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

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

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

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

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

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

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

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

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