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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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Suite! Claim Splitting Privity Focuses on Party Relationship, Not Claim Relationship

The US Court of Appeals for the Fifth Circuit revived a hotel group’s federal trade secret suit against two former employees, finding that the district court did not have enough information to conclude that the hotel group improperly split claims between federal and state actions. Armadillo Hotel Group, LLC v. Harris, Case No. 22-50945 (5th Cir. Oct. 20, 2023) (Smith, Southwick, Higginson, JJ.)

Armadillo Hotel Group is a buyer and operator of modular and mobile structures throughout North America. According to Armadillo, it hired Todd Harris and Jason McDaniel to oversee Armadillo’s construction operations and its hotel, food and beverage operations. The relationship deteriorated after a few years, leading to Harris and McDaniel’s resignations.

Harris and McDaniel subsequently sued Armadillo Hotel Group Management (AHG Management) in Texas state court alleging that they entered employment agreements with AHG Management as part of the joint venture, but AHG Management breached these agreements by failing to pay the agreed upon salary, bonuses and profit-sharing interests. The precise relationship between Armadillo and AHG Management is unclear. AHG Management filed counterclaims, agreeing that it hired Harris and McDaniel but arguing that they breached their fiduciary duties by failing to devote their full attention to their responsibilities and diverted business opportunities to their own companies, which allegedly competed with AHG Management.

The parties conducted discovery in state court, after which AHG Management filed an amended counterclaim in state court, removing its claim against Harris and McDaniel for improper expropriation of proprietary and confidential documents. That same day, Armadillo filed a complaint in federal district court against Harris, McDaniel and several new parties, including Southeastern Disaster Relief Services (SDRS), a business affiliated with McDaniel; Battlement Mesa Consulting, LLC (BMC), a business affiliated with Harris; and Grand Majestic Lodge (GML), a competitor of Armadillo. Armadillo’s complaint alleged that Harris and McDaniel misappropriated trade secrets that they shared with SDRS, BMC and GML during and after their employment with Armadillo. The complaint also included claims under the federal Defend Trade Secret Act (DTSA), alleging that the five defendants conspired to misappropriate the trade secrets.

Harris, McDaniel, SDRS and BMC moved to dismiss the federal complaint for impermissible splitting of claims relating to Harris and McDaniel’s employment between the state court proceedings and this new federal lawsuit. The district court granted the motion with prejudice. While acknowledging the “apparent difference between Defendant AHG Management LLC in the state-law action and Plaintiff Armadillo in [the district court] case,” the district court found that the prohibition against claim splitting applied because the same claims were first removed from AHG Management’s counterclaim in the state court proceedings and then asserted by Armadillo in the federal action. The district court also found that the claims arose out of the same nucleus of operative facts—Harris and McDaniel’s employment—and shared a common factual predicate. Armadillo appealed.

The rule against claim splitting prohibits a party or parties in privity from simultaneously prosecuting multiple suits involving the same subject matter against the same defendants. In situations where a [...]

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

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 [...]

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

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. [...]

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Noncompulsory Counterclaims Don’t Confer Appellate Jurisdiction

The US Court of Appeals for the Federal Circuit determined that it does not have appellate jurisdiction to review noncompulsory patent counterclaims in a case otherwise unrelated to the originally asserted patents. Teradata Corp. v. SAP SE, Case No. 22-1286 (Fed. Cir. Aug. 1, 2023) (nonprecedential) (Lourie, Taranto, Hughes, JJ.)

Teradata makes and sells data warehouse systems and services. SAP develops and sells software. The two companies began collaborating while SAP was simultaneously developing its own database (HANA) and component software. SAP eventually informed Teradata that it would stop selling certain Teradata products. Teradata sued SAP, alleging misappropriation of trade secrets on the theory that SAP used Teradata’s proprietary information to create HANA. Teradata also alleged various antitrust violations, arguing that SAP “illegally tied” HANA and HANA’s supporting software. In response, SAP filed counterclaims against Teradata for allegedly infringing SAP patents related to database organization and optimization. On Teradata’s motion, the district court agreed to sever one of the four patent infringement claims but allowed the others to proceed. The district court reasoned that Teradata’s claims and SAP’s counterclaims all arose from “the same transaction or occurrence,” namely SAP’s development of HANA.

The district court granted summary judgment to SAP on Teradata’s antitrust and technical trade secret claims and stayed proceedings on Teradata’s business trade secret claim and to Teradata on SAP’s patent counterclaims. Teradata appealed to the Federal Circuit.

