2023 Trade Secret Update: A Look Back At Recent Trade Secret Developments

WilmerHale lawyers advise clients on every aspect of trade secret law from contracts to complex litigation. Below is a short update on important cases and developments.

IDENTIFYING A TRADE SECRET

Trade secret identification remains a hot button issue. Notwithstanding years of commentary and a statutory framework for trade secret identification in some states, including California, courts across the country continue to take differing approaches to trade secret allegations.

• REXA, Inc. v. Chester, 42 F.4th 652 (7th Cir. 2022)—Insufficiently alleging a trade secret

In 1993, Koso America purchased the assets of Rexa Corporation. In 1998, Koso hired Defendant Mark Chester but did not enter into a formal employment agreement with Chester. In 2002, Chester participated in a project to investigate potential "alternate valves" for an actuator that would enable Koso to cease having to pay royalties to a third party. For several weeks, Chester and a colleague sought to create a replacement "flow matching valve" for an actuator, but they did not succeed. Instead, they succeeded in creating a prototype of a new actuator. Within months, Koso terminated the project, and no information was used for any later product or plan. Chester resigned from Koso in July 2003. In 2014, Koso underwent a reorganization, which created REXA, Inc.

Chester later joined MEA Inc. as a senior engineer. At MEA, Chester worked on a new actuator prototype, and MEA eventually filed a related patent application. In December 2017, REXA filed suit against Chester and MEA alleging "misappropriation of REXA's trade secret designs for solenoid- based electro-hydraulic actuators, which Defendants improperly, and without REXA's consent, disclosed and claimed in U.S. Patent Application No. 14/511,463." The parties filed cross motions for summary judgment. The Northern District of Illinois court ruled for Chester and MEA. REXA appealed those rulings to the Seventh Circuit.

At the core of REXA's appeal was the dispute over whether REXA adequately identified a trade secret. REXA contended that its "2002 Designs," including the actuator prototype, qualified as trade secrets. Chester and MEA, on the other hand, argued that "2002 Designs" is vague and that several aspects of the 2002 actuator prototype were well known in the industry. REXA countered that the trade secret was the use of solenoid valves "in conjunction with other components to create a previously unknown actuator." The Seventh Circuit held that "a high level of specificity [is required] when a plaintiff makes a claim for misappropriation of a trade secret." The court added that "[w]hen a plaintiff presents complex or detailed descriptions of methods and processes but fails to isolate the aspects that are unknown to the trade, no trade secret has been identified . . . a plaintiff must do more than just identify a kind of technology and then invite the court to hunt through the details in search of items meeting the statutory definition." The court further held that REXA failed to provide information sufficient to enable the court to determine "which aspects are known to the trade, and which are not."

• Coda Dev. s.r.o. v. Goodyear Tire & Rubber Co., 2023 WL 2734684 (N.D. Ohio Mar. 31, 2023)—Insufficiently alleging a trade secret

In the August 2015, Plaintiff Coda Development s.r.o.—a Czech company— filed suit against Goodyear Tire and Rubber Company. Coda alleged that it disclosed its trade secrets relating to "self-inflating tire" or "SIT" technology to Goodyear during two meetings in 2009 organized to discuss a potential partnership. Coda alleged that it "fully educated Goodyear about its SIT technology," including:

• Trade Secret 24: "Coda's knowledge regarding the optimal location for placement of a pump in a tire for tire manufacturers, namely, in the sidewall close to, and above, the rim where the tire cyclically deforms in response to deformation."
• Trade Secret 7: "Coda's design and development of a multi-purpose interface for transporting air in a self-inflating tire that can [1] connect to the air source, [2] connect to the tire interior, [3] connect to the peristaltic pump, [4] serve as an end to the peristaltic pump, [5] connect to the regulator, [6] carry the regulator, [7] go around or through the bead, [8] go around or through the tire layers, [9] click to the bead and [10] [hold] the filter."

The case went to trial in September 2022. After Goodyear moved for judgment as a matter of law (JMOL), the court cut five of Coda's trade secrets, and expressed doubts about the remaining trade secrets, including "whether these are definite enough to really even be trade secrets." The jury found for Coda on five of the remaining trade secrets, and Goodyear renewed its JMOL motion.

The court held that "[c]ase law is clear that one cannot claim as a trade secret an entire body of knowledge without articulating at least the boundaries within which the secret lies." Further, it found that "courts have made clear that 'a trade-secrets plaintiff must defin[e] the information for which protection is sought with sufficient definiteness to permit a court to apply the [statutory] criteria for protection[.]" With respect to the alleged trade secrets quoted above, the court held that: (1) Trade Secret 24 was based only on "Coda's knowledge" and "was susceptible to too many interpretations regarding the so-called 'optimal location' and shed no light on which interpretation might be the one Coda claimed as secret"; and (2) Trade Secret 7 was identified using "vague, functional terms (i.