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Message Received: Trade Secret Law Damages Available for Sales Outside US

The US Court of Appeals for the Seventh Circuit affirmed, in a matter of first impression, a district court’s decision to apply trade secret law extraterritorially and award trade secret damages for foreign sales while also finding that the copyright damages award needed to be reduced to eliminate foreign sales. Motorola Solutions, Inc. v. Hytera Communications Ltd., Case Nos. 22-2370; -2413 (7th Cir. July 2, 2024) (Hamilton, Brennan, St. Eve., JJ.)

Motorola Solutions and Hytera compete globally in the market for two-way radio systems. Motorola spent years and tens of millions of dollars developing trade secrets embodied in its line of high-end digital mobile radio (DMR) products. Hytera struggled to overcome technical challenges to develop its own competing DMR products. After failing for years, Hytera hatched a plan to “leap-frog Motorola” by stealing its trade secrets. Hytera, headquartered in China, hired three engineers from Motorola in Malaysia, offering them high-paying jobs in exchange for Motorola’s proprietary information. Before the engineers left Motorola, acting at Hytera’s direction, they downloaded thousands of documents and computer files containing Motorola’s trade secrets and copyrighted source code. Hytera relied on the stolen material to develop and launch a line of DMR radios that were functionally indistinguishable from Motorola’s DMR radios. Hytera sold these DMR radios in the United States and abroad.

Motorola sued Hytera for copyright infringement and trade secret misappropriation. The jury found that Hytera had violated both the Defend Trade Secrets Act of 2016 (DTSA) and the Copyright Act. The jury awarded compensatory damages under the Copyright Act and both compensatory and punitive damages under the DTSA for a total award of $765 million. The district court later reduced the award to $544 million, which included $136 million in copyright damages and $408 million in trade secrets damages. Hytera appealed.

Hytera conceded liability and instead challenged the damages award under both the Copyright Act and the DTSA. Among other things, Hytera argued that copyright and trade secret damages should not have been awarded for its sales outside the US. With respect to the copyright award, the Seventh Circuit agreed that Motorola failed to show a domestic violation of the Copyright Act and therefore was not entitled to recover damages for any of Hytera’s foreign sales of infringing products as unjust enrichment. Specifically, to show a domestic violation of the Copyright Act, Motorola had asserted that its code was copied from servers based in Chicago. While the district court accepted Motorola’s argument, the Seventh Circuit found that this factual finding lacked adequate support in the record, citing Motorola’s expert’s admission that there was no evidence of downloads from the Chicago servers. The Court instead found that given the location of the employees in Malaysia, it was likelier that the code was downloaded from Motorola’s Malaysia server. The Court therefore reversed the $136 million copyright award and remanded with instructions to limit the copyright award to Hytera’s domestic sales of infringing products.

The Seventh Circuit affirmed with respect to the trade secret award. Like the [...]

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Shell Shocked: Judge’s Travel Plans Turn the Tide in Shrimp Dispute

Addressing the scope of a magistrate judge’s Article III authority, the US Court of Appeals for the Eleventh Circuit vacated a judgment and remanded the case for a new trial because the magistrate judge performed non-ministerial acts without obtaining proper consent. PB Legacy, Inc v. Am. Mariculture, Inc., Case No. 22-12936 (11th Cir. June 18, 2024) (Pryor, C.J.; Brasher, J.) (Jordan, J., concurring).

PB Legacy sued American Mariculture for trade secret misappropriation and other claims after PB Legacy failed to timely remove its shrimp from Mariculture’s facility, which Mariculture then used to start a competing company. During the trial, the district judge instructed that all arguments had to conclude by a certain date because of a scheduled flight. Although arguments ended on time, the jury engaged in extensive deliberations. On the day of the district judge’s flight, he proposed that the magistrate judge receive the jury verdict in his absence. The parties agreed to this arrangement without objection. The jury deliberations continued for three more days. During that time, the magistrate judge not only received the verdict and polled the jury, but also responded to several jury questions and denied Mariculture’s request for verdict clarification. The jury found in favor of PB Legacy. Mariculture appealed, contesting the magistrate judge’s exercise of Article III authority.

