Sixth Circuit Trade Secret Case Law – 2010 Sixth Circuit Trade Secret Case Law – 2010

Sixth Circuit Trade Secret Case Law – 2010

Michigan

Giasson Aerospace Science, Inc. v RCO Engineering, 2010 WL 2654896 (January 22, 2010 E.D. Mich.)  Defendants used Plaintiffs’ expertise in designing aircraft seats to secure a lucrative contract and then cut Plaintiffs out of the deal so it would not have to share its profits. Plaintiffs produced sufficient evidence to allow a jury to conclude that reasonable precautions were taken to maintain the secrecy of the seat designs in spite of the presentation of the designs to a customer (Bombardier). Because no details of the design were shown during the presentation, and because Plaintiffs are a small operation, the precautions were deemed reasonable.  The precautions that are deemed reasonable for a large operation may be unreasonable for a small organization depending on the required cost benefit analysis.  The court also determined certain patents did not disclose the salient feature of the trade secret.  Finally, the court held Plaintiffs need not show that each component of their trade secrets are secret, or even non-obvious over what exists in the public domain. In holding that “based on a unique combination of both protected and unprotected material, a plaintiff should not be obligated to identify which components of the protected material is secret,” the Sixth Circuit relied on a string of cases that stand for the proposition that a trade secret can exist in a combination of characteristics each of which, by itself, is in the public domain.  Plaintiffs produced sufficient evidence to allow the jury to conclude that its trade secrets were protectable even though some of the components were in the public domain.

Dura Global Technologies, Inc. v. Magna Donnelly Corporation, April 9, 2010, 2010 WL 1438821 (April 19, 2010 E.D. Mich.)  The court held that allegations separate and distinct from Dura’s MUTSA claim support its common-law actions for unfair competition and for intentional interference with a prospective economic advantage. Common law claims for misappropriation are only preempted if the claim is solely based upon misappropriation.

JPMorgan Chase Bank, N.A. v. Clark, 2009 WL 3190342 (Sept. 29, 2009 E.D. Mich.)  Defendants had been employed as financial advisors until September 25, 2009 when all of them voluntarily terminated their employment tenure and immediately thereafter joined the workforce of a competitor (Morgan Stanley) in the same or similar capacities.  Plaintiff maintained that the Defendants wrongfully garnered confidential client information and utilized it to solicit new clients.  The Michigan Supreme Court held that there is nothing improper with an employee establishing his own business by communicating with customers for whom he had working for previously.  However, an employer may have a protectable interest in information about client needs the employee gains by virtue of his employment.  While the Defendants were correct in assuming that an individual’s address and telephone number may be easily obtained through the internet or telephone book, the identity of a client and his/her financial needs is not.  As such, the court determined for purposes of temporary injunction only, that there was a strong likelihood of success that plaintiff would be able to show a misappropriation of a trade secret.  This was particularly so because the court determined that a loss of customer good will often amount to irreparable injury because the damages flowing from such losses are difficult to compute.  Because Plaintiff suffered the loss of client confidence, the court concluded that Plaintiff satisfactorily showed the probability of irreparable harm in the absence of injunctive relief.

Dura Global Technologies, Inc. v. Magna Donnelly Corporation, 2009 WL 3208280 (Sept. 29, 2009 E.D. Mich.)  Dura alleged that Donnelly induced key employees of Dura to leave Dura and go to work for Donnelly.  Dura also alleged that Donnelly induced these employees to take proprietary information and trade secrets relative to Dura’s business with them for Donnelly’s benefit.  Donnelly defended by arguing that Dura’s listing of purported trade secrets was, at best, an overview of six general categories of information that might contain secrets.  As such, Donnelly argued that Dura’s trade secret claim should be dismissed for (a) failure to describe with particularity the trade secrets it claimed Donnelly misappropriated and (b) because Dura could not prove the alleged trade secrets were in fact trade secrets.  The court denied the motion for several reasons.  First, the identification of trade secrets as transition seams, nonlinear water drainage paths, and deflectors was sufficient identification of the trade secrets.  Second, Donnelly’s defenses that it had benchmarked the alleged trade secret and/or incorporated similar items before the former Dura employees began working for Donnelly, was not supported by the facts.  The court also found significant that the former employees never stated that they did not impart their prior knowledge regarding the secrets to those who were directly involved with the creation of the product of Donnelly.

