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No Breach of Contract Where Company Disclosed Its Own Non-Public Information

by | Apr 14, 2022 |

The US Court of Appeals for the Eighth Circuit affirmed a district court’s dismissal of a trade secret lawsuit against a consultant that allegedly failed to prevent its client from disclosing its own proprietary information during a call with a potential buyer. Protégé Biomedical, LLC v. Duff & Phelps Securities, LLC, and Philip I. Smith, Case No. 21-1368 (8th Cir. Apr. 4, 2022) (per curiam) (Erickson, J., dissenting).

Protégé entered into an agreement with Duff & Phelps to help Protégé find a buyer for its business. Under the agreement, Duff & Phelps received immunity from certain types of claims, its employees were shielded from individual liability and it owed no fiduciary duties to Protégé.

One of Protégé’s competitors, Z-Medica, was identified as a potential buyer. One of Duff & Phelps’s employees, Philip Smith, facilitated execution of the non-disclosure agreement (NDA) by a member of Z-Medica’s board of directors. Protégé assumed that the NDA would also bind Z-Medica and thus participated in conference calls with Z-Medica in which Protégé revealed non-public information. In Z-Medica’s view, however, the board member signed the NDA in his personal capacity and not as Z-Medica’s representative. As a result, Z-Medica used the information it received from Protégé to create its own competing product.

Protégé sued Z-Medica. After settling with Z-Medica, Protégé sued Duff & Phelps and Smith in state court for breach of contract, unlawful practice of law, negligence, breach of professional services and breach of fiduciary and principal-agent duties. Duff & Phelps removed the case to federal court on the ground that Smith, the only non-diverse defendant, had been fraudulently joined. The district court dismissed the case for failure to state a claim. Protégé appealed.

The Eighth Circuit first analyzed whether the case belonged in federal court. The Court upheld the district court’s determination that Smith was fraudulently joined. The Court stated that fraudulent joinder occurs when there is no reasonable basis in fact and law for the claims brought against the non-diverse defendant. Here, the Court found that there was no reasonable basis for Protégé to allege breach of contract against Smith since he was never a party to the contract between Protégé and Duff & Phelps. The Court found that Protégé’s unlawful practice of law claim against Smith also constituted fraudulent joinder because Smith never gave legal advice to Protégé. The Court noted that the contract immunized Smith from Protégé’s other claims and thus, without any viable claims against Smith, the case was properly in federal court under 28 U.S.C. § 1332.

Turning to the merits of the claims against Duff & Phelps, the Eighth Circuit affirmed the dismissal for failure to state a claim. The Court reasoned that Protégé’s breach of contract claim was predicated on an alleged failure by Duff & Phelps to prevent Protégé from disclosing its proprietary information. However, the agreement only made Duff & Phelps responsible for its own conduct, not for Protégé’s conduct. The Court explained that Protégé’s other claims failed for the same reason.

Judge Erickson [...]

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Half-Baked Case: No Misappropriation or False Advertising Given Over-Broad Allegations

by | Mar 31, 2022 | ,

The US Court of Appeals for the Tenth Circuit affirmed a district court’s grant of summary judgment in favor of a defendant baker on a trade dress infringement claim and reversed the district court’s denial of the defendant baker’s motions for judgment as a matter of law on trade secrets misappropriation and false advertising claims. Bimbo Bakeries USA, Inc. v. Sycamore, Case Nos. 18-4062; -4031; -4040 (10th Cir. Mar. 18, 2022) (Hartz, Phillips, Eid, JJ.)

Bimbo Bakeries (and its predecessor, EarthGrains Baking Companies) owns, bakes and sells Grandma Sycamore’s Home-Maid Bread, a popular bread in Utah. U.S. Bakery is a competitor, and Leland Sycamore is the baker who developed the Grandma Sycamore’s recipe. Sycamore parted with his interest in Grandma Sycamore’s and opened his own bakery, Wild Grains Bakery. U.S. Bakery hired Wild Grains Bakery to produce another homemade bread product, Grandma Emilie’s. The relationship soured, and U.S. Bakery moved its Grandma Emilie’s operations in-house. U.S. Bakery developed a new formula for Grandma Emilie’s and enlisted a former Wild Grain employee to help. U.S. Bakery also created packaging for the bread based on Grandma Sycamore’s packaging. U.S. Bakery used several taglines to help sell its products, including “Fresh. Local. Quality.”

