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The Plot Plot Thickens: Trade Secret, Tortious Interference, Fiduciary Duty Claims Survive Motion to Dismiss

A judge from the US Court of Appeals for the Third Circuit sitting by designation in the US District Court for the District of Delaware denied a motion to dismiss claims of misappropriation of trade secrets, tortious interference and breach of fiduciary duty, finding that the plaintiff plausibly pled facts supporting each claim. Park Lawn Corp. v. PlotBox Inc., Case No. 20-cv-01484-SB (D. Del. Oct. 29, 2021) (Bibas, J., sitting by designation).

Park Lawn and PlotBox are competitors in the cemetery business. In 2018, Park Lawn began developing software to automate various cemetery management tasks to cut costs. Park Lawn also hoped to generate revenue by licensing the software to competitors. Park Lawn’s CEO, however, had been leaking information to PlotBox about the software, its unique features and Park Lawn’s strategy for licensing. The CEO also helped PlotBox in its efforts to recruit Park Lawn’s chief technology officer, who had been overseeing the software project. The CEO acted despite having signed confidentiality, non-compete and non-solicitation agreements. Park Lawn ultimately discovered the CEO’s involvement with PlotBox and fired him. Soon after, the CEO became PlotBox’s chairman. Park Lawn sued PlotBox for stealing its trade secrets, interfering with the CEO’s employment agreements and helping the CEO breach his fiduciary duty to Park Lawn. PlotBox moved to dismiss.

The district court denied the motion. As to the trade secret claims, PlotBox argued that it did not misappropriate any trade secrets since the CEO never actually gave PlotBox any information. The court found that the complaint alleged otherwise. In particular, the court noted the complaint alleged:

  • The CEO and PlotBox exchanged compromising emails discussing the “status,” “developments in ‘death-tech,’” and the CEO’s interest in becoming PlotBox’s chairman.
  • The CEO invited PlotBox executives to his home to discuss a “Park Lawn Update” and “Technical Presentation.”

The court found that these allegations plausibly alleged that the CEO could have disclosed a trade secret.

PlotBox argued that even if it did learn something from the CEO, it never knew that the CEO obtained that information through improper means. The district court again disagreed, finding that PlotBox should have known something was amiss since the CEO broke a promise to keep quiet. While the court acknowledged that PlotBox may have never read the CEO’s confidentiality agreement, PlotBox should have reasonably inferred that it was improper for the CEO of a competitor to disclose his company’s innovations.

PlotBox also argued for dismissal because any information it received from the CEO did not count as a trade secret under the Defend Trade Secrets Act. Once again, the district court disagreed, explaining that Park Lawn alleged that the information provided was technical in nature (e.g., unique features of software and strategy of selling it to rivals), Park Lawn took adequate measures to protect the information by only allowing a few employees who signed confidentiality agreements to access the software and the information was valuable because it was secret. The court thus permitted the trade secret claim to proceed.

The [...]

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No Immunity: State Right of Publicity Law is § 230 “Law Pertaining to Intellectual Property”

The US Court of Appeals for the Third Circuit held that § 230 of the Communications Decency Act, 47 U.S.C. § 230(c), does not preclude claims based on state intellectual property laws, reversing in part a district court’s dismissal of a plaintiff’s state law claims for violation of her right of publicity. Hepp v. Facebook, Case Nos. 20-2725; – 2885 (3d Cir. Sept. 23, 2021) (Hardiman, J.) (Cowen, J., concurring in part and dissenting in part).

In 2018, Karen Hepp, a Philadelphia newscaster, discovered a photo of herself making its way around the internet. The picture, taken without Hepp’s knowledge or consent, depicts her smiling in a convenience store and was posted in two locations online. The first post was a Facebook advertisement promoting a dating service, which encouraged users to “meet and chat with single women near you.” The second post was to Imgur and was subsequently linked to a Reddit thread, where it spurred a flurry of indecent user commentary. Hepp sued Facebook, Imgur and Reddit for violations of Pennsylvania’s right of publicity statute. The district court dismissed Hepp’s claims with prejudice, holding that all three companies were entitled to immunity as internet service providers under § 230(c). Hepp appealed.