Kentucky

BDT Products, Inc. v Lexmark International, Inc., 2010 WL 1565462 (April 21, 2010 6th Cir. Ky)  In 2002, the court affirmed a grant of partial summary judgment for Lexmark International in a suit brought by Lexmark’s one-time partners, BDT Products and Buro-Datentechnik GMBH & Company, KG arising from the contention that Lexmark had misappropriated trade secrets in developing a printer tray that substantially resembled a tray developed by BDT.  Because BDT’s tray was commercialized and sold before BDT even transmitted some of its information to Lexmark, BDT and its attorneys pursued a suit based at its heart on misappropriation of “trade secrets” that were, in fact, not secret at all.  In addressing whether sanctions were warranted, the court confirmed that 28 U.S.C. § 1927 does not authorize the imposition of sanctions on law firms.  The district court did not abuse its discretion by determining that, at the very least, the attorney should have known that the commercialization of the tray in 1994 meant that, well before 1996, BDT no longer had any trade secrets for Lexmark to misappropriate. As a result, the district court did not abuse its discretion in finding that the attorney pursued a meritless lawsuit and should have known that he was pursuing a meritless suit.  Sanctions were not imposed, however, because the district court relied in part on a misstatement of Sixth Circuit law and improperly imputed the Plaintiff’s improper purpose to the attorney.  

Capital Specialty Insurance Corp. v. Industrial Electronics, LLC, 2009 WL 3347112 (Oct. 14, 2009 W.D. Ky.)  Court addressed whether a trade secret misappropriation claim was covered by a comprehensive general liability policy.  The parties agreed that all the claims in the underlying action against the insured arose out of the alleged misappropriation of customer lists and pricing information from the insured’s prior employer to the insured’s new employer.  The policy covered specific types of injuries resulting from the actions of the new employer, including advertising injuries.  The court believed that Kentucky courts would not consider misappropriation of customer price lists an “advertising injury” covered by the insurance policy.  Moreover, the court felt that certain exclusions further precluded coverage, including the provision that excluded “personal and advertising injury arising out of … trade secret…”  Because the complaint specifically alleged that the new employer improperly used trade secret information, the exclusion of the insurance policy further precluded coverage. 

Ohio

Cincinnati Industrial Machinery, Inc. v. VMI Holland BV, 2010 WL 597820 (February 17, 2010 S.D. Ohio) CIM argued that VMI violated the Trade Secrets Act by using its trade secrets without permission. The greater weight of the evidence supported a conclusion that CIM gave either express or implied consent for VMI to use CIM trade secrets to the extent necessary to manufacture can washing machines.  CIM failed to put forth evidence that VMI actually disclosed or will disclose any trade secrets to a third party. Defendant testified that the company safeguards all secrets.  Additionally, the Sixth Circuit has specified that to demonstrate irreparable harm under the preliminary injunction test, a plaintiff must show that it will suffer actual and imminent harm rather than harm that is speculative or unsubstantiated.  The evidence presented to the Court was insufficient to show that CIM faced the imminent threat of irreparable harm if VMI was not enjoined from manufacturing can washing machines, particularly because VMI had been manufacturing can washing machines since 2005.

R.C. Olmstead, Inc. v. CU Interface, LLC, WL 1980167 (May 19, 2010 6th Cir.)  Olmstead appealed the district court’s grant of summary judgment to defendants in this copyright and trade secret infringement case brought by one provider of credit union software against the developer of competing credit union software. Olmstead challenged several of the district court’s discovery rulings, which Olmstead argued unfairly inhibited its ability to prove its claims.  The district court held that Olmstead’s end user product—the RCO-1 interface—was not a trade secret because Olmstead did not take reasonable steps to maintain its secrecy.  Olmstead’s own president had testified that the Olmstead interface is not a trade secret, that Olmstead’s contract with the CSE Credit Union did not contain any confidentiality provisions preventing third parties from viewing the interface, and the agreement expressly contemplated that the CSE Credit Union would use a third-party personal computer support firm to assist with support and to provide the terminal emulation software. These factors, combined with Olmstead’s inability to identify any affirmative steps it took to maintain the secrecy of its user interface, amply supported the district’s court’s determination that the Olmstead user interface was not a trade secret, so that summary judgment was proper on Olmstead’s trade secrets claim.

Buckingham Doolittle & Burroughs v. Bonasera, et al., 2010 WL 1507950 (March 8, 2010 OH Com Pl.)  Beginning in February, 2008, some internal financial information (such as work production for Buckingham shareholders and income partners and perhaps also associates) was shared with Ulmer & Berne and other firms by Buckingham’s Columbus office.  It is not clear if client names were discussed with Ulmer & Berne for “conflict” checks or other purposes.  The law of agency recognizes that even before the termination of a relationship, an agent is entitled to make arrangements to leave and compete. However, the agent cannot properly use confidential information about his existing employer’s business, cannot solicit customers for the rival business before the end of employment, and cannot do similar acts in direct competition while remaining at the old employer. Here, the information allegedly misused was internal business, personnel, and financial data. It was the collection of all the data that permitted negotiating an economic structure under which Columbus shareholders maintained not merely their individual value as lawyers, but a collective value as a working group in the marketplace. Recognizing the lengths to which Buckingham went to restrict access to such trade secret information internally, and that significant amounts of data were shared with direct competitors in the Columbus marketplace where Buckingham had made a long-term, sizeable investment, the court cannot say that a reasonable jury would never conclude that the alleged misuse of information breached the fiduciary duty owed to the Buckingham firm.  Moreover, providing a directly competitive law firm with information on associate lawyers at the old firm has been recognized “to give it an unfair advantage in recruiting certain employees.”  As such, the case was ordered to proceed to trial.
 