Bimbo Bakeries (then EarthGrains) sued Leland Sycamore, Tyler Sycamore (Leland’s son and co-baker), Wild Grains Bakery and U.S. Bakery, alleging multiple claims related to the Grandma Emilie’s operations, including trade secret misappropriation under the Utah Uniform Trade Secrets Act and trade dress infringement, trade dress dilution, false designation of origin, false advertising and unfair competition under the Lanham Act. Bimbo Bakeries alleged that U.S. Bakery’s use of the word “local” in the tagline “Fresh. Local. Quality.” constituted false or misleading advertising because U.S. Bakery did not actually bake all its bread products within the state of sale. The district court granted summary judgment in favor of U.S. Bakery on the trade dress infringement claim. The parties went to trial on the trade secrets misappropriation and false advertising claims. The jury ruled in Bimbo Bakeries’ favor on both and awarded more than $2 million in damages. The district court increased the damages owed by U.S. Bakery by almost $800,000 because U.S. Bakery was found to have willfully and maliciously misappropriated Bimbo Bakeries’ trade secret. The district court remitted the jury’s damages for the false advertising claim to around $83,000. The district court also permanently enjoined U.S. Bakery and Sycamore from using Bimbo Bakeries’ trade secret and denied renewed motions by U.S. Bakery and Sycamore for judgment as a matter of law for the trade secrets misappropriation and false advertising claims.

Bimbo Bakeries, U.S. Bakery and Sycamore appealed. Bimbo Bakeries argued that the district court should not have granted U.S. Bakery summary judgment on its trade dress infringement claim and should not have remitted damages for the false advertising claim. U.S. Bakery and Sycamore argued that the district court should have granted their renewed motions for judgment as a matter of law for the trade secrets misappropriation and false advertising claims.

On [...]

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Self-Dealing Lawyer Held Jointly and Severally Liable in Trade Secret Misappropriation

by | Mar 17, 2022 |

The US Court of Appeals for the Fifth Circuit affirmed a judgment holding a lawyer jointly and severally liable for trade secret misappropriation and fraudulent transfer and enjoining any further use of the trade secrets until a money judgment against the lawyer-purchased client business was satisfied. Thomas v. Hughes, Case No. 20-50671 (5th Cir. Mar. 3, 2022) (Wilson, J.)

James Pearcy founded Performance Products, Inc., (PPI) to develop and sell probiotics for livestock. In 2006, Pearcy sold PPI to his lawyer, Lou Ann Hughes. Hughes paid cash for PPI’s stock and agreed that PPI would pay Pearcy a 14% licensing royalty for use of his proprietary formulations, up to $1.35 million over five years, at the end of which PPI would have the option to purchase Pearcy’s formulations for $100,000. When PPI did not fully pay the royalties, Pearcy brought a Texas state court action against Hughes and PPI for breach of contract, misappropriation of trade secrets and breach of fiduciary duty. The jury found for Pearcy, and the Texas court entered judgment against PPI in the amount of $1 million. Hughes and PPI appealed the Texas judgment and posted a supersedeas bond, but the appeal was unsuccessful. Pearcy received the supersedeas bond, but PPI never paid the balance of the judgment. Pearcy sought post-judgment discovery and set a hearing on a motion to compel. The day before the hearing, PPI filed for bankruptcy.

Earlier, in 2006, Hughes had formed a second entity called Performance Products International, LLC. At the time of the Texas judgment, the LLC had no assets. During pendency of the Texas appeal, Hughes changed the second entity’s name to Performance Probiotics, LLC, and obtained a license to sell and distribute commercial livestock feed. In January 2012, Hughes ceased selling products through PPI and began selling them through the LLC. Hughes also formed a third entity called Advance Probiotics International, LLC (API).