SAP moved to transfer the appeal to the Ninth Circuit. The Federal Circuit denied the motion but instructed the parties to address the jurisdictional issue in the merits brief. 28 U.S.C. § 1295(a)(1) grants the Federal Circuit exclusive appellate jurisdiction over final decisions in which a party claims or asserts a compulsory counterclaim related to patents. As it relates to this case, the issue was whether SAP’s patent infringement counterclaims were “compulsory,” meaning SAP would be unable to later sue on these patent infringement allegations “if it did not press them in this action.”

The Federal Circuit began by looking at Federal Rules of Civil Procedure 13(a), which states that a counterclaim is “compulsory” if it arises from the same transaction or occurrence as a plaintiff’s claim. The Court explained that it uses three tests to determine whether the transaction or occurrence is sufficiently related between the claim and counterclaim:

  1. Whether the legal and factual issues are substantially the same
  2. Whether the evidence will be substantially the same
  3. Whether there is “a logical relationship between the claim and the counterclaim.”

Taken together, these tests essentially ask if there is substantial overlap between what the plaintiff and the defendant must establish to succeed on the claim and counterclaim, respectively.

The Federal Circuit found that the first two tests clearly weighed against SAP’s counterclaim being compulsory. While an understanding of the accused products and alleged trade secrets would be necessary for both the claim and the counterclaim, “same-field overlap” is not enough to make the issues or necessary evidence “substantially the same.”

As to the third test, the Federal Circuit found [...]

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If You Can’t Say a Secret under an NDA, Don’t Say It at All

Considering a trade secret misappropriation claim involving a business pitch that was not subject to a non-disclosure agreement (NDA), the US Court of Appeals for the Sixth Circuit affirmed a district court’s summary judgment grant for the accused party, finding that it had not acquired the information through a confidential relationship. Novus Grp., LLC v. Prudential Fin., Inc., Case No. 22-3736 (6th Cir. July 17, 2023) (Sutton, Boggs, Readler, JJ.)

Eric Seyboldt and Mark McCanney founded Novus Group to launch their financial product called the Transitions Beneficiary Income Rider. The pair developed the Rider to address the diminishing availability of retirement income vehicles—such as pension plans or 401k profit-sharing plans—for modern workers. In operation, the Rider guaranteed that, following a policyholder’s death, an insurance company would pay pension-style death-benefit proceeds to non-spouse beneficiaries throughout their lifetimes.

Novus partnered with financial product developers Genesis and Annexus to ensure that the Rider was feasible and to assist with a pitch to Novus’s target customer, Nationwide. These relationships were governed by two contracts with confidentiality provisions: the Genesis-Novus and Annexus-Novus contracts. Before Novus was formed, Genesis and Annexus had also created a joint organization, AnnGen, which had its own confidentiality agreement with Nationwide concerning AnnGen’s New Heights product (AnnGen-Nationwide contract). Prior to Novus’s pitch, Nationwide refused to sign an NDA and warned that Novus should “not disclose any confidential information.” Despite the lack of an NDA, Novus and Annexus pitched the Rider concept to Nationwide, which elected not to pursue the product.

After the unsuccessful pitch, two Nationwide employees who allegedly had access to information concerning Novus’s Rider product left Nationwide for Prudential. Shortly thereafter, Prudential launched Legacy Protection Plus, a death-benefit rider that was similar to Novus’s Rider product. Novus believed Prudential stole its Rider concept and sued Prudential for trade secret misappropriation. Prudential moved for summary judgment. The district court granted the motion. Novus appealed.

On appeal, the Sixth Circuit assumed the existence of a trade secret and its unauthorized use, focusing solely on whether Prudential had acquired Novus’s trade secret as a result of a confidential relationship or through improper means. The Court noted that Novus had not raised a theory of “improper means” in district court and thus had waived that argument.

The Sixth Circuit also found that the two Nationwide employees did not have a duty to Novus to maintain its information in the utmost secrecy. Novus argued on appeal that such a duty arose from the web of agreements among Annexus, Genesis, Novus, AnnGen and Nationwide. However, Nationwide was not a party to the Annexus-Novus and Genesis-Novus contracts and was not bound by them. Further, Novus was not a signatory to or third-party beneficiary of the AnnGen-Nationwide contract, which narrowly covered the New Heights product developed by AnnGen, rather than Novus’s Rider. Instead of creating a duty of confidentiality, these contracts demonstrated that Novus knew how to create a confidential relationship, yet declined to form one with Nationwide, which had explicitly refused to sign an NDA. The [...]

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Double Jeopardy Doesn’t Attach to Venue and Vicinage Clause Violations

The Supreme Court of the United States concluded that the Constitution’s Double Jeopardy Clause does not preclude retrial of a criminal defendant who was prosecuted in an improper venue and before a jury drawn from the wrong district. Smith v. United States, Case No. 21-1576 (Sup. Ct. June 15, 2023) (Alito, Justice.)