John Arnos v Medcorp, Inc., 2010 WL 1730139 (April 30, 2010 Ohio App 6th Dist.) Appellant claimed records sought by subpoena are protected against discovery as trade secrets.  In a discovery dispute, the party asserting that the materials sought constitute trade secrets that are privileged from discovery bears the burden of establishing trade secret status.  Conclusory statements as to trade secret factors, without supporting factual evidence, are insufficient to meet the burden of establishing trade secret status.  As such, the requested records were not ordered produced.

Ramun v. Ramun, 2009 WL 4548966 (Dec. 4, 2009 Ohio App. 7 Dist.)  The court addressed trade secrets in the context of a discovery issue.  Specifically, the court determined the scope of a protective order permitting requiring attorney’s attorney eyes only designations.  The court acknowledged that it has the ability to assign an attorneys’ eyes only level of review.  In this case, the court determined that an attorneys’ eyes only level of review was not necessary because the dispute involved two shareholders (a minority and majority shareholder) that owe a fiduciary duty to one another in the corporation.  As a result, the shareholders owed a duty to their fellow shareholders to maintain the trade secret, and to abstain from self dealing.  Because both parties owed a fiduciary duty to each other to protect the company’s trade secrets, the need for attorneys’ eyes only protection was not necessary.

Perrea v. Cincinnati Public Schools, 123 Ohio St.3d 410 (2009)  Teacher filed petition for writ of mandamus to compel public school district to provide copies of semester examinations that were administered to ninth grade students in the district.  The Supreme Court held that the examinations were trade secrets and exempt from disclosure under the Public Records Act.  Although District placed scoring guidelines for constructive-response questions on internet, District spent over $750,000 to develop exams, which would have minimal or zero value if made public.  Further, District took steps to maintain secrecy including preventing students from making copies of the exams and limited teacher access to the exams.  Scoring guidelines also were not readily accessible and did not reveal the actual questions asked.  The preceding, coupled with the exams multiple choice questions not being publically disseminated in any manner, led the court to conclude the disclosure would reduce the District’s ability to evaluate the student learning, which was contrary to the policy behind the Public Records Act.

Stark v. Government Accounting Solutions, Inc., 2009 WL 4842253 (Dec. 9, 2009 S.D. Ohio)  Defendant argued that the lower court’s finding that Defendant did not misappropriate Plaintiff’s source code or related software collaterally estopped the Plaintiff from asserting his new copyright infringement claim.  The court analyzed both copyright and trade secret misappropriation claims and determined that a trade secret misappropriation claim requires a proof of the existence and breach of a confidential relationship.  A copyright infringement claim, however, does not require such a showing.  Therefore, the court determined that Plaintiff’s state law claim for misappropriation of trade secrets was not preempted by the Copyright Act.  

Tennessee

Hamilton-Ryker Group LLC v Keymon, 2010 WL 323057 (June 28, 2010 Tenn. Ct. App.)  The appeal involved a non-compete agreement and the Trade Secrets Act. The defendant employee worked for fourteen years for the plaintiff employer. The employee executed a covenant not to compete, prohibiting the employee from soliciting the employer’s clients for one year after termination. During her employment, the employee became the contact person for a particular customer. The defendant employee was temporarily laid off. The day after the layoff, the employee and the customer entered into an arrangement under which the laid off employee performed the same work for the customer that the employer had been performing. The employee then emailed numerous documents related to the customer form her work email address to her personal email address. After that, the customer ended the business relationship with the plaintiff employer. Subsequently, the employer sued the employee for breach of contract, misappropriation of confidential information, and violation of Tennessee’s Trade Secrets Act. The trial court entered judgment for the employer on all counts; the damages award included over $900,000 as double damages under the Trade Secrets Act.  On appeal, the judgment was affirmed. The appellate court found that the covenant not to compete was enforceable despite the lack of any territorial limitation, that the information emailed to the employee’s personal email was a trade secret, and that the evidence supported the award of damages.  The court also found that the standard for exemplary damages under the Trade Secrets Act should be interpreted differently from the traditional standard for punitive damages so as not to require a finding of “hatred, ill will or spite.” The court found significant that while drawing unemployment compensation and accepting severance payments, Defendant was surreptitiously utilizing Plaintiff’s trade secret information to purloin Verizon’s telephone directory business, even utilizing Plaintiff’s employees to do so. Such conduct amounts to willful and malicious misappropriation under the Trade Secrets Act.  