Shortly after PPI declared bankruptcy, Pearcy’s widow (also Pearcy) and PPI’s bankruptcy trustee (Thomas) sued Hughes, Performance Probiotics and API in federal court for misappropriation of trade secrets and fraudulent transfer of PPI’s assets in violation of the Texas Uniform Fraudulent Transfer Act (TUFTA). The plaintiffs sought to pierce the corporate veil of both Performance Probiotics and API, alleging that Hughes had used them to commit fraud. Thomas further alleged that Hughes had breached her fiduciary duty to PPI. At trial, the jury found for Pearcy and Thomas, awarding about $1.4 million plus interest in actual damages, which was derived from the amount then due under the Texas judgment. The jury further awarded $1.2 million in exemplary damages., The district court entered final judgment, further ordering Hughes to disgorge $860,000 in compensation from Performance Probiotics. The district court enjoined Hughes and Performance Probiotics from using Pearcy’s trade secrets until the judgment was fully satisfied and held Hughes and Performance Probiotics jointly and severally liable for “all relief granted” and “all amounts due” under the Texas judgment. The district court retained jurisdiction over API in case [...]

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Sixth Circuit Endorses Sealing of Filings to Protect Confidentiality of Alleged Trade Secrets

by | Jan 27, 2022 |

On appeal from a dismissal based on a failure to state a claim for misappropriation of trade secrets, the US Court of Appeals for the Sixth Circuit granted the litigants’ motion to seal their briefs and file publicly available redacted versions in order to protect the confidentiality of the appellant’s alleged trade secrets. Magnesium Machine, LLC v. Terves, LLC, Case No. 20-3998 (6th Cir. Jan. 14, 2022) (Donald, J.)

The Sixth Circuit reasoned that the case had been brought under the Defend Trade Secrets Act, which requires courts to take “action as may be necessary and appropriate to preserve the confidentiality of trade secrets.” The Court also relied on precedent to the effect that trade secrets generally provide a justification (i.e., a “compelling reason”) for sealing. The Court left open the possibility of reconsidering its ruling if it later determines that any of the redacted information should be made available to the public.

Practice Note: Public disclosure—even in a court document—can destroy a trade secret. Litigants should be careful when disclosing information that is even alleged to be a trade secret, even if they are not certain whether the information qualifies as a trade secret since, if and when litigated, the information may later be held to qualify.



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Can’t Overturn Jury Verdicts Based on Reasonable Inferences, but Broad Injunction Is Nonstarter Even for Willfully Misappropriated Trade Secrets

by | Jan 6, 2022 |

In a rare appellate trade secret opinion, the US Court of Appeals for the Eleventh Circuit affirmed a district court’s denial of a defendant’s request for a new trial on liability and its refusal of the plaintiff’s requested injunction. It also reversed in part the district court’s denial of judgment as a matter of law (JMOL) on damages for clear error because the plaintiff failed to deduct marginal costs when calculating lost profits. Financial Information Technologies v. iControl Systems, Case No. 20-13368 (11th Cir. Dec. 22, 2021) (Jordan, Newsom, JJ., and Burke, Distr J.).

Competitors Financial Information Technologies (Fintech) and iControl Systems both sell software that processes alcohol sales invoices within 24 hours. Fintech was a lone operator for several years until iControl started servicing the alcohol industry and began selling a very similar product at a lower price point. After Fintech lost its vice president of operations (who was very involved in designing Fintech’s software), a sales representative and several customers to iControl, Fintech filed suit alleging misappropriation of trade secrets. The jury ruled in Fintech’s favor and awarded compensatory and punitive damages. iControl sought a new trial on liability, contending that Fintech’s alleged trade secrets were readily ascertainable and not “secret,” and JMOL on damages since Fintech hadn’t proved lost profits because it hadn’t deducted fixed and marginal costs from its lost revenue calculations. Fintech sought a permanent injunction prohibiting iControl from using either company’s software. The district court denied all three motions, and both parties appealed.