The Eleventh Circuit found that the magistrate judge improperly exercised Article III authority without proper consent. The Court clarified when a magistrate judge may exercise Article III authority, noting that while a magistrate judge’s performance of ministerial acts (such as receiving a jury verdict and polling a jury) do not require party consent, non-ministerial acts (such as responding to jury questions) do.

The Court also described how party consent is properly obtained. To avoid potential prejudice, consent for a magistrate judge to exercise Article III authority should be sought outside the presence of both the district judge and magistrate judge. Parties usually provide consent through a joint or separately filed statement, and district and magistrate judges are informed of a party’s consent only once all parties have agreed. In limited circumstances, consent may be implied when the parties are given advanced notice of the magistrate judge’s proposed Article III authority, are made aware of the need to consent, and voluntarily appear to try the case before the magistrate judge.

Against that background, the Eleventh Circuit addressed whether the parties consented to the magistrate judge’s acts in the current case. The Court found that although the district judge had notified the parties that the magistrate judge would receive the verdict in his absence, this act was a ministerial act that the magistrate judge could already perform without consent. However, the district court neither sought nor obtained the parties’ express consent for the magistrate judge to also perform the non-ministerial acts of responding to jury questions and ruling on a party’s request to have the jury clarify the verdict. Implied consent was also lacking because the parties were not given notice of need for consent or their right [...]

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

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 [...]

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“Common Sense” Governs Tribal Sovereign Immunity Under Federal Contracting Program

The US Court of Appeals for the Eleventh Circuit reversed and remanded a district court’s ruling, holding that waiver of sovereign immunity for claims related to a federal contracting program means the defendant, a sovereign Indian tribe, can be sued and that the district court failed to consider the valid and enforceable nature of the forum. AQuate II, LLC v. Jessica Tedrick Myers and Kituwah Global Gov’t Group, LLC, Case No. 22-12669 (11th Cir. May 1, 2024) (Grant, Abudu, Hull, JJ.)

AQuate II is a business organized under the authority of the Alabama-Quassarte Tribal Town. Kituwah Services is organized under the authority of the Eastern Band of Cherokee Indians. Both tribal entities compete for and perform federal contracts under the Small Business Administration’s 8(a) Business Development program, which was created to help qualifying small businesses that are owned/controlled by “socially and economically disadvantaged” individuals/groups compete for federal procurement contracts. Jessica Myers, a former AQuate II employee, took a job as the director of administration for Kituwah and allegedly violated her confidentiality commitments by taking copies of contracts, proposals, personnel lists and other secret information. Myers also allegedly contacted her former colleagues at AQuate II to solicit information regarding bids for a federal contract and provided job offers to AQuate II employees contingent upon Kituwah winning the federal contract. AQuate II sued in federal district court, alleging that Myers breached her employment agreements and that she and Kituwah violated both the Defend Trade Secrets Act of 2016 and the Alabama Trade Secrets Act. (18 U.S.C. § 1836; Ala. Code § 8-27-1 et seq.) AQuate II requested a preliminary injunction, and Kituwah and Myers moved to dismiss.

Enrollment in the 8(a) program requires qualifying businesses to agree to “sue and be sued” in US federal courts for “all matters relating to” the Small Business Administration, including its 8(a) program and related participation, loans and contract performance. (13 C.F.R. § 124.109(c)(1).) Kituwah invoked sovereign immunity and claimed it was not subject to suit in federal district court. AQuate II argued that Kituwah had waived its sovereign immunity with respect to claims relating to Kituwah’s participation in the 8(a) program. The district court granted the motion to dismiss, holding that Kituwah had not waived sovereign immunity for the trade secrets claims because AQuate II’s lawsuit did not “relate to” participation in the 8(a) program. The district court dismissed the same claims against Myers, finding that Kituwah was a necessary and indispensable party under Rule 19. Lastly, the district court dismissed the remaining breach of contract claim against Myers under forum non conveniens, concluding that the dispute resolution policy required that the claim be resolved in the Alabama-Quassarte Tribal Town court. The district court denied AQuate II’s motion for reconsideration, and AQuate II appealed.

