. The court...

Is Employer to Whom Trade Secrets are Allegedly Disclosed a Necessary Party in DTSA Claim Against Former Employee?

Given increased employee mobility, claims under the Federal Defend Trade Secrets Act (DTSA) are on the rise. The DTSA provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). When considering a complaint against a former employee for violations under the DTSA, is the new employer to whom information is allegedly disclosed a necessary and indispensable party? A Massachusetts district court recently said no. In Phio Pharms. Corp. v. Khvorova, the plaintiff Phio Pharmaceuticals Corporation (PPC) sued the defendant—the company’s former Chief Scientific Officer—for misappropriation under the DTSA. PPC alleged that the defendant assigned to U Mass Medical School (defendant’s new employer and competitor of PPC) a patent application describing a class of molecules that PPC and the defendant allegedly investigated while the defendant was working for PPC. PPC sought the return of all trade secret information allegedly in the defendant’s possession and an injunction against further use or disclosure of its confidential information. The defendant moved to dismiss claiming that U Mass was an indispensable party under Federal Rule of Civil Procedure 19. The court denied the motion and held that U Mass was not a necessary or indispensable party....

CAFC Decision Issues Interpreting the Original Patent Requirement

As reported in a prior post, the Court of Appeals for the Federal Circuit (CAFC) recently had the opportunity to revisit the legal standard for invalidating reissue patent claims under the original patent requirement. In Forum US, Inc. v. Flow Valve, LLC, the CAFC affirmed a district court grant of partial summary judgment that certain reissue claims were invalid under the original patent requirement of 35 U.S.C. § 251. In the process, the Federal Circuit reaffirmed the legal standard set forth in a 2014 CAFC decision, Antares Pharma, Inc. v. Medac Pharma Inc., 771 F.3d 1354 (Fed. Cir. 2014). In Antares Pharma, the Federal Circuit held that to comply with the original patent requirement, an invention claimed in a reissue patent must either be for: (i) the same invention disclosed in the original patent or (ii) a newly claimed invention “clearly and unequivocally” disclosed as a separate invention in the original patent. See id. at 1362-1363. In Forum US, the plaintiff sought a declaratory judgment that claims 14-20 of U.S. Reissue Patent 45,878 were invalid. The original patent related to the machining of pipe joints used in the oil and gas industry. Each of the thirteen original patent claims required “a plurality of arbors.” The summary of the invention likewise referred to a plurality of...

Recent Decision Highlights Importance of Pleading Compliance with the Federal Patent Marking Statute

A Delaware district court recently held that a patentee failed to state a claim for past patent infringement damages where the patentee failed to plead compliance with the patent marking statute in its complaint. See Express Mobile, Inc. v. Liquid Web, LLC, C.A. Nos. 18-01177-RGA, 18-01181-RGA, 2019 U.S. Dist. LEXIS 64362, at *5 (D. Del. Apr. 15, 2019). The decision highlights the importance of pleading compliance with the marking statute even where a product covered by the patent is not being offered for sale or sold in the United States. The federal patent marking statute (“Marking Statute”) provides a limitation on recoverable damages in patent litigation. See 35 U.S.C. § 287(a). It provides that “Patentees, and persons making, offering for sale, or selling within the United States any patented article for or under them, or importing any patented article into the United States, may give notice to the public that the same is patented, either by fixing thereon the word ‘patent’ or the abbreviation ‘pat.,’ together with the number of the patent.” The Marking Statute further provides that “[i]n the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter,...

Another District Court Addresses Viability of “Continuing Misappropriation” Under the Federal Defend Trade Secrets Act

The Federal Defend Trade Secrets Act (DTSA) provides a federal cause of action for misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce. See 18 U.S.C. § 1836(b). The DTSA applies to any trade secret misappropriation for which any act occurred “on or after the date of the enactment” of the DTSA. See P.L. 114-153 § 2(e). A Missouri district court recently held that the DTSA applies to trade secret misappropriation that continues after the DTSA enactment date (May 11, 2016)—even if the misappropriation began before the enactment date, see Roeslein & Assocs. v. Elgin, Civ. No. 17-1351(JMB), 2019 U.S. Dist. LEXIS 6981, at *36 (E.D. Mo. Jan. 15, 2019), adding to mounting precedent concluding the same. In Roeslein, developers of energy production facilities sued one individual (a former employee) and three corporate defendants for violation of the DTSA, among other claims. The corporate defendants moved to dismiss claims asserted against them under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), arguing that the plaintiffs’ DTSA claims were not cognizable because the plaintiffs failed to allege misappropriation on or after the DTSA’s enactment date. The court granted-in-part and denied-in-part the motions, leaving the DTSA claims intact. The Amended Complaint alleged that individual...

New CAFC Decision Interpreting the Original Patent Requirement of 35 U.S.C. § 251 May Be Imminent

As intellectual property litigators who litigate reissue patents know, the Federal Circuit has not decided a case based on the original patent requirement of 35 U.S.C. § 251 since the 2014 Antares Pharma, Inc. v. Medac Pharma Inc. decision. 771 F.3d 1354 (Fed. Cir. 2014). In Antares Pharma, the court held that to comply with the original patent requirement, an invention claimed in a reissue patent must either be for: (i) the same invention disclosed in the original patent or (ii) a newly claimed invention “clearly and unequivocally” disclosed as a separate invention in the original patent. See id. at 1362. An appeal of a decision in Forum US, Inc. v. Flow Valve, LLC, Civ. No. 17-495-F (W.D. Ok.), Docket Entry 45, (CAFC Appeal No. 18-1765) invalidating certain claims pursuant to the original patent requirement is scheduled to be argued at the Federal Circuit on January 11, 2019 and may result in a new precedential decision applying the original patent requirement. In Forum US, the plaintiff sought a declaratory judgment that claims 14-20 of U.S. Reissue Patent 45,878 were invalid. The original patent related to the machining of pipe joints used in the oil and gas industry. Each of the 13 original patent claims required “a plurality of arbors.” The summary of the invention likewise referred to...

Need for Close Attention to Proposed Reasonable Royalty Evidence

A recent court decision precluding a patent owner from relying on any of its proffered evidence to support a proposed reasonable royalty rate should be studied carefully by patent owners. See Acceleration Bay LLC. v. Activision Blizzard Inc., C.A. No. 16-00453-RGA, 2018 U.S. Dist. LEXIS 178362 (D. Del. Oct. 17, 2018). The case underscores how closely courts are evaluating evidence put forward to support a proposed reasonable royalty and the need to carefully vet such evidence (and decide who will present it) early in the case. In Activision, the defendant moved to preclude the plaintiff’s damages theories and supporting evidence. The court granted-in-part defendant’s motion. The plaintiff patentee had sought to support its proposed reasonable royalty rate of 15.5 percent with four pieces of evidence: (1) testimony of its Vice President of Licensing; (2) testimony of its CEO; (3) an industry report; and (4) an agreement between the defendant and a third party. The court precluded all four categories of evidence. First, the court precluded the testimony of the plaintiff’s licensing executive, stating that a reasonable royalty opinion is necessarily based on specialized knowledge, which the executive lacked. The court also found that the executive lacked personal knowledge of the facts underlying the royalty rate that would allow him to testify on the subject. Id....