As to the jury verdict, the Eleventh Circuit noted that jury liability findings are generally difficult to overturn, and that the verdict was general and nonspecific regarding which of the seven alleged trade secrets iControl had misappropriated, so Fintech only needed to show evidence under the Florida Uniform Trade Secrets Act (FUTSA) of misappropriation as to one. iControl also did not move for JMOL on liability, and therefore, under the abuse-of-discretion standard of review, the Court could only overturn if “there is an absolute absence of evidence to support the verdict.” However, the Court found that Fintech and its witness presented sufficient evidence at trial to permit a reasonable jury to find that Fintech possessed at least one of the seven alleged trade secrets and that it was misappropriated. The evidence included emails indicating that its former vice president helped iControl discover Fintech’s internal processes to aid software developments, assisted iControl’s chief technology officer in troubleshooting issues in a manner similar to Fintech, shared screenshots of Fintech’s user portal and prompted customers to switch to iControl.

Similarly, the Eleventh Circuit found that the jury reasonably could have inferred from the evidence that iControl schemed to hire Fintech employees to misappropriate Fintech’s software features—an act that demonstrated willfulness.

After assessing the meanings of fixed and marginal costs and the properly fact-intensive revenue and profits figures of the businesses, the Eleventh Circuit agreed that the jury was not required to deduct Fintech’s fixed costs from its revenues to arrive at a proper “actual [...]

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The Plot Plot Thickens: Trade Secret, Tortious Interference, Fiduciary Duty Claims Survive Motion to Dismiss

by | Nov 11, 2021 |

A judge from the US Court of Appeals for the Third Circuit sitting by designation in the US District Court for the District of Delaware denied a motion to dismiss claims of misappropriation of trade secrets, tortious interference and breach of fiduciary duty, finding that the plaintiff plausibly pled facts supporting each claim. Park Lawn Corp. v. PlotBox Inc., Case No. 20-cv-01484-SB (D. Del. Oct. 29, 2021) (Bibas, J., sitting by designation).

Park Lawn and PlotBox are competitors in the cemetery business. In 2018, Park Lawn began developing software to automate various cemetery management tasks to cut costs. Park Lawn also hoped to generate revenue by licensing the software to competitors. Park Lawn’s CEO, however, had been leaking information to PlotBox about the software, its unique features and Park Lawn’s strategy for licensing. The CEO also helped PlotBox in its efforts to recruit Park Lawn’s chief technology officer, who had been overseeing the software project. The CEO acted despite having signed confidentiality, non-compete and non-solicitation agreements. Park Lawn ultimately discovered the CEO’s involvement with PlotBox and fired him. Soon after, the CEO became PlotBox’s chairman. Park Lawn sued PlotBox for stealing its trade secrets, interfering with the CEO’s employment agreements and helping the CEO breach his fiduciary duty to Park Lawn. PlotBox moved to dismiss.

The district court denied the motion. As to the trade secret claims, PlotBox argued that it did not misappropriate any trade secrets since the CEO never actually gave PlotBox any information. The court found that the complaint alleged otherwise. In particular, the court noted the complaint alleged:

  • The CEO and PlotBox exchanged compromising emails discussing the “status,” “developments in ‘death-tech,’” and the CEO’s interest in becoming PlotBox’s chairman.
  • The CEO invited PlotBox executives to his home to discuss a “Park Lawn Update” and “Technical Presentation.”

The court found that these allegations plausibly alleged that the CEO could have disclosed a trade secret.

PlotBox argued that even if it did learn something from the CEO, it never knew that the CEO obtained that information through improper means. The district court again disagreed, finding that PlotBox should have known something was amiss since the CEO broke a promise to keep quiet. While the court acknowledged that PlotBox may have never read the CEO’s confidentiality agreement, PlotBox should have reasonably inferred that it was improper for the CEO of a competitor to disclose his company’s innovations.

