IP UPDATE
Exploring the Latest in Intellectual Property Law
IP UPDATE
Exploring the Latest in Intellectual Property Law
Results for "Trade secret suit"
Subscribe to Results for "Trade secret suit"'s Posts

Attorney’s Fees Properly Awarded in Unsuccessful Trade Secret Misappropriation and Civil Theft Suit

By on Aug 26, 2020
Posted In

The US Court of Appeals for the Fifth Circuit affirmed a take-nothing judgment and an attorney’s fees award against plaintiffs in a trade secret misappropriation and civil theft suit under Texas law, finding that the fee award did not need to be segregated to various claims. ATOM Instrument Corp. v. Petroleum Analyzer Co., L.P., Case Nos. 19-29151, -20371 (5th Cir. Aug. 7, 2020) (Southwick, J.). The Court also remanded for an additional award of appellate attorney’s fees.

Olstowski was a consultant for Petroleum Analyzer Co., L.P. (PAC), during which time he developed a krypton-chloride-based excimer lamp to detect sulfur with ultraviolet fluorescence. Although he developed the lamp independently, he used PAC resources to test the technology.  Olstowski and PAC negotiated but failed to agree on licensing. Olstowski founded ATOM Instrument to assist him in the licensing discussions. Subsequently, PAC filed a declaratory judgment action in Texas court alleging that it owned the lamp technology. The state court ordered the claim to arbitration. The arbitration panel declared Olstowski the owner of the technology and enjoined PAC from using it. The state court confirmed the arbitral award, and a Texas appellate court upheld the confirmation order.

PAC thereafter developed a new sulfur-detecting excimer lamp called MultiTek that also used krypton-chloride with UV fluorescence. Olstowski and ATOM filed in state court for contempt of the injunction, but the state court denied the contempt motion as moot because PAC had ceased selling MultiTek.

ATOM filed for bankruptcy the following year. Olstowski and ATOM initiated a district court proceeding against PAC alleging misappropriation of trade secrets, unfair competition and civil theft. After holding a bench trial, the court found that MultiTek did not practice Olstowski’s technology and therefore entered a take-nothing judgment in favor of PAC. The district court also awarded attorney’s fees to PAC under a provision of the Texas Theft Liability Act (TTLA) that awards fees to prevailing parties. Olstowski and ATOM appealed both issues, and PAC sought an award of its appellate attorney’s fees.

As to liability, ATOM argued that the district court erred in finding that the MultiTek lamp did not practice Olstowski’s technology. ATOM characterized the error as a legal one regarding interpretation of the arbitral award, but the Fifth Circuit held that “whether one company used another’s protected technology” is a factual question for which Olstowski and ATOM had failed to carry the burden of proof at trial. ATOM further argued that the district court had ignored the alleged law of the case in deviating from the scope of technology defined in the arbitral award, but the Court again rejected ATOM’s argument because the district court had explicitly stated that the description of Olstowski’s technology in the arbitral award remained in effect.

As to the award of attorney’s fees, ATOM argued that the district court had not appropriately segregated fees related to the TTLA claim from those related to other claims. Applying Texas law, the Fifth Circuit affirmed that the TTLA claim was sufficiently related to the other claims [...]

Continue Reading



In Good Hands: Compilation of Publicly Available Information Can Still Be a Trade Secret

By on Sep 21, 2023
Posted In

The US Court of Appeals for the First Circuit affirmed a district court decision, finding that a compilation of customer-related information, even if publicly available, is a protectable trade secret. Allstate Insurance Co. v. Fougere, Case No. 22-1258 (1st Cir. Aug. 29, 2023) (Gelpi, Lynch, Thompson, JJ.)

Allstate hired two agents—James Fougere and Sarah Brody-Isbill—to sell the company’s auto and casualty insurance products in Massachusetts. In connection with their employment, both agents signed exclusive employment agreements that imposed numerous responsibilities, including an obligation to maintain information identified by Allstate as confidential, an undertaking not to misuse or improperly disclose the information and a promise to return the information to Allstate when their agency relationships terminated. Allstate eventually terminated its agreement with the agents because of noncompliance with Allstate regulations and Massachusetts state law.

