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Exploring the Latest in Intellectual Property Law
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Without Personal Jurisdiction or Causal Relationship, Wheels Come Off Misappropriation Claim

by | Jul 30, 2020 |

Without addressing the merits of the claim, the US Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a trade secret misappropriation action based on lack of personal jurisdiction, finding no causal relationship between the competitors’ dealings in Illinois and the asserted claims. J.S.T. Corporation v. Foxconn Interconnect Technology Ltd., et al., Case No.19-2465 (7th Cir. July 13, 2020) (Barrett, J.).

In 2005, General Motors (GM) retained Robert Bosch LLC to build a part for some of GM’s cars. To build the part, Bosch required a connector. Bosch turned to JST to design and build the part, which it did for years, becoming the sole supplier of the product to Bosch. After buying 15 million connectors, Bosch allegedly tricked JST into handing over its proprietary technical schematics and designs under the guise that GM required the materials and Bosch would keep them confidential. Instead, Bosch allegedly gave the materials to JST’s competitors, Foxconn and TEC. According to JST, Foxconn and TEC accepted the designs, used them to produce a knockoff connector and displaced JST.

JST filed a lawsuit against TEC and Foxconn affiliates in Illinois for trade secret misappropriation under the Illinois Trade Secrets Act and for unjust enrichment. TEC and Foxconn moved to dismiss the case for lack of personal jurisdiction because none of the defendants were headquartered in Illinois or had a primary place of business there. Further, none of the defendants manufactured or sold the connector in Illinois. JST alleged that TEC and Foxconn sold the connectors to Bosch in Texas and in China, where Bosch installed them into the parts it sold to GM. The only connection to Illinois was the fact that GM sells cars with those parts to dealers in Illinois. Foxconn and TEC argued that this connection was too attenuated to support personal jurisdiction. The district court agreed and dismissed the action. JST appealed.

On appeal, JST asserted that Foxconn and TEC were subject to personal jurisdiction in Illinois because the cars containing the knockoff parts were sold in the state. Relying on the Supreme Court of the United States’ decision in World-Wide Volkswagen, JST argued that personal jurisdiction may be appropriate over “a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.” The Seventh Circuit observed that its circuit is among those that apply the stream of commerce theory in products liability cases. The Court explained that in the context of a product liability case, the defendant takes steps to reach consumers in a forum state, and the underlying litigation alleges the development of a product that harms consumers.

The Seventh Circuit noted the differences between products liability claims and those involving trade secret misappropriation. The latter is not intrinsically linked to interactions with a consumer and can occur long before an offending product ever reaches a consumer in the forum. Based on the complaint, the Court found that even if Foxconn and [...]

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Improper Use of Voluntarily Communicated Trade Secrets Sufficient to Maintain Action for Misappropriation in Texas

by | Jul 1, 2020 |

The US Court of Appeals for the Fifth Circuit held that, under Texas law, a plaintiff can sustain an action for trade secret misappropriation even if the plaintiff voluntarily communicated the alleged trade secrets to the defendant. Hoover Panel Systems, Inc. v. HAT Contract, Inc., Case No. 19-10650 (5th Cir. June 17, 2020) (per curiam). (more…)



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Texas Appeals Court: Try Again, and This Time Get the Jury Instructions Right

by | Jun 18, 2020 |

A Texas Court of Appeals reversed a jury verdict for the plaintiff on claims of trade secret misappropriation under the Texas Uniform Trade Secrets Act (TUTSA) and fraud. The Court reversed the misappropriation verdict because the jury form commingled valid and invalid theories of liability, and reversed the fraud verdict because the jury instructions permitted a finding of liability under theories that were closely related to trade secret misappropriation and therefore preempted by TUTSA, as well as theories that were not. The Court ordered a new trial on both claims. Title Source, Inc. v. HouseCanary, Inc., Case No. 04-19-00044-CV (Tex. App. – San Antonio June 3, 2020) (Watkins, J.).