PlotBox also argued for dismissal because any information it received from the CEO did not count as a trade secret under the Defend Trade Secrets Act. Once again, the district court disagreed, explaining that Park Lawn alleged that the information provided was technical in nature (e.g., unique features of software and strategy of selling it to rivals), Park Lawn took adequate measures to protect the information by only allowing a few employees who signed confidentiality agreements to access the software and the information was valuable because it was secret. The court thus permitted the trade secret claim to proceed.

The [...]

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NDA Sunset Provision Means Trade Secret Use May Not Be Misappropriation

by | Sep 16, 2021 |

The US Court of Appeals for the Ninth Circuit reversed a district court ruling in a trade secret misappropriation case based on a non-disclosure agreement (NDA) that resulted in an award of more than $60 million, ruling that any disclosures that occurred after the termination date of the NDA were not subject to misappropriation claims. BladeRoom Group Ltd. v. Emerson Electric Co., Case No. 19-16583 (9th Cir. Aug. 30, 2021) (Murphy, J.) (Rawlinson, J., concurring).

BladeRoom and Emerson compete for contracts to design and build data centers. In August 2011, the companies explored a potential sale of BladeRoom to Emerson. BladeRoom drafted an NDA governed by English law, and the parties signed it. Critically, the 12th paragraph of the NDA provided that “this agreement shall terminate on the date 2 years from the date hereof.” The potential acquisition ultimately fell through.

Not long after, Facebook began plans to build a data center in northern Sweden. BladeRoom pitched a design in July 2012, and Emerson pitched a design several months later. In October 2012, Facebook verbally approved Emerson’s design although it was only 10% complete. Almost a year later, Facebook contacted BladeRoom asking about updates to its proposal. In November 2013, Facebook selected Emerson’s proposal. Facebook and Emerson signed a design-build contract in March 2014, at which point BladeRoom learned about the design Emerson had pitched. BladeRoom sued Facebook and Emerson, alleging that Emerson had breached the NDA and misappropriated BladeRoom’s trade secrets.

The case was tried to a jury. During trial, BladeRoom settled with Facebook but not Emerson. Before closing arguments, Emerson proposed a jury instruction excluding information disclosed or used after August 2013 (i.e., after the NDA allegedly expired). The district court denied the instruction. BladeRoom then moved in limine to prohibit Emerson from arguing that the NDA permitted it to use BladeRoom’s information after August 2013. The district court granted the motion. The jury found Emerson liable and awarded $10 million in lost profits and $20 million in unjust enrichment damages but did not distinguish between the breach and misappropriation claims in making its award. The district court awarded $30 million in punitive damages and further awarded pre-judgment interest beginning on October 30, 2012, and $18 million in attorney’s and expert witness’ fees. Emerson appealed.

The Ninth Circuit first considered whether the NDA expired after two years. Applying English law, the Court held that it did based on a primarily textual analysis. However, the Court could not determine from the record the date on which the alleged breach/misappropriation had occurred. Accordingly, it vacated the judgment and remanded for a new trial.

The Ninth Circuit also discussed several issues in the appeal that would be relevant if Emerson was found liable on remand. The Court stated that the punitive damages award was not supported by the record where the jury did not distinguish between the breach and misappropriation claims because punitive damages are not available for breach of contract under California law. The Court also discussed prejudgment interest, observing [...]

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Sixth Circuit: It’s a Go on Plaintiff’s Claims Despite Arbitration Clause

by | Sep 16, 2021 |

The US Court of Appeals for the Sixth Circuit affirmed in part a district court’s grant of a stay pending arbitration, finding that as non-parties to the underlying arbitration agreement, defendants could not stay the plaintiff’s action against them by arguing that they were beneficiaries of the arbitration agreement. AtriCure, Inc. v. Meng, Case No. 19-4067 (6th Cir. Aug. 27, 2021) (Murphy, J.) (Guy, J., dissenting).