Jones v. United Propane Gas, Inc., 2009 WL 5083476 (Dec. 28, 2009 Tenn. Ct. App)  Former employees commenced litigation against the former employer seeking a declaration that the confidentiality and post-employment activities agreement signed by them in favor of their past employer was unenforceable and that their new employer had no liability for hiring them.  Court determined several principals guided the determination of whether an employer has a business interest protectable by a non-competition covenant.  The court determined that an employer does not have protectable interest in the general knowledge and skill of an employee.  This is not only true of knowledge and skill brought into the relationship, but also true as to that acquired during the employment relationship, even if the employee obtains such general knowledge and skill through expensive training.  In contrast, an employer may have a protectable interest in the unique knowledge and skill that an employee receives through special training by his employer.  In the present case, the court found that the evidence preponderated strongly in favor of finding that the former employees acquired only general training that applied across the industry rather than knowledge or training that was peculiar to the former employer.  In fact, the former employees knew how to set tanks and deliver propane when they joined the former employer.  The court also found that the prices to customer, the customer identifications, credit information, and customer usage history or patterns were not confidential information.  Thus, the former employer failed to show that there was a protectable interest relating to trade secrets or confidential information.  Accordingly, the non-competition agreement was deemed unenforceable.

Washington D.C

American Petroleum Institute v Technomedia International, Inc., 2010 WL 1233496 (March 30, 2010 D.D.C.) API and TechnoMedia  commenced discussions in 2004 to explore the possibility of forming a business relationship.  Before formalizing their relationship, API requested confidential information from TechnoMedia to assist it in evaluating TechnoMedia’s products and services.  As a result, the parties entered into a non-disclosure agreement in August 2004 whereby API agreed to protect any confidential information disclosed by TechnoMedia at API’s request.  But good will between TechnoMedia and TWL [its new partner] was fleeting.  By the end of the year, TWL’s principals, Dennis Cagan and Patrick Quinn, allegedly launched a concerted effort to “usurp” the API-TechnoMedia agreement. Specifically, TechnoMedia claimed that “API misappropriated and divulged trade secrets of TechnoMedia to Cagan, Quinn, TWL or other third parties, including TechnoMedia’s competitors and former agents. TechnoMedia also claimed that API continues to use and to disclose TechnoMedia’s trade secrets without authorization and that API refused to return the trade secrets as requested.  Because TechnoMedia failed to plead that the trade secrets it disclosed to TWL were actually different from the trade secrets it disclosed to API, its factual allegations were not “enough to raise a right to relief above the speculative “level.”  This deficiency was compounded by the fact that TechnoMedia made no effort to plead what trade secrets were misappropriated.  Based on the face of TechnoMedia’s pleading, there was no way to know what TechnoMedia’s trade secrets were and which trade secrets had been disclosed to API but not to TWL. In the absence of factual allegations showing that the trade secrets supplied to API were in fact different from the trade secrets supplied to TWL, and that API disclosed trade secrets to TWL that had not already been disclosed to TWL, TechnoMedia’s right to relief was denied.

The Armenian Assembly of America, Inc. v. Gerard L. Cafesjian, 2010 WL 814902 (March 9, 2010 D.D.C.) In Claim III of the complaint, Plaintiffs alleged that Cafesjian and Waters Jr. misappropriated the Assembly’s confidential, proprietary business information and trade secrets, including mailing lists, legislative policy documents, and other databases.  Plaintiffs produced evidence that the Assembly restricted public access to its membership list and other database lists and considered use by third parties to be a serious problem.  Because the question of whether a trade secret exists is “best resolved by a fact finder after full presentation of evidence from each side,” there was at least a material dispute of fact as to whether the Assembly’s directories constitute trade secrets. Plaintiffs provided no evidence, however, relating to “legislative policy documents” or other information beyond membership and database lists. Therefore, the trade secrets claim was limited to membership lists and database lists. Moreover, Plaintiffs contended they had not received discovery relating to the use of Assembly mailing lists by the Armenian Reporter, another of Cafesjian’s business ventures.  Plaintiffs were entitled to discovery relating to the Armenian Reporter’s mailing lists, dating back at least to 2003, to enable them to determine whether any of the Assembly’s lists had been misappropriated.  

View Full Site View Mobile Optimized