Trade secret misappropriation lawsuits continue to be a potent offense for businesses against departing employees seeking to compete wrongfully. But as with any offense, it is critical to pay attention to fundamentals to be successful.
A recent federal district court opinion illustrates this point (link to memorandum and opinion provided below). Specifically, Raben Tire Co., LLC sued two of its former employees, Dennis McFarland and Christopher Bates, and their new employer, CBA Tire Inc. and Antioch Tire, Inc., d/b/a Tredroc Tire. Raben Tire sued for misappropriation of trade secrets under the Defend Trade Secrets Act of 2016 (DTSA), 18 U.S.C. § 1831 et seq., and other state law claims.
In response, Defendants moved to dismiss the complaint. Defendants argued that Raben Tire Co. did not “plausibly” allege how the information in question qualifies as a ‘trade secret’ under federal law” and, therefore, the claim should be dismissed. Defendants also argued the Court should decline to exercise supplemental jurisdiction on the remaining state-law claims if the federal claim was dismissed.
The Court agreed with Defendants. In concluding this, the judge reasoned (Memorandum and Order),
Other than labeling that information as ‘confidential’ in its complaint … Raben Tire Co. has not alleged any steps that it took to protect the information from disclosure.
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In this case, Raben Tire Co.’s complaint is entirely devoid of any allegations of how it protected the information in question from dissemination. There is no suggestion, for example, that either McFarland or Bates were restricted from sharing that information due to a nondisclosure agreement.
Trade Secret Litigation Considerations
Two points jump out. First, before filing a trade secret lawsuit, it is important for a company to make sure it has information that qualifies as “trade secret.” This is done by working closely with the company and its managers to understand the type of information involved in the litigation and whether reasonable steps were taken to protect the subject information.
Second and similar to the Raben case, I’ve had significant success over the years defending trade secret misappropriation claims by attacking the alleged trade secrets. For example, our client and his new company were sued in a federal lawsuit for trade secret misappropriation and other federal and Michigan claims. We aggressively focused on attacking the claimed trade secrets. By the time the case went to trial in December 2016, we had eliminated numerous categories of information from trade secret consideration. This also resulted in eliminating over 80% of the damages Plaintiff had identified during the litigation.
The bottom line is that a plaintiff alleging misappropriation of trade secrets under the federal DTSA or Michigan trade secret law must be able to substantiate that the stolen information meets the statutory definition of what is a trade secret. This standard is typically not demanding at the pleading stage, but Raben shows if you aren’t careful problems may arise. But during the litigation trade secrets may be whittled away substantially, even if not entirely.
For more information about federal or Michigan trade secret law, contact attorney Jason Shinn. He has represented clients in federal and state courts in such matters. He also collaborates with businesses and their management to investigate suspected misappropriation of confidential business information and other wrongful conduct.