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The CH Trade Secrets Review, 2021 Year-End, Part II: Cases Illustrate Particularity Is Critical at All Stages of Litigation

May 24, 2022

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

Companies claiming misappropriation of trade secrets are confronted with identifying the information with particularity from the outset – during the investigation and evaluation stage before filing suit, through pleading the claim and discovery, when seeking injunctive relief to restrain use of the information, in preparing for and trying the case, and through any appeal. Several case opinions in 2021 illustrate the pitfalls of coming up short in this perilous journey.

The United States Court of Appeals for the Federal Circuit ventured into the beauty and hair care industry in a lawsuit against L’Oréal. The plaintiff alleged misappropriation of trade secrets (and a claim for patent infringement). The information concerned certain methodology and processes of bleaching hair with maleic acid. Following trial, a jury returned a verdict for plaintiff finding that L’Oréal willfully and maliciously used plaintiff’s trade secrets and awarded over $22 million. The Court of Appeal reversed in part because it found an “absence of particularity” of the alleged trade secrets. Plaintiff’s expert did not explain the testing methods beyond opining that they were “unconventional.” Likewise, the expert failed to describe with particularity alleged “dead-ends and trial and errors” data. As a result, there was a lack of any concrete basis for finding that they were not “readily ascertainable” by proper means. Olaplex, Inc. v. L’Oréal U.S., Inc. (FC Cir 2021) (unpublished)

Another case concerned the formulas and processes to make baking release agents and related customer, sales, marketing, and similar proprietary information. The district court concluded that on the facts of the case, a preliminary injunction was warranted and issued an expansive order enjoining a wide variety of conduct, including formulation and distribution of competitive products, solicitation of plaintiff’s customers, dissemination of marketing materials, or contact with plaintiff’s employees, consultants or customers. But, the “injunction order did not elaborate on what information constitutes trade secrets.” The Court of Appeal concluded that this was fatal to the order’s compliance with Federal Rule of Civil Procedure 65(d). The rule mandates that an injunction order state its terms specifically and articulate in detail the conduct it enjoins in order to set forth the reasons why an injunction is warranted in the first place. The lack of specificity meant the Court of Appeal could not discharge its review of the lower court’s order to determine whether plaintiff was likely to succeed in establishing at trial any element of a trade secret misappropriation claim. Nor could defendant grasp what conduct is prohibited and what is permissible. Mallet & Co. v. Lacayo (3d Cir 2021).

In a third case, the plaintiff prevailed at trial when the jury awarded both compensatory and punitive damages. The district court however declined to issue any permanent injunction. The trade secrets at issue concerned plaintiff’s proprietary software that processes alcohol-sales invoices within 24 hours. According to plaintiff, certain aspects of the software constituted trade secrets, such as the database architecture, calculations for ACH transactions, and payment-reconciliation interfaces. Florida’s trade secrets law authorizes courts to enjoin use of only specific, identifiable trade secrets but not to impose blanket restraints on competition. Plaintiff’s initial request for a blanket injunction was denied for “prohibiting iControl from doing business in the regulated commerce industry.” The request for a revised proposed injunction still swept too broadly and promoted confusion about the nature of plaintiff’s trade secrets because it sought to prohibit the use of defendant’s own software in its entirety rather than only specific, identifiable trade secrets. Financial Information Technologies, LLC, v. iControl Systems, USA, LLC (11th Cir. 2021)

Companies, or the people who run them, understandably are proud of their products or services developed through much time, effort, and resources. That can sometimes lead to strategic miscalculations in casting a too-wide trade secrets net over proprietary information. Tempering such human nature constructively is critical to successfully pursuing a misappropriation claim that survives the discerning scrutiny of the law on trade secrets and judicial remedies.

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.

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