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.).
The US Court of Appeals for the Ninth Circuit affirmed a district court’s denial of foreign sovereign immunity to a Chinese company accused of stealing trade secrets related to the production of proprietary metallurgy technology. United States v. Pangang Grp. Co., Ltd., Case No. 22-10058 (9th Cir. Apr. 29, 2025) (Wardlaw, Collins, Bress, JJ.)
Pangang is a manufacturer of steel, vanadium, and titanium. E.I. du Pont de Nemours (DuPont) had a proprietary chloride-route technology used for producing TiO₂, a valuable white pigment used in paints, plastics, and paper. Pangang allegedly conspired with others to obtain DuPont’s trade secrets related to TiO₂ production through economic espionage in order to use the stolen information to start a titanium production plant in China. The US government filed a criminal lawsuit.
In defense, Pangang invoked the Foreign Sovereign Immunities Act (FSIA) and federal common law, arguing that it was entitled to foreign sovereign immunity from criminal prosecution in the United States because it was ultimately owned and controlled by the government of the People’s Republic of China (PRC). In a prior appeal, the Ninth Circuit had found that Pangang failed to make a prima facie showing that it fell within the FSIA’s domain of covered entities. On remand, the district court again rejected Pangang’s remaining claims of foreign sovereign immunity, including its claims based on federal common law.
While the appeal was pending, the Supreme Court’s 2023 decision in Turkiye Halk Bankasi v. United States clarified that common law, not the FSIA, governs whether foreign states and their instrumentalities are entitled to foreign sovereign immunity from criminal prosecution in US courts. This led to a rebriefing of the present appeal to focus on the now-controlling issues concerning the extent to which Pangang enjoys foreign sovereign immunity under federal common law. Under federal common law, an entity must satisfy two conditions to enjoy foreign sovereign immunity from suit:
The Ninth Circuit concluded that Pangang did not make a prima facie showing that it exercised functions comparable to those of an agency of the PRC and therefore was not eligible for foreign sovereign immunity from criminal prosecution. The Court also found that “[t]he mere fact that a foreign state owns and controls a corporation is not sufficient to bring the corporation within the ambit of [sovereign immunity].” Since Pangang’s commercial activities were not governmental functions, there was no evidence that sovereign immunity should be applied. Therefore, the Ninth Circuit affirmed the district court’s denial of the motion to dismiss based on sovereign immunity.
The US Court of Appeals for the Second Circuit upheld a federal district court’s dismissal of a case on res judicata grounds after a state court issued a decision on different claims but had concurrent jurisdiction over the claims alleged in the federal case. Beijing Neu Cloud Oriental Sys. Tech. Co. v. Int’l Bus. Machs. Corp., Case No. 22-3132 (2d Cir. July 25, 2024) (Livingston, Menashi, Kahn, JJ.)
Beijing Neu Cloud Oriental System Technology filed suit in federal district court against several International Business Machines companies (collectively, IBM defendants) asserting a single claim for trade secret misappropriation under the Defend Trade Secrets Act (DTSA). Shortly thereafter, Neu Cloud also sued the IBM defendants in New York state court, alleging state law causes of action for unfair competition, unjust enrichment, breach of fiduciary duty, breach of contract and tortious interference.
The state court dismissed the claims. After the state court issued its decision, the IBM defendants moved to dismiss the federal action, arguing that:
The district court granted the motion to dismiss, agreeing with the IBM defendants on the DTSA claims but not on the effect of res judicata. Neu Cloud appealed the dismissal of its complaint. The Second Circuit only considered the arguments related to the IBM defendants’ res judicata defense.
Applying New York law to determine the preclusive effect of the state court’s judgment, the Second Circuit explained that under New York preclusion law “a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter.” This rule applies if the subsequent claim was “actually litigated” in the prior action or if it merely “could have been raised in the prior litigation.”
The Second Circuit found that the district court’s decision was on the merits and the trade secret claims could have been raised in the state court action. The Court held that the New York state court would have been competent to adjudicate the DTSA claim since jurisdiction for DTSA actions is not exclusive to federal courts. The Court noted that the plain text of the DTSA is strong evidence that Congress intended for jurisdiction over DTSA claims to be federal and state concurrent. Moreover, the Second Circuit found that the legislative history revealed no evidence that Congress affirmatively intended to confer exclusive jurisdiction over DTSA claims on the federal courts. The Court noted that many other circuit courts had come to the same conclusion.
Since the parties were clearly the same, the state court case involved the same subject matter, and the claims alleged the same injury and arose out of the same or related facts, the Second Circuit stated that the relevant question was whether Neu Cloud should have sought recovery in state court for its claim of trade secret [...]
Continue Reading
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.” [...]
Continue Reading
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 [...]
Continue Reading
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:
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 [...]
Continue Reading
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 [...]
Continue Reading
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
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:
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:
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
Subscribe