The Eleventh Circuit reversed and remanded, noting that under 1998 Supreme Court precedent, Kiowa Tribe of Oklahoma v. Mfg. Techs., “an Indian tribe is subject to suit only where Congress has authorized the suit, or the tribe has waived its immunity.” [...]

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Back in the USA: Seventh Circuit Lifts Sanctions, Anti-Suit Injunction Contempt

The US Court of Appeals for the Seventh Circuit stayed a district court’s contempt sanctions relating to an anti-suit injunction violation, finding that the adjudicated infringer had done all it could to withdraw from the other proceeding in China. Motorola Solutions, Inc. v. Hytera Communications Ltd., Case No. 24-1531 (7th Cir. Apr. 16, 2024) (Hamilton, Brennan, St. Eve., JJ.) (per curiam).

Motorola Solutions previously obtained a $500 million judgment against Hytera for trade secret misappropriation and infringement of copyrighted code used in Motorola’s two-way radio systems. Motorola subsequently brought contempt proceedings after Hytera launched a new line of two-way radio systems, asserting that the new radio systems also used the copyrighted code. As part of the contempt proceeding, the district court imposed an anti-suit injunction ordering Hytera to “refrain from further pursuing or enforcing in any way” a lawsuit that Hytera had filed in the Shenzhen Intermediate People’s Court in China seeking a declaratory judgment that the new line of radios did not infringe Motorola’s intellectual property.

After evidence emerged that Hytera continued to participate in the Chinese proceeding, the district court issued an order directing Hytera to withdraw from the Chinese proceeding. Just a few days later the district court issued an order finding that Hytera had violated the anti-suit injunction by continuing to participate in the Chinese proceeding and imposed contempt sanctions, including a worldwide suspension of Hytera’s sales of two-way radio products; a fine of $1 million per day; and worldwide notice of the sanctions and prohibitions to customers, distributors and others. A few days after the order issued, Hytera filed an appeal.

At the same time, Hytera filed a petition with the Chinese court seeking to withdraw the declaratory judgment action and seeking the return of all evidence from that court. Less than a week later, Motorola appeared before the Chinese court. Because of the anti-suit injunction, Hytera did not appear at the hearing. At the hearing, the Chinese court denied Hytera’s motion to withdraw. Later that same afternoon, the Chinese court summoned Hytera and thereafter issued a short order granting the motion to withdraw.

Despite the Chinese court’s decision to grant Hytera’s motion to withdraw, the district court did not lift the sanctions. The district court expressed concern about a scenario in which a written order “technically withdraws the action” but comes with “a whole series of other consequences that generates duplicative litigation . . . and thereby undermines the whole purpose of the anti-suit injunction and the subsequent contempt proceedings.” The district court also noted that Hytera had not yet produced a promised log of ex parte communications between it and the Chinese court, and thus the district court could not be sure that Hytera was not using the Chinese court’s ex parte procedure to push for a favorable written order behind closed doors. Under the pressure of the continued contempt sanctions, Hytera repeatedly asked the Chinese court to clarify the status and effect of the order granting its withdrawal.

On appeal before the [...]

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Fifth Circuit Rejects Recruiter’s Trade Secret Misappropriation and Contract Defenses

The US Court of Appeals for the Fifth Circuit affirmed a district court’s decision finding trade secret misappropriation and breach of contract based on a recruiter’s improper use of confidential client information. Counsel Holdings, Incorporated v. Jowers, Case No. 22-50936 (5th Cir. Apr. 1, 2024) (King, Ho, Engelhardt, JJ.) (per curiam).

In April 2006, Evan Jowers was hired by MWK (whose successor is Counsel Holdings) as a legal recruiter. Jowers signed an employment agreement with noncompete and nonsolicitation covenants. During his employment, Jowers relocated to Hong Kong, where he began recruiting for law firms in Asia. Jowers resigned from MWK in December 2006, after which he began working for another recruiting firm in Hong Kong called Legis Ventures.

MWK sued Jowers for trade secret misappropriation and breach of the restrictive covenants in the employment contract. MWK alleged that while Jowers was still employed with MWK, he submitted its candidates for employment through Legis Ventures. After a bench trial, the district court found in favor of MWK on both claims. As to the trade secret claim, the district court concluded that MWK’s customers’ “names, their clients, how much their practices were worth, their language skills, their goals for switching firms, and their law school records” constituted trade secrets. As for the contract claim, the district court found that enforcement of the restrictive covenants was justified because MWK’s client information was a legitimate business interest. Jowers appealed.