The Third Circuit found that the district court lacked personal jurisdiction over Imgur and Reddit on a “purposeful availment” minimum contacts basis and affirmed dismissal of the claims against those parties.

With respect to Facebook, the Third Circuit considered whether it was immune under § 230(c). Section 230 of the Communications Decency Act was intended to promote the internet, specifically by preserving “the vibrant and competitive free market …unfettered by Federal or State regulation.” Accordingly, § 230(c) provides Good Samaritan protection for internet service providers, encouraging them to host and moderate third-party content by immunizing them from some publisher liability regarding certain moderation decisions. However, pursuant to § 230(e)(2), such immunization does not “limit or expand any law pertaining to intellectual property.”

The first question addressed by the Third Circuit was whether § 230(e)(2) can apply to state law claims generally. The Court acknowledged that precious few cases interpreting § 230’s intellectual property provision exist, and that the existing cases present a clear split on whether § 230(e)(2) applies only to federal intellectual property claims. The Court, adhering to what it regarded as the most natural reading of § 230(e)(2), (i.e., that a state law can be a “law pertaining to intellectual property law”) determined that application of § 230(e)(2) was not limited to federal claims. The Court was not persuaded by Facebook’s policy arguments regarding a purported increase in uncertainty regarding the contours of § 230(c) immunity if state law intellectual property claims, which vary from state to state, were exempt from such immunity.

The second question the Third Circuit addressed was whether Hepp’s right of publicity claim arose from a “law pertaining to intellectual property.” In finding that it did, the Court relied on a survey of legal dictionaries and determined that the term “intellectual property” [...]

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Third Circuit Orders Second Look at Delays and Disgorgement of Profits

In a long-running trademark dispute between two charitable organizations, the US Court of Appeals for the Third Circuit found that the appellee did not preserve its challenge to the district court’s denial of summary judgment on its trademark cancelation claims, the appellant waived any challenge to the validity of the defendant’s mark and the district court did not abuse its discretion by declining to award enhanced monetary relief or prejudgment interest. Kars 4 Kids Inc. v America Can!, Case Nos. 20-2813; -2900 (3rd Cir., August 10, 2021) (Shwartz, J.) The Court also vacated-in-part and remanded for the district court to reexamine its laches and disgorgement conclusions under applicable law.

As charitable organizations that sell donated vehicles to fund children’s programs, both America Can (as CARS FOR KIDS) and Kars 4 Kids have used similar trademarks since their respective starts in the early- to mid-1990s. In 2003 and 2013, America Can sent cease and desist letters to Kars 4 Kids after seeing its advertisements in the state of Texas. In 2014, Kars 4 Kids sued America Can for federal and state trademark infringement, unfair competition and trademark dilution claims. Less than one year later, America Can filed its own suit—alleging the same claims—plus a petition to cancel a Kars 4 Kids trademark registration and seeking a nationwide injunction and financial compensation.

Both parties appeal from a denial of their respective summary judgment motions as well as (1) the jury finding that Kars 4 Kids willfully infringed America Can’s trademark rights in Texas, (2) the rejection of America Can’s petition for cancellation of a KARS FOR KIDS trademark registration finding that the registration was not knowingly procured by fraudulent means, (3) the conclusion that laches did not apply against America Can’s claims, (4) disgorgement of Kars 4 Kids profits in Texas totaling about $10.6 million, (5) rejection of enhanced monetary relief and (6) an injunction against Kars 4 Kids with respect to use of its trademark in Texas and from using the carsforkids.com domain name. On appeal, Kars 4 Kids also renewed its motion for judgment as a matter of law, including an argument that America Can’s trademark is invalid.