Title Source (TSI) provides title insurance, property valuations and settlement services. HouseCanary is a real estate analytics company. TSI hired HouseCanary to build an iPad application for its appraisers to use. The app would be based on HouseCanary’s automated valuation models (AVM). The parties’ agreement specifically prohibited TSI from reverse-engineering or attempting to discover HouseCanary’s source code or confidential information. Nonetheless, and despite its assurances to the contrary, TSI sought and used HouseCanary’s proprietary information to develop its own AVM. The parties’ contract required HouseCanary to maintain a certain “hit rate” (a metric of accuracy), but TSI’s employees took steps to purposely drive down the hit rate (including searching for an appraisal of the supposed street address: “Wiping a Vendor Wipes the fee”). The parties’ contract originally provided for a per-appraisal royalty to be paid to HouseCanary; the parties later amended the agreement to provide for a flat fee in exchange for TSI’s promise to deliver valuable historical valuation data (which it did not deliver).

TSI sued HouseCanary for breach of contract and fraud, alleging that HouseCanary had failed to deliver the app as promised. HouseCanary counterclaimed for breach of contract, fraud, unjust enrichment, quantum meruit and misappropriation of trade secrets under TUTSA. The jury rejected all of TSI’s affirmative claims and found in favor of HouseCanary on its misappropriation, fraud and breach of contract claims. TSI moved for a new trial, which the trial court denied. HouseCanary elected to recover on its misappropriation and fraud claims. The trial court entered judgment in favor of HouseCanary and awarded almost $740 million. TSI appealed.

HouseCanary’s TUTSA Claim

On appeal, TSI argued that the verdict was insufficiently supported by evidence and that two questions on the jury form commingled valid and invalid theories of recovery (Casteel error). The first question involved ownership of trade secrets. The Texas Court of Appeals held that sufficient evidence had been presented to sustain the finding of trade secret ownership, and that TSI had waived its objection based on the alleged Casteel error.

The second question asked the jury whether TSI misappropriated HouseCanary’s trade secrets, and the corresponding instruction provided that misappropriation could be found on either a “use” or an “acquisition by improper means” theory. The Court found that there was enough evidence to sustain a verdict on the “use” theory, but that the jury instructions regarding “acquisition by improper means” was overbroad, [...]

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South Carolina Supreme Court Cannot Find “Economic Value” to Support Trade Secret

by | Jun 17, 2020 |

The South Carolina Supreme Court (S.C. Supreme Court) affirmed a state Court of Appeals finding that information taken by a minority LLC member did not have the requisite independent value to be considered a “trade secret” under the state’s Trade Secrets Act. Wilson v. Gandis, Case No. 27980 (S.C. June 3, 2020) (James, C.J.).

In response to what the trial court classified as an “unconscionable,” “brazen,” “classic squeeze-out,” Wilson brought an action against his business partners, Gandis and Shirley, along with Carolina Custom Converting (CCC), a broker of industrial film materials. Wilson was a 45% member of CCC, while Gandis and Shirley were 45% and 10% members respectively. Starting in 2011, Gandis and Shirley made multiple efforts to remove Wilson as a member of CCC. The laundry list of “oppressive acts” cited by the trial court included Gandis and Shirley’s (1) withholding guaranteed monthly distributions to Wilson, (2) monitoring Wilson’s private emails, (3) limiting Wilson’s access to CCC financials, (4) terminating Wilson’s family healthcare plan, (5) surreptitiously forming a competing business, (6) funneling money to Gandis through inflated rent payments to Gandis-owned properties and (7) attempting to physically remove Wilson from his own office using a police officer. In response to these acts, Wilson left his office with his company laptops and Blackberry, which contained information about CCC clients. The trial court and Court of Appeals found for Wilson, forcing Gandis and Shirley to buy out Wilson’s share of CCC and denying all of their counterclaims against Wilson. CCC, Gandis and Shirley filed petitions for writ of certiorari to the S.C. Supreme Court, which were granted.