After the agreements were terminated, Allstate believed the agents had retained confidential information belonging to Allstate and had been using it to solicit Allstate customers. Allstate ultimately learned that the agents had kept confidential Allstate spreadsheets that contained the names of thousands of Allstate customers, along with their renewal dates, premiums, types of insurance, Allstate policy numbers, driver’s license numbers, home addresses, phone numbers and email addresses.

Allstate filed suit against the former agents, bringing claims under both Massachusetts law and the federal Defend Trade Secrets Act (DTSA). The agents brought counterclaims under Massachusetts law, alleging that Allstate failed to provide adequate notice before their terminations, misappropriated information that belonged to the agents and wrongfully interfered with the agents’ contractual relations by engaging in bad-faith business practices. On summary judgment, the district court found that the agents misappropriated Allstate’s trade secrets and dismissed the agents’ counterclaims. The agents appealed.

The agents argued that the customer information was available from various publicly available sources and therefore did not constitute a trade secret. The First Circuit disagreed, explaining that the compilation of publicly available information could constitute trade secrets, particularly where attempts to duplicate that information would be “immensely difficult.” The Court also found that the factual record suggested that not all of the customer information was publicly available—and certainly not in the same compilation as it would be from Allstate.

The agents also argued that the customer information had no economic value. In analyzing this argument, the First Circuit looked to the employment agreements between the former agents and Allstate, which specifically stated that the misuse of Allstate’s confidential information would cause “irreparable damages” to Allstate. The employment agreements also provided a mechanism for terminated agents to sell their “economic interest” back to Allstate. The Court also relied on its finding that this sort of information would be valuable to Allstate’s competitors in attempting to market policies to Allstate customers so that the competitor could offer lower pricing. Taken together, the Court found that the customer data had economic value.

The agents next argued that Allstate had not sufficiently protected the customer information. The First Circuit, affirming the district court, found that Allstate had multiple protections in place. [...]

Continue Reading



No Lost Value Damages Despite Trade Secret Misappropriation

By on Jun 8, 2023
Posted In

The US Court of Appeals for the Second Circuit vacated a damages award, finding that although there was liability for appropriating trade secrets, the trade secret proprietor was only entitled to compensatory damages under federal trade secret law, not avoided cost damages based on alleged estimated research and development or loss of value. Syntel Sterling Best Shores Mauritius, Ltd., et al. v. The TriZetto Grp., Inc., et al., Case No. 21-1370 (2d Cir. May 25, 2023) (Wesley, Raggi, Lohier, JJ.)

This case involved trade secrets concerning healthcare insurance software called Facets® that was developed by TriZetto and alleged misappropriation by a TriZetto subcontractor, Syntel Sterling. In 2010, TriZetto and Syntel entered a Master Service Agreement (MSA) under which Syntel agreed to support TriZetto’s Facets customers. In exchange, TriZetto granted Syntel access to its trade secrets related to Facets. In 2012, the parties amended the MSA to allow Syntel to compete directly with TriZetto for consulting services. A dispute arose in 2014 when Syntel’s competitor Cognizant acquired TriZetto. Syntel terminated the amended MSA and requested payment of rebates owed. TriZetto refused, raising concerns about Syntel’s continued use of confidential trade secrets post-termination.

Syntel filed suit for breach of contract in the Southern District of New York, and TriZetto counterclaimed. During trial, TriZetto proceeded on trade secret misappropriation counterclaims related to the Facets software under the Defend Trade Secrets Act (DTSA) and New York law. Syntel argued that the amended MSA authorized Syntel to compete for Facets services business while using TriZetto’s trade secrets.

During discovery, the district court issued a preclusion order that sanctioned Syntel for discovery misconduct, finding that “Syntel was actively creating a repository of [TriZetto’s] trade secrets on its own . . . to be used in future work.” Citing the preclusion order, the district court instructed the jury that Syntel had misappropriated two of 104 asserted trade secrets.