Timothy Smith was indicted in the Northern District of Florida for stealing trade secrets from StrikeLines, a company that uses sonar equipment to identify private artificial reefs that individuals construct to attract fish. In particular, Smith was accused of “surreptitiously” obtaining portions of coordinates and data from StrikeLines’ website.

At trial, the district court denied Smith’s motions to dismiss the indictment and for judgment of acquittal due to improper venue. Smith unsuccessfully argued that “he had accessed the data from Mobile, Alabama (in the Southern District of Alabama) and [that] the servers storing StrikeLines’ coordinates were located in Orlando, Florida (Middle District of Florida).” On appeal, the US Court of Appeals for the Eleventh Circuit reversed but concluded that “the ‘remedy for improper venue is vacatur of the conviction, not acquittal or dismissal with prejudice,’ and that the ‘Double Jeopardy Clause is not implicated by a retrial in a proper venue.’” Smith appealed to the Supreme Court.

On writ of certiorari, the issue before the Supreme Court was “whether the Constitution permits the retrial of a defendant following a trial in an improper venue and before a jury drawn from the wrong district,” or if retrial is barred by the Double Jeopardy Clause.

Citing precedent and the text of the Venue and Vicinage Clauses, Smith advanced the theory that the purpose of the Clauses bars retrial and requires acquittal. However, as the Supreme Court explained, neither purpose nor precedent demanded that the Venue or Vicinage Clauses be excepted from the general rule that, unless prohibited by the Double Jeopardy Clause, “a defendant [who] obtains a reversal of a prior, unsatisfied conviction . . . may be retried in the normal course of events.” The Court rejected Smith’s argument that the Venue Clause is meant to prevent the hardship of undergoing trial in a distant forum because the clause is “keyed to the location of the alleged ‘Crimes’” and not the district in which the defendant resides. The Court similarly rejected Smith’s arguments related to the purpose of the Vicinage Clause, noting that the Court has “repeatedly acknowledged that retrials are the appropriate remedy for violations of other [Sixth Amendment] jury-trial rights.”

Next, Smith appealed to the historical background of the Venue and Vicinage Clauses. The Supreme Court examined the relevant historical background and explained that the remedy at common law for a trial in an improper venue and before a jury drawn from the wrong vicinage did not preclude retrial. Moreover, the Court noted that it previously “embraced the retrial rule for a venue error” and that other federal and state courts have similarly ordered retrials for venue violations.

Finally, Smith argued that the Venue and Vicinage Clauses [...]

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Mootness Requires Covenant Not to Sue to Be Unconditional and Irrevocable

Addressing a district court decision finding no trade secret misappropriation, the US Court of Appeals for the Fourth Circuit agreed that the alleged trade secret holder had failed to moot the case because its covenant not to sue was both conditional and revocable. Synopsys, Inc. v. Risk Based Security, Inc., Case No. 22-1812 (4th Cir. June 15, 2023) (Agee, Rushing, Dawson, JJ.)

In early 2021, Risk Based Security (RBS) sent a cease-and-desist letter to Synopsys, its competitor in the software security industry, alleging intellectual property misappropriation, including use of RBS’s private database of source code vulnerabilities. Synopsys responded by filing a declaratory judgment action asserting that it had not engaged in trade secret misappropriation. RBS later issued a covenant not to sue in express reliance on certain pretrial representations made by Synopsys, including that Synopsys was not planning to use RBS’s database. RBS moved to dismiss the case as moot based on its covenant, but the district court denied the motion. The district court then ruled on summary judgment that RBS had failed to establish that its alleged trade secrets satisfied the requirements that they have an independent economic value derived from their secrecy and were subject to reasonable efforts to maintain their secrecy. RBS appealed.

The Fourth Circuit first affirmed the rejection of RBS’s covenant not to sue. The Court noted that the covenant was not unconditional and irrevocable because it was expressly premised on Synopsys’s planned future performance, which RBS could later claim was not being met. The Court also relied on the fact that the covenant was limited to the use of RBS’s private database and was thus narrower than the original cease-and-desist letter, which was explicitly not limited to that use. Finally, the Court concluded that there was a continuing live controversy, demonstrated by the fact that, after issuing the covenant, RBS added Synopsys to a pending trade secret case it had filed against Synopsys’s subsidiary. Accordingly, the Fourth Circuit affirmed the district court’s denial of RBS’s motion to dismiss.

On the merits, the Fourth Circuit agreed with the district court that RBS had failed to show that its alleged trade secrets met the independent value or reasonable secrecy elements required by statute. In particular, the Court agreed that RBS’s evidence regarding its value as a company and the revenue it derived from licensing its database could not show independent value for the specific alleged trade secrets contained in the database.




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