E for Effort? PI Analysis in Trade Secret Suit Riddled With Errors

By on June 27, 2024
Posted In Trade Secrets

The US Court of Appeals for the Federal Circuit reversed the granting of a sweeping preliminary injunction (PI) in a trade secret suit against a competitor, finding that the district court’s analysis failed to consider potentially dispositive issues and the requirements of the Defend Trade Secrets Act (DTSA). Insulet Corp. v. EOFlow, Co., Case No. 24-1137 (Fed. Cir. June 17, 2024) (Lourie, Prost, Stark, JJ.) Among other things, the district court:

  • Failed to consider whether the plaintiff’s claims were time-barred.
  • Used an incorrect definition of “trade secret.”
  • Based its irreparable harm analysis on an unsubstantiated fear of a competitor’s potential acquisition of the defendant.
  • Failed to meaningfully assess the balance of harm and the public interest factors.

Insulet and EOFlow are medical device manufacturers that make insulin pump patches. Insulet began developing its OmniPod product in the early 2000s and launched next-generation models in 2007 and 2013. EOFlow began developing its own insulin pump product, the EOPatch, in 2011 and began work on its second-generation product in 2017. Around the time that EOFlow began developing its second-generation device, four Insulet employees joined EOFlow.

In early 2023, Medtronic allegedly started a diligence process to acquire EOFlow. Shortly thereafter, Insulet sued EOFlow for trade secret misappropriation, seeking an injunction to bar all technical communications between EOFlow and Medtronic. The district court granted Insulet’s request, finding that Insulet was likely to succeed on its trade secret claim because EOFlow had hired former Insulet employees who retained Insulet’s confidential documents, and Medtronic’s intended acquisition of EOFlow would cause irreparable harm to Insulet. The injunction broadly prevented EOFlow from “manufacturing, marketing, or selling any product that was designed, developed, or manufactured, in whole or in part, using or relying on the Trade Secrets of Insulet.”

EOFlow appealed the injunction. EOFlow argued that the district court failed to address whether Insulet’s claim was time-barred under 18 U.S.C. § 1836(d) of the DTSA and to consider factors relevant to Insulet’s likelihood of success or meaningfully assess the balance of harm and public interest factors.

The Federal Circuit first observed that the district court had expressed no opinion regarding EOFlow’s § 1836(d) statute of limitations (SoL) argument, even though Insulet’s compliance with the SoL was a material factor that would significantly impact Insulet’s likelihood of success. This alone constituted an abuse of discretion meriting reversal.

The Federal Circuit found that even if the district court had addressed the SoL, the injunction was not adequately supported. The Federal Circuit explained that the district court had improperly and broadly defined “trade secret” as “any and all Confidential Information of Insulet,” where “Confidential Information” was defined by the district court to mean any materials marked “confidential” as well as any CAD files, drawings or specifications. The Federal Circuit explained that the district court should have required Insulet to define the allegedly misappropriated trade secrets with particularity. Instead, the district court allowed Insulet to “advance a hazy grouping of information” and stated that “it would be unfair to require at th[at] stage perfection as to the precise number and contours of the trade secrets at issue.” As the Federal Circuit explained, “[i]n order to secure a preliminary injunction, Insulet had to establish the likelihood of its success on the merits for at least one, specifically defined, trade secret. It did not do so.”

Because the district court relied on an incorrect definition of “trade secret,” it failed to properly assess the factors set forth in the DTSA for determining whether information qualifies as a trade secret:

  • Whether Insulet had taken reasonable measures to keep the alleged trade secrets safe.
  • Whether the information derived independent economic value from not being generally known.
  • Whether the information was readily obtainable through other means.

For example, while the district court noted that Insulet had marked some documents confidential, it was not clear whether the materials at issue had been marked confidential. Similarly, the OmniPod device was publicly available and could be broken down, but the district court incorrectly concluded that the “mere possibility that something could be reverse engineered without more is not enough to defeat a trade secret claim.” As the Federal Circuit noted, information that can be reverse engineered is not eligible for trade secret protection.

The Federal Circuit also found that the district court had abused its discretion in its assessment of irreparable harm and the public interest factors. With respect to irreparable harm, the Court reasoned that the alleged harm from Medtronic’s potential acquisition of EOFlow was nothing more than conjecture and an unsubstantiated fear of future harm. The Federal Circuit also took issue with the district court’s sliding scale approach to the PI factors, which required a lesser showing of irreparable harm in view of Insulet’s supposedly strong showing on likelihood of success. Finally, the Federal Circuit found that the lower court did not meaningfully address the public interest factor and instead simply noted that it “saw little impact one way or the other.”

In view of these deficiencies, the Federal Circuit reversed the grant of PI against EOFLow and remanded for further proceedings.

Tessa Kroll
Tessa Kroll focuses her practice on intellectual property litigation matters. She is a registered patent agent. Read Tessa Kroll's full bio.