With respect to damages, TriZetto presented expert testimony that established that Syntel avoided spending about $285 million in research and development costs because of the misappropriation covering the period between 2004 and 2014, an amount that covered only a portion of TriZetto’s overall $500 million research and development costs. Syntel’s expert did not counter that amount. Instead, Syntel argued that these avoided costs did not apply here for several reasons: because the alleged misappropriation did not destroy the value of Facets since Syntel could have used Facets for free by entering a third-party access agreement with TriZetto because TriZetto continued to make millions using its Facets software, and because Syntel was not a software company but a competing service provider. The jury instructions included Syntel’s avoided development costs as one form of unjust enrichment that applied to the federal claims but not the state claims.

The jury returned a verdict in favor of TriZetto on all counts. The jury awarded TriZetto $285 million in avoided development costs under the DTSA as compensatory damages and double that amount in punitive damages. Following trial, Syntel renewed its motion for judgment as [...]

Continue Reading



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

By on Jan 6, 2022
Posted In

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 [...]

Continue Reading



How Not to Build a Case of Trade Secret Misappropriation

By on Jan 14, 2021
Posted In ,

The US Court of Appeals for the Ninth Circuit affirmed a dismissal of trade secret claims, finding that although misappropriation of a trade secret prior to the enactment of the Defend Trade Secrets Act (DTSA) does not preclude a claim arising from post-enactment or continued use of the same trade secret, the publication of a trade secret in a patent application extinguishes trade secret status. Eli Attia; Eli Attia Architect PC v. Google LLC, et al., Case No. 19-15771 (9th Cir. Dec. 16, 2020) (Wallace, J.)

Eli Attia is an architect who developed a system and method for automated design, fabrication and construction, called Engineered Architecture (EA). In 2010, Attia entered into a partnership with Google. Attia disclosed his trade secrets related to the technology to Google so that they could work together to develop a program that would implement EA. Attia executed patent assignments with Google, and a year later Google filed patent applications related to the EA trade secrets. The patents were published in 2012. Google then allegedly excluded Attia from the project and used EA to create Flux, a platform used by architects, engineers and construction workers, focused on making buildings more efficient and using artificial intelligence to streamline the design process.

In 2014, Attia sued Google under state law for trade secret misappropriation and breach of contract. In 2016, Congress enacted the DTSA. Since its inception, DTSA has been an enumerated predicate for the civil Racketeer Influenced and Corrupt Organizations Act (RICO), which means that plaintiffs can bring lawsuits claiming a conspiracy when theft of trade secrets is an underlying claim. Attia amended his complaint to add RICO claims based on Google’s alleged trade secret misappropriation. Google removed the action to federal court and moved to dismiss. Attia filed another amended complaint, this time asserting a new DTSA claim and two RICO claims.

The district court dismissed Attia’s federal claims with prejudice and declined to exercise supplemental jurisdiction over the state law claims. The district court found that the alleged trade secrets were already disclosed in Google’s 2012 published patent applications, and those publications extinguished the relevant trade secrets. The court held that Attia lacked standing to assert DTSA or RICO claims, and neither estoppel nor continued use could convert the 2012 publications into a DTSA violation. Attia appealed.

On appeal, the Ninth Circuit noted that the issue was one of first impression before the Court, and set out to determine whether, as a matter of law, the pre-enactment disclosure of a trade secret forecloses the possibility of a DTSA claim arising from the continued use of the trade secret after enactment. The Uniform Trade Secrets Act (UTSA), the established model statute for trade secret misappropriation that has been adopted by the majority of the states, contains an anti-continued use provision, the Court noted. The UTSA states that “ a continuing misappropriation that began prior to the effective date,”… “does not apply to the continuing misappropriation that occurs after the effective date.” The DTSA does not [...]

