The CH Trade Secrets Review, 2021 Year-End, Part I: Cases on Delayed Accrual of the Statute of Limitations and Independent Economic Advantage

A review of significant developments, cases, and verdicts throughout the United States in 2021 in trade secrets law

Statute of Limitations

There is a certain level of inherent incongruity in the position of some defendants sued for misappropriation of trade secrets. Having improperly acquired or used a competitor’s information, defendants often contest the claim that the plaintiff maintained the information confidential or that it constitutes a trade secret. But frequently, if not more likely than not, at the time in question those defendants concealed the fact that they had possession of or used the disputed information, that is, they shrouded their use in secrecy.

For an aggrieved company, that secrecy exercised by a competitor may have resulted in the lack of awareness its information was misappropriated. The United States Court of Appeals, Fifth Circuit, tackled the defense of statute of limitations raised by the defendant against an action brought five years after the alleged misappropriation occurred. The district court dismissed the claim at the pleading stage, reasoning that plaintiff AAAPC did not explain why it could not or through the exercise of reasonable diligence should not have discovered the misappropriation within three years of the misappropriation.

The Court of Appeal disagreed and reversed. The information at issue was a client list, related billing information, and business records. The Court reasoned that unlike computer codes or product designs, “which may be readily discoverable once the information appears in the marketplace,” loss of customers and making inquiries of them would not have disclosed the defendant’s disclosure or use of AAAPC’s information (presumably because the customers themselves would not have such knowledge). Under Texas law, the statute of limitations therefore would not commence to accrue until reasonable diligence could have disclosed the misappropriation and expires only three years later. Academy Of Allergy & Asthma In Primary Care v. Quest Diagnostics, Inc. (CA5 2021).

Independent Economic Advantage

Whether a company’s confidential information qualifies as a trade secret is a question of fact that presents difficult challenges for a plaintiff, particularly where its foundation is publicly available information. A United States Court of Appeals, Sixth Circuit decision illustrates that a company can nevertheless prove it developed trade secrets where it meticulously expanded and developed processes far more elaborate than the publicly available information. RECO Equipment successfully obtain a preliminary injunction against its former employees who misappropriated “troubleshooting trees” the company developed over the years fixing its heavy construction equipment that often broke down in unique ways. The evidence demonstrated that these repair guides were the outgrowth of years of technical expertise developed in the maintenance, servicing, and rebuilding of certain specialized equipment. The manufacturer manuals, otherwise public, did not contain these solutions. As a result, RECO experienced financial success and its information gave it an independent economic advantage over its competitors. RECO Equipment v. Wilson (CA6 2021) (unpublished)

The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.