The Fifth Circuit affirmed. As to the trade secret claim, the Court explained that Jowers’s employment agreement explicitly required confidentiality and that MWK’s customers requested that Jowers keep their information secret. Despite the restrictions, Jowers divulged MWK’s customer information to others, including a competing recruitment firm, without authorization. The Fifth Circuit agreed with the district court’s determination that Jowers’s actions constituted trade secret misappropriation.

As to the breach of contract claim, Jowers argued that MWK lacked a “legitimate business interest.” The Fifth Circuit found no clear error with the district court’s determination that MWK’s client information was a legitimate business interest that justified enforcement of the restrictive covenant.




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Badgerow Enforced: District Court Lacks Independent Jurisdiction to Enforce Arbitration Award

The US Court of Appeals for the Fourth Circuit reversed and remanded a district court’s arbitration award because the district court lacked proper subject matter jurisdiction, independent from the Federal Arbitration Act (FAA), to enforce the award. SmartSky Networks, LLC v. DAG Wireless, LTD, Case No. 22-1253 (4th Cir. Feb. 13, 2024) (Diaz, Thacker, Rubin, JJ.)

SmartSky Networks filed suit in the district court against Wireless Systems Solutions and related companies and individuals over alleged breach of contract, trade secret misappropriation and deceptive trade practices. The parties entered into a business relationship regarding wireless communications in 2017. The relationship was governed by several agreements in the form of statements of work, purchase orders and a teaming agreement.

After filing suit in the district court, SmartSky submitted an arbitration demand against Wireless Systems. The related companies and individuals voluntarily agreed to submit to arbitration with respect to SmartSky’s claims filed against them. Wireless Systems moved to stay the district court action pending arbitration. The arbitration tribunal found in favor of SmartSky and issued an award, which included monetary damages in favor of SmartSky and a permanent injunction against the other parties. Thereafter, SmartSky filed a motion to enforce the award, and the district court confirmed the award. Wireless Systems and the related entities appealed.

The threshold question on appeal was whether the district court had subject matter jurisdiction to confirm the arbitration award. Wireless Systems argued that the 2022 Supreme Court decision in Badgerow v. Walters dictated that the district court lacked subject matter jurisdiction to enforce the arbitration award. In Badgerow, the Supreme Court held that a federal district court faced with an application to enforce or vacate an arbitration award under Sections 9 or 10 of the FAA must have a basis for subject matter jurisdiction independent from the FAA and apparent on the face of the application. The Supreme Court further held that “look-through” jurisdiction (when a court looks beyond a petition to compel arbitration to the underlying controversy to determine whether subject matter jurisdiction exists) only applies to petitions to compel arbitration under Section 4 of the FAA, and that such jurisdiction is not available for Section 9 and 10 applications to confirm, vacate or modify arbitration awards.

Reviewing the district court ruling de novo, the Fourth Circuit reversed and remanded. The Court reasoned that at the time the parties filed their respective Section 9 and 10 applications, the dispute focused on the enforceability of the arbitral award and not on the issues and claims already resolved by the tribunal. For the district court to find that it had jurisdiction over the contract dispute between the parties, the district court had to “look through” to the civil lawsuit and determine that a federal claim existed. Ruling consistently with Badgerow, the Court determined that “look-through” jurisdiction is not available for Section 9 and 10 applications. The Court reasoned that once the tribunal ordered that all claims between SmartSky and Wireless Systems be arbitrated and the related companies and [...]

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Unfair Play: Unjust Enrichment for Copying and Using Non-Trade-Secret Spreadsheet

The US Court of Appeals for the Second Circuit reversed a district court’s dismissal of an unjust enrichment claim, finding that unjust enrichment claims do not necessarily rise or fall with trade secret misappropriation claims and may be advanced where there is a dispute as to whether a contract’s scope covers the parties’ disagreement. Pauwels v. Deloitte LLP, Case No. 22-21 (2d Cir. Oct. 6, 2023) (Sacks, Robinson, JJ.) (Jacobs, J., dissenting in part).