Continue Reading



Defend Trade Secrets Act Supports Sealing Information on Appeal

By on Jan 7, 2021
Posted In ,

Addressing whether purported trade secret information ought to remain under seal on appeal, the US Court of Appeals for the Sixth Circuit ruled in a one-judge order that the Defend Trade Secrets Act (DTSA) provided a statutory basis that overcame the presumption of public access. Magnesium Machine, LLC v. Terves, LLC, Case No. 20-3779 (6th Cir. Dec. 10, 2020) (McKeague, J.)

This case presented the issue of what part of a record may be sealed on appeal—normally a routine question—in litigation that was anything but routine. According to the verified complaint, Magnesium Machine discovered a particular salt-based treatment for use on oil and gas tools. According to Magnesium, in the course of litigating a patent infringement suit against one of Magnesium’s suppliers, Terves and its counsel, McDonald Hopkins, obtained information reflective of Magnesium’s alleged trade secret from a third party pursuant to subpoena. Specifically, Magnesium claimed that particular language in a settlement agreement disclosed Magnesium’s trade secrets. The settlement agreement had been produced by the third party without any confidentiality designation. The complaint alleged violations of the federal DTSA and Oklahoma and Ohio state trade secrets acts.

Invoking the seizure provisions of the DTSA, Magnesium sought and obtained an ex parte order directing the US Marshals to seize Terves’s electronic equipment, including devices at Terves’ president’s home. That order did not last long. Following an evidentiary hearing (in which Terves participated) the day after the order was issued, the district court vacated the seizure order because Magnesium had not demonstrated misappropriation of a trade secret.

To appeal, Magnesium requested express findings of fact and conclusions of law. The district court explained that Terves and its lawyers subpoenaed materials in good faith, that the settlement agreement was produced without restriction (such as a confidentiality marking), that Terves’s lawyers did not impermissibly share the settlement agreement with Terves employees and that upon objection by Magnesium, Terves deleted its copies of the settlement agreement. Thereafter, on motions to dismiss, the district court concluded that Magnesium failed to allege misappropriation and that the litigation privilege protected Terves’ counsel.

Terves sought and obtained attorneys’ fees against Magnesium and its counsel for proceeding in bad faith. The district court found that Magnesium had every reason to know that its claims were baseless, because it was “well aware at the time the suit was filed that Defendants had received the allegedly secret information through legitimate discovery means and that it was provided to them without description.” Moreover, claiming that a three-word phrase in the settlement agreement purportedly disclosed trade secret information was “an intentional exaggeration/misrepresentation.” Indeed, other public statements had provided far more detail than the purportedly secret phrase, according to the district court.

On appeal, although Terves contended that the purported trade secret did not qualify as a secret, in the exercise of caution and on Magnesium’s request, Terves nonetheless sought to file a brief under seal. Judge David McKeague, acting on behalf of the Sixth Circuit, agreed that it was appropriate to seal the information, [...]

Continue Reading



Trade Secret Misappropriators Fail to Launch in Rocket Facility

By on May 14, 2020
Posted In

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.).

(more…)



Head East: Contract Disputes Act Claims Must Be Filed in DC

By on Sep 28, 2023
Posted In

The US Court of Appeals for the Ninth Circuit concluded that the Contract Disputes Act (CDA) “impliedly forbids” federal contractors from bringing most trade secret misappropriation claims against federal agencies in district court. Instead, the CDA requires contractors to bring such claims before the US Court of Federal Claims or the agency board of contract appeals, both of which are located in Washington, DC. United Aeronautical Corp. v. United States Air Force, Case No. 21-56377 (9th Cir. Sept. 7, 2023) (Smith, Lee, JJ.) (Collins, JJ., dissenting).

United Aeronautical Corporation (Aero) develops firefighting products, including the Mobile Airborne Fire Fighting System for use in aerial firefighting. The US Forest Service contracted with Aero to develop an updated aerial system to assist the agency in fighting fires. The ensuing prototype necessarily incorporated significant amounts of Aero’s intellectual property. To protect that information, Aero and the Forest Service executed a Data Rights Agreement (DRA) providing that “the technical data produced . . . or used or related” to developing the prototype “shall remain the property of [Aero],” but specifying that the Forest Service “shall have unlimited rights to view and use the data required for the continued use and operation of the” prototype. The Forest Service proceeded to share Aero’s data with the Air Force, which developed an upgraded aerial firefighting system it marketed internationally.