The Third Circuit rejected Kars 4 Kids’ effort to overturn the jury’s liability verdict, concluding that Kars 4 Kids failed to preserve its challenge to the validity of the CARS FOR KIDS trademark when it left that issue out of its Rule 50(a) motion. Instead, evidence of America Can’s continuous use of the CARS FOR KIDS mark well prior to 2003 predated Kars 4 Kids’ first use of its trademark in Texas in 2003 and established America Can’s ownership of the CARS FOR KIDS trademark in Texas.

However, after examining the laches claim, the Third Circuit explained that it considered (1) the plaintiff’s inexcusable delay in bringing suit and (2) prejudice to the defendant as a result of the delay. With no statute of limitations under the Lanham Act, the parties agreed that their claims are properly analogized to New Jersey’s six-year [...]

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What Does it Take to Plead Trade Secret Misappropriation Under the DTSA?

Addressing the pleading standard under the Defend Trade Secrets Act (DTSA) and New Jersey Trade Secrets Act (NJTSA), the US Court of Appeals for the Third Circuit vacated the district court’s dismissal of a third amended complaint for trade secrets misappropriation and remanded for further proceedings. Oakwood Labs. LLC v. Thanoo, Case No. 19-3707 (3d Cir. May 8, 2021) (Jordan, J.)

Thanoo was a key player in Oakwood Laboratories’ Microsphere Project, a 20-year, $130 million project to develop injectable sustained-release drug products using a complex and rare microsphere technology. In 2013, Aurobindo approached Oakwood about a possible collaboration, specifically to involve Aurobindo’s manufacture of an active pharmaceutical ingredient for Oakwood. Subject to a nondisclosure agreement, Oakwood shared with Aurobindo confidential information, including a 27-page memorandum describing the Microsphere Project. Ultimately, Aurobindo declined to proceed, citing financial considerations. Aurobindo subsequently hired Thanoo. Although Thanoo told Oakwood that he was going to Aurobindo to work on standard injectable drugs and not microspheres, he immediately set up a research and development program concerning microspheres for Aurobindo. Aurobindo, which had no previous experience in microspheres, announced that it would have products ready for clinical testing in just one to four years, despite a relatively small investment of only $6 million. Oakwood sued Thanoo and Aurobindo for trade secret misappropriation under the DTSA and NJTSA, and for breach of contract and tortious interference.

On Thanoo’s motion, the district court dismissed Oakwood’s complaint, finding that it failed to provide specific allegations of what trade secrets were allegedly misappropriated and how Aurobindo allegedly used the trade secrets. Oakwood filed first, second and third amended complaints, each alleging with greater specificity the trade secrets associated with the Microsphere Project and expanding on the allegation that Aurobindo could not have proceeded so quickly from no experience to announcing near-complete development of microsphere products without using Oakwood’s trade secrets. Nonetheless, the district court dismissed each complaint as being insufficiently specific as to which particular trade secrets were allegedly misappropriated and the particular way in which Aurobindo allegedly used the trade secrets. The district court also held that, absent any product launch from Aurobindo, any harm from the alleged misappropriation was too speculative to support a claim. After dismissal of the third amended complaint, Oakwood appealed.

The Third Circuit reversed, concluding that Oakwood’s complaint sufficiently pled a claim for trade secret misappropriation under either the DTSA or the NJTSA. The Court explained that Oakwood had sufficiently identified its trade secrets by its allegation that information laying out its design, research and development (including identification of variables that affect the development), test methods and results, manufacturing processes, quality assurance, marketing strategies and regulatory compliance related to its development of a microsphere system were trade secrets. Oakwood had also identified a specific memorandum disclosed to Aurobindo under a confidentiality agreement as containing trade secrets, and attached other documents specifying in detail secrets related to the Microsphere Project.

The Court further found that Oakwood had sufficiently alleged misappropriation. Although there are several ways to [...]

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