Andre Pauwels is a contractor who was retained without written agreement by The Bank of New York Mellon and its parent company (collectively, BNYM) to work on investment valuation. In 2014, while working for BNYM, Pauwels developed the “Pauwels Model” for valuation, which was implemented in Excel spreadsheets. Pauwels typically would send BNYM only the outputs from the Pauwels Model. According to Pauwels, the Pauwels Model and spreadsheets were confidential and proprietary, although the spreadsheets were not password-protected, encrypted or labeled confidential, and Pauwels sometimes shared the spreadsheets with BNYM.

In 2016, BNYM engaged Deloitte and related entities (collectively, Deloitte) to take over Pauwels’s duties. Pauwels never authorized BNYM to share the Pauwels Model spreadsheets with Deloitte, and BNYM assured Pauwels that Deloitte was not using those spreadsheets. In April 2018, Pauwels discovered that BNYM had given Deloitte the spreadsheets and that Deloitte had copied the Pauwels Model. BNYM terminated its relationship with Pauwels in May 2018.

In March 2019, Pauwels sued BNYM and Deloitte for trade secret misappropriation, unfair competition and unjust enrichment and further alleged that BNYM committed fraud and negligent misrepresentation. After BNYM and Deloitte moved to dismiss, the district court granted the motion in relevant part. The district court dismissed the unjust enrichment claim as duplicative of the trade secret misappropriation claim, citing the 2009 Second Circuit case Faiveley Transp. Malmo v. Wabtec for the proposition that “where an unfair competition claim, and a misappropriation claim arise from the same factual predicate . . . the two claims generally rise or fall together.” The district court dismissed the remainder of the claims for failure to plausibly allege the existence of trade secrets, that BNYM and Deloitte had “misappropriated” anything, or that Pauwels suffered damages. Pauwels appealed.

The Second Circuit reversed the dismissal of Pauwels’s unjust enrichment claim as to BNYM. Initially, the Court found that Pauwels’s unjust enrichment claim was not duplicative of his trade secret misappropriation claim, distinguishing Faiveley Transp. and explaining that misappropriation is not an element of unjust enrichment claims. The Court rejected BNYM’s argument that Pauwels’s unjust enrichment claim was precluded by the contract between the parties. The Court found that Pauwels could maintain his claim because there was “a bona fide dispute . . . whether the scope of an existing contract covers the disagreement between the parties.” According to Pauwels, he was engaged and paid for his advice and expertise only, meaning that BNYM had no right to benefit from the Pauwels Model spreadsheets by sharing them with Deloitte. According to BNYM, [...]

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No Fifth Chances: Ignoring Court’s Warning Leads to Terminal Sanctions

In an appeal from litigation-ending sanctions, the US Court of Appeals for the Fifth Circuit held that misconduct in the face of judicial warnings supports the use of litigation-ending sanctions and that evidence a party forgot about does not count as “new” evidence when remembered for the purpose of a motion for reconsideration. Calsep A/S v. Ashish Dabral, Case No. 22-20440 (5th Cir. Oct. 11, 2023) (Clement, Elrod, Willett, JJ.)

Insights Reservoir Consulting (IRC), a company owned by Ashish Dabral, was hired to make a computer program that assesses oil-well efficiency. To develop that software, Dabral turned to his college friend who worked at Calsep A/S, a software company that designs and sells oil-well assessment software. Dabral hired his friend away from Calsep, and IRC subsequently developed and sold its own oil-well efficiency software.

Surprised at the sudden appearance of a competitor, Calsep investigated and found that IRC had recently hired one of its former employees. Calsep conducted an internal audit and found that its former employee had absconded with trade secrets just before leaving. Calsep sued Dabral and IRC.

In discovery, Calsep requested the complete development history of IRC’s new software. Dabral resisted such disclosure as “overbroad,” but the district court ordered production of the requested materials. Shortly thereafter, the district court further entered an order specifically enjoining the parties from the “destr[uction] of any potentially relevant evidence, including electronically stored information.”