AtriCure invested millions into developing medical devices that treat a serious degenerative heart condition known as atrial fibrillation. The company sells these products to hospitals throughout the world. In the mid-2000s, AtriCure sought to enter the Chinese market. In order to do so, it needed a Chinese agent. Dr. Jian Meng approached AtriCure about partnering with one of his companies to serve as AtriCure’s Chinese distributor. AtriCure eventually entered into a relationship with Meng’s company, ZenoMed.

In 2015, AtriCure discovered that another of Meng’s companies, Med-Zenith, was attempting to market a knockoff version of one of AtriCure’s medical devices. AtriCure opted to continue the relationship with ZenoMed, and in 2016, AtriCure and ZenoMed entered into a distribution agreement. However, in 2017, AtriCure learned that Med-Zenith was attempting to develop more counterfeit versions of AtriCure’s devices. As a result, AtriCure allowed the distribution agreement to expire and demanded that ZenoMed return its inventory.

AtriCure then sued Meng and Med-Zenith in the Southern District of Ohio, alleging improper manufacturing and selling of dangerous counterfeit productions, as well as various state law claims. AtriCure also brought an arbitration demand under the distribution agreement against ZenoMed. Meng and Med-Zenith sought to stay the federal lawsuit, arguing that they were beneficiaries of the arbitration clause in the distribution agreement under equitable estoppel and agency theories. After the district court denied the motion, Meng appealed.

The Sixth Circuit explained that after the Supreme Court of the United States’ 2009 ruling in Arthur Andersen LLP v. Carlisle, circuit courts are obligated to look to relevant state common law to decide when nonparties may enforce or be bound by an arbitration agreement. As a result, the blanket federal presumption favoring arbitration even against nonparties was no longer applicable. Now, courts must examine state law to determine whether nonparties may enforce or be bound by an arbitration agreement. The Court examined Ohio contract law to determine that a nonparty cannot enforce an arbitration clause unless it is an intended third-party beneficiary. The Court rejected Meng and Med-Zenith’s equitable estoppel arguments, finding that under Ohio law, AtriCure’s state law claims did not seek to enforce the distribution agreement against Meng and Med-Zenith, or rely on any theory that they owed contractual duties to AtriCure notwithstanding their nonparty status. Finally, the Court remanded the question of whether Meng’s agency argument could prevail by determining if he was acting as an agent of ZenoMed when he engaged in the conduct AtriCure complained about in the separate arbitration.

In dissent, Judge Ralph B. Guy Jr. argued that Meng “unambiguously sought a ‘stay under Section 3 of the [...]

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No Service, No Notice

by | Sep 2, 2021 |

Addressing the notice requirements of Fed. R. of Civ. Pro. 65(a)(1), the US Court of Appeals for the Fifth Circuit vacated a preliminary injunction, finding that the aggrieved party did not have sufficient notice of the possibility of a preliminary injunction. Document Operations, L.L.C., v. AOS Legal Tech., Inc., Case No. 20-20388 (5th Cir. Aug. 23, 2021) (Per Curiam) (unpublished).

In 2017, Doc. Ops. entered into a licensing agreement by which AOS Japan would serve as the company’s exclusive representative and marketing provider in Japan for its virtual data room technology. Later, Doc. Ops. learned that a competing product known as AOS VDR had been developed by AOS Korea and would soon be marketed in the two Asian countries. Despite protests from AOS Japan that AOS Korea developed AOS VDR independently, Doc. Ops. filed suit alleging violation of the Texas Uniform Trade Secrets Act and for common law breach of contract, fraudulent inducement, conversion, civil conspiracy and breach of fiduciary duty.

The licensing agreement mandated that AOS Japan protect Doc. Ops.’ confidential information and also prohibited AOS Japan from acting to “represent, promote, develop, or otherwise try to sell within [Japan] any lines of product that. . . compete with [the technology].” Doc. Ops. sought a temporary restraining order (TRO) as well as preliminary injunction and filed and emailed copies of the complaint and TRO motion to AOS representatives. Once a Zoom hearing was scheduled, Doc. Ops. again contacted AOS to inform it of the hearing date. When AOS failed to appear at the hearing, the district court chose to reschedule the hearing three weeks later in order to ensure that AOS was aware of the hearing.