The issue on certiorari was whether the trial court erred in finding CCC failed to prove its trade secret misappropriation claim against Wilson (and his subsequent employers) under the South Carolina Trade Secrets Act. In a relatively short analysis, the S.C. Supreme Court found that the trial court did not err in finding CCC failed to prove its trade secret misappropriation claim against Wilson. The South Carolina Trade Secrets Act defines a “trade secret” as information that “derives independent economic value … from not being generally known to … the public [and efforts are made] to maintain its secrecy.” The Court applied its own  precedent requiring an initial analysis of “the extent to which the [alleged trade secret] is known outside of his business and … the difficulty with which the information could be properly acquired … by others.” Relying on trial testimony by two “experienced film brokers” who stated that the type of business information taken by Wilson was “widely available,” “ascertainable from trade associations [and] publicly available sources,” and that customers “are free to share” that type of information, the Court held that the record supported the trial court’s finding that the information taken by Wilson “did not have the required independent economic value” to be considered a trade secret. The Court affirmed and remanded on an issue related to the details of Wilson’s buyout from CCC.



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Willfulness Allegation, Failure to Appear Lead to Nondischargeable Judgment

by | May 19, 2020 |

The US Court of Appeals for the Sixth Circuit affirmed that a state court’s finding of “willful and malicious injury” in connection with the misappropriation of trade secrets entitled the plaintiff, in the defendant’s subsequent bankruptcy proceeding, to summary judgment of nondischargeability on collateral estoppel grounds. In re Hill, Case No. 19-5861 (6th Cir. May 4, 2020) (Donald, J.).

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Trade Secret Misappropriators Fail to Launch in Rocket Facility

by | May 14, 2020 |

Addressing a variety of challenges to a judgment against defendants in a trade secret misappropriation action, the US Court of Appeals for the Third Circuit found that the plaintiff had standing on the basis of lawful possession (as opposed to ownership) of the trade secret materials and that the damages awarded, including punitives, was supported by sufficient evidence. Advanced Fluid Systems, Inc. v. Huber, Case Nos. 19-1722; -1752 (3d Cir. Apr. 30, 2020) (Jordan, J.).

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Trade Secret Claim Premised on Patent Inventorship Assertion Did Not Warrant Removal to Federal Court

by | Apr 15, 2020 |

Addressing a decision by California district court denying a motion to remand a trade secret case back to the California state court where it was originally filed, the US Court of Appeals for the Federal Circuit held that the removal to federal court was improper and vacated the district court’s decision. Intellisoft Ltd. v. Acer America Corp., Case No. 19-1522 (Fed. Cir. Apr. 3, 2020) (Dyk, J.).

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Texas Appeals Court Rules Private Communications with Customers Not Protected Free Speech

by | Feb 13, 2020 |

In a case addressing the applicability of free speech as a defense to trade secret misappropriation, the Court of Appeals for the Fifth District of Texas retracted its previous ruling, holding that communications with customers and suppliers did not involve a matter of public concern and were therefore not an exercise of free speech. Goldberg, et al. v. EMR (USA Holdings) Inc., et al., Case No. 05-18-00261-CV (Tex. App. Jan. 23, 2020) (Myers, J).

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Mandamus Denied: Need to Show Abuse of Discretion in Addition to Prejudice from Delay

by | Jan 15, 2020 |

Addressing an emergency request for a writ of mandamus to compel discovery of electronically stored information, the US Court of Appeals for the Sixth Circuit declined to set aside a district court’s denial of a request to create forensic images of all the defendant’s business and personal computers and cell phones. In re FCA US LLC, Case No. 19-1923 (6th Cir. 2019) (per curiam).

FCA filed trade-secret misappropriation and other claims against Patrea Bullock, a lawyer who formerly served as outside counsel to FCA. According to FCA, while serving as defense counsel, Bullock had access to extensive confidential and proprietary information belonging to FCA, including its “defense playbook.” After she resigned from her law firm, but before returning her computer, Bullock downloaded her files from the laptop onto several USB drives. Thereafter, she opened her own law firm representing plaintiffs against automobile manufacturers, including FCA. During discovery, Bullock produced 1,345 documents in response to FCA’s requests for the documents she had taken FCA, however, moved to compel a forensic image of all of Bullock’s business and personal laptops and cell phones so an expert could investigate what documents Bullock took.

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