In response to the discovery request, Dabral only produced portions of the development history, and its produced history included sections that were either incomplete or manipulated. In response, Calsep filed another motion to compel. The district court ordered Dabral to “come clean” and comply “voluntarily” before the court resorted to sanctions. Dabral represented that the entire history had been produced and that it was missing only portions deleted before the lawsuit.

The district court held an evidentiary hearing, and Dabral admitted that many of the deletions actually occurred during the lawsuit. The district court levied terminal sanctions based on Dabral’s violation of four separate court orders and serial discovery misconduct. Seven months later, Dabral filed a motion for reconsideration based on new information he found in his storage unit in India. The district court denied the motion. Dabral appealed both the sanctions ruling and the denial of the motion for reconsideration.

The Fifth Circuit first analyzed the sanctions. It limited its analysis to sanctions under Rule 37, which (in the Fifth Circuit) requires four specific findings before terminal sanctions can be levied:

  1. The violation was willful or bad faith.
  2. The client was responsible.
  3. The violation caused substantial prejudice.
  4. A lesser sanction would not have the desired deterrent effect.

The Fifth Circuit held that Dabral’s pattern of conduct supported a finding of bad faith. Dabral admittedly deleted evidence, delayed discovery and ignored several court orders. And when the district court gave him a last chance to “come clean,” he instead deleted more data and made a false representation.

The Fifth Circuit also held that Dabral’s conduct [...]

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Sorry—No Finality, No Injunction, No Appellate Jurisdiction

The US Court of Appeals for the Third Circuit dismissed an appeal from the denial of a motion under the Defend Trade Secrets Act (DTSA) for an ex parte seizure order, explaining that such orders are not final, not effectively injunctive and that the DTSA does not independently provide appellate jurisdiction to review such orders. Janssen Prod., L.P. v. eVenus Pharms. Lab’ys Inc., Case No. 22-2426 (3d Cir. Oct. 17, 2023) (Porter, Freeman, Fisher, JJ.)

In 2015, the US Food & Drug Administration (FDA) approved Janssen’s drug Yondelis—a stable, injectable version of the cancer drug trabectedin—for use in certain cancer patients. Janssen asserts that its data, specifications and methods for manufacturing Yondelis are trade secrets. After Janssen received FDA approval for Yondelis, eVenus sought FDA approval for a generic version of Yondelis. Janssen filed a lawsuit against eVenus (under the Hatch-Waxman Act) for patent infringement. During discovery, Janssen obtained documents that allegedly demonstrated that eVenus misappropriated Janssen’s trade secrets. Janssen then filed the current lawsuit against eVenus seeking relief for eVenus’s alleged trade secret misappropriation under the DTSA.

During discovery, Janssen found that eVenus spoliated evidence. In response, Janssen filed a motion for an ex parte seizure under the DTSA, requesting that the district court order the seizure of eVenus’ network servers and stored data, and the laptops and cell phones of certain eVenus employees and ex-employees. The district court denied Janssen’s ex parte seizure motion. Janssen appealed.

The Third Circuit dismissed the appeal, concluding that it lacked jurisdiction over Janssen’s appeal for two reasons.

First, the Third Circuit found that it lacked appellate jurisdiction because the district court’s denial of Janssen’s ex parte seizure motion was not a final judgment and did not meet any of the limited exceptions to the final judgment rule.

One limited exception to appellate jurisdiction under the final judgment rule is review of a lower court’s refusal to order injunctive relief. However, as the Third Circuit explained, an ex parte seizure order under the DTSA is not effectively injunctive and therefore does not fall under the injunction exception. The Court explained that refusal to grant an ex parte seizure order does not satisfy the first two prongs of the Court’s three-part functional injunction test, which require that an order be “directed to a party” and may be enforced by contempt. Regarding the first prong, the Court noted that DTSA seizure orders are not “directed to a party” because the DTSA requires law enforcement officials—and not a party—to execute any ex parte seizure order. Regarding the second prong, no party can be held in contempt for failing to comply with an order that does not direct it to do anything. Therefore, the district court’s order did not effectively deny an injunction.

Second, the Third Circuit analogized DTSA seizure orders with seizure orders under the Lanham Act in terms of statutory construction. As the Court explained, in the Lanham Act, ex parte seizure provisions are part of its “injunctive relief” section. In contradistinction, Congress did not [...]

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