During this three-week interval, Doc. Ops. continued to communicate relevant dates and filings with AOS, which had appointed Texas-based counsel. One of these communications included a letter from Doc. Ops. to the district court stating that if the district court granted its TRO motion, Doc. Ops. would seek to conduct limited expedited discovery to prepare for a subsequent preliminary injunction. AOS failed to appear at the second hearing, stating that it would not appear until served with process. Subsequently, the district court not only granted the TRO motion and the related request for expedited discovery but also issued a preliminary injunction against AOS. AOS appealed both the preliminary injunction and the order granting expedited discovery.

The Fifth Circuit first explained that Rule 65 requires sufficient notice for a preliminary injunction, which the Supreme Court of the United States has interpreted as implying a hearing where the defendant is given a fair opportunity to oppose the preliminary injunction. The Court contrasted the notice requirement for preliminary injunctions from the more informal notice requirement for TROs. While TRO hearings are sometimes converted into preliminary injunction hearings, this conversion has two requirements: Sufficient notice and an opportunity to meaningfully prepare and respond.

The Fifth Circuit found that while AOS certainly had notice that a preliminary injunction was looming, it lacked sufficient notice that this relief would [...]

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Patents and Trade Secrets Aren’t Mutually Exclusive: The Nuanced Nature of Trade Secret Protection

by | Aug 19, 2021 |

Addressing the nuanced nature of trade secret protection of patented products, the US Court of Appeals for the Seventh Circuit affirmed a district court’s trade secret protection determination, finding that the asserted trade secrets were not publicly disclosed and had been adequately protected. Life Spine, Inc. v. Aegis Spine, Inc., Case No. 21-1649 (7th Cir. Aug. 9, 2021) (St. Eve, J.)

The underlying conflict in this case has its roots in a short-lived business relationship between two companies specializing in selling spinal implant devices. Life Spine makes and sells a device called the ProLift Expandable Spacer System. Aegis Spine contracted with Life to distribute Life’s ProLift system to hospitals and surgeons for scheduled surgeries. Under the distribution agreement, Aegis was obligated to protect Life’s confidential information, act as a fiduciary for Life’s property and refrain from reverse engineering the ProLift system. Aegis did not abide by its contractual promises. It gave information about Life’s ProLift system to L&K Biomed, Aegis’s parent company and Life’s direct competitor. L&K used Life’s confidential information to develop a competing spinal implant device. Shortly after L&K’s device appeared on the market, Life sued Aegis for trade secret misappropriation and breach of the distribution agreement. The district court ruled in favor of Life, granting its motion for preliminary injunction against Aegis and its business partners, all of whom could no longer market the competing product. Aegis appealed.

Aegis argued that the injunction rested on the flawed legal conclusion that a company can have trade secret protection on a device that it publicly discloses through patents, displays and sales. The Seventh Circuit disagreed.

While the Court reaffirmed that there can be no trade secret protection in information available in the public domain, it found that such was not the nature of the information sought to be protected in this matter. Rather, the Seventh Circuit agreed with the district court that Life did not publicly disclose the specific information it sought to protect via patenting, displaying and selling its ProLift system.

The ProLift expandable spinal implant consists of the implant (or cage) component and an installer. The cage comprises an upper and lower endplate, a nose and base ramp and an expansion screw. The installer is used to insert the cage into a patient’s spine and expand the affected spinal disc height. Life considers “the precise dimension and measurements of the ProLift components and subcomponents and their interconnectivity” to be confidential trade secrets. The district court found that third parties are unable to access that precise dimensional information without first signing confidentiality agreements, and the information is not available in any of Life’s marketing materials (which include only dimensional approximations) or patents. Life’s ProLift system cannot be purchased by the general public or even handled at industry convention displays without Life’s close supervision. Instead, Life’s distributors sell ProLift directly to hospitals and surgeons for scheduled surgeries only.

The Seventh Circuit noted that “a limited disclosure” does not destroy all trade secret protection on a product, allowing a company [...]

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