Aero sued the Air Force for misappropriating its trade secret information. Procedurally, Aero brought its claims under the Administrative Procedure Act (APA), seeking a declaration that the Air Force’s actions violated the Trade Secrets Act and federal procurement law, and an injunction prohibiting any further use of that data to develop competing products. Although the Air Force believed it was permitted to use Aero’s trade secrets pursuant to the DRA, it also argued that Aero’s complaint must be dismissed for lack of subject matter jurisdiction. The district court agreed, concluding that the CDA vests exclusive jurisdiction over federal-contractor disputes with the Court of Federal Claims where, as here, the dispute is related to a procurement contract. Aero appealed.

The Ninth Circuit affirmed the dismissal. Aero argued that the APA permits any “person suffering legal wrong[s] because of agency action” to seek redress in a federal district court and that the Air Force’s misappropriation of Aero’s trade secret information—in violation of the Trade Secrets Act—was exactly that. The Ninth Circuit disagreed, concluding that the nature of Aero’s claims (misappropriation, not breach of contract) and the relief it sought (an injunction, not damages or specific performance) mattered little. What mattered was the existence of a contract between the contractor and an agency that “related to” the intellectual property at issue.

Under the APA, a private party cannot bring suit when its claims are “impliedly forbidden” by a different statute that vests exclusive jurisdiction with another tribunal. The Ninth Circuit concluded that the CDA “impliedly forb[ade]” Aero’s claims since it was enacted to create a dispute resolution system for claims concerning federal procurement contracts, vesting exclusive jurisdiction of these disputes with [...]

Continue Reading



Message Received: US Courts Are Appropriate, More Convenient Venue to Adjudicate US IP Disputes

By on Feb 23, 2023
Posted In , ,

Addressing personal jurisdiction and forum non conveniens in a software licensing dispute, the US Court of Appeals for the Fourth Circuit upheld a district court’s exercise of personal jurisdiction over a Dutch entity and the court’s decision to not dismiss the case for forum non conveniens. dmarcian, Inc. v. dmarcian Europe BV, Case Nos. 21-1721; -2005 (4th Cir. Feb. 14, 2023) (Wilkinson, Heytens, Hudson, JJ.)

dmarcian is a North Carolina-based software company that developed software to help email users authenticate incoming emails. A Dutch businessman who owned Mailmerk contacted dmarcian to offer to market the software in Europe. While dmarcian was initially unreceptive to the offer, the two parties eventually reached an oral agreement for Mailmerk to rebrand as dmarcian Europe BV (dmarcian BV) and sell the dmarcian software in Europe and Africa.

A dispute arose when dmarcian BV claimed ownership of portions of the dmarcian source code. dmarcian BV filed suit in the Netherlands, eventually filing for and winning injunctive relief in the Netherlands when dmarcian terminated dmarcian BV’s license. dmarcian then filed suit in the Western District of North Carolina asking for a preliminary injunction against dmarcian BV, which dmarcian BV opposed with a motion to dismiss for forum non conveniens. The district court denied the motion to dismiss and entered a preliminary injunction that precluded dmarcian BV from operating outside of Europe and Africa and required dmarcian BV to stop using the registered “dmarcian” trademark without a disclaimer. The district court later found dmarcian BV in contempt for violating the preliminary injunction and ordered dmarcian BV to pay $335,000 in sanctions. dmarcian BV appealed the injunction and the sanctions.

dmarcian BV argued that the district court did not have personal jurisdiction. The Fourth Circuit rejected that argument, finding that the North Carolina long-arm statute authorized jurisdiction over dmarcian BV. The Court found that the application of the long-arm statute to dmarcian BV complied with due process because dmarcian BV worked closely with the dmarcian team in North Carolina (e.g., receiving sales leads, attending virtual meetings, coordinating software development), dmarcian BV sought out dmarcian to initiate business, and there was a strong interest in protecting intellectual property rights in North Carolina.

The Fourth Circuit also upheld the denial of the dismissal for forum non conveniens because the Dutch court was not an adequate alternative forum since Dutch courts cannot effectively adjudicate US trademark claims. The Fourth Circuit found that any judgment by the Dutch court would have little effect in the United States and would deny relief to dmarcian for the infringement of its rights.

The Fourth Circuit upheld the preliminary injunction grant, finding that the district court properly applied US and North Carolina law extraterritorially and that dmarcian was likely to succeed on all claims. The Court found that US laws properly applied and that dmarcian was likely to succeed on the following claims:

  • Copyright infringement, because there was a registered copyright, dmarcian BV reproduced elements of the source code outside of the licensing agreement, and [...]

    Continue Reading


Words Matter: Court Sides with Translation Company in Insurance Coverage Dispute

By on Dec 8, 2022
Posted In

The US Court of Appeals for the First Circuit concluded that a company’s general liability insurer was obligated to provide coverage for legal fees incurred in fending off a trade secret and defamation lawsuit brought by a competitor. Lionbridge Tech., LLC v. Valley Forge Ins. Co., Case No. 21-1698 (1st Cir. Nov. 21, 2022) (Kayatta, Selya, Thompson, JJ.)

Lionbridge and TransPerfect are competitors in the language-translation industry. TransPerfect sued Lionbridge for misappropriation of trade secrets and defamation. TransPerfect alleged that Lionbridge concocted a scheme through its corporate owner to feign interest in acquiring TransPerfect and, through this scheme, improperly gained access to TransPerfect’s trade secrets, which could be used to poach TransPerfect’s customers and otherwise undermine TransPerfect’s business.

Shortly after the lawsuit was filed, Lionbridge informed its liability insurance carrier, Valley Forge, about the litigation. Valley Forge initially indicated that it would provide Lionbridge with coverage for legal costs associated with the litigation. Valley Forge subsequently disputed the requested coverage based on both the reasonableness of the fees incurred and the nature of the suit. Lionbridge filed suit against Valley Forge seeking full coverage from Valley Forge for its defense costs. The dispute centered on whether the fees incurred could be considered injury arising out of “[o]ral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person’s or organizations goods, products, or services,” as provided by Lionbridge’s insurance policy. The district court granted summary judgment in favor of Valley Forge, finding that Valley Forge did not owe Lionbridge a duty to defend under the relevant policy provisions and exclusions. Lionbridge appealed.

The First Circuit reversed, explaining that an insurer’s duty to defend depends on whether the allegations in the underlying litigation are reasonably susceptible to an interpretation that the policy provisions apply. The focus of the inquiry is the source of the injury, not any specific theories of liability set forth in the underlying complaint. The Court explained that this inquiry required a comparison of the allegation made in the underlying litigation against the insurance policy provisions.

After analyzing the underlying complaint against the insurance policy, the First Circuit determined that the policy provisions applied because the allegations “roughly sketch[ed]” an injury arising from a defamation claim. TransPerfect’s claims were rooted in alleged reputational harm to its business, which fit within the relevant provision. The Court noted that complete overlap between the policy provisions and the claims was not required.

The First Circuit next considered whether any policy coverage exclusions applied to preclude coverage. The relevant exclusions fell into two buckets:

  • Injuries caused by an insured with direct knowledge that its actions would inflict injury, or injuries arising out of an oral or written publication that the insured knows is false
  • Trade secret misappropriation.

Valley Forge carried the burden of proving that either or both categories of exclusions applied. The Court concluded that the first category did not apply because Valley Forge failed to show that all allegations [...]

Continue Reading



BLOG EDITORS

Paul Devinsky

Amol Parikh

STAY CONNECTED

Subscribe

TOPICS

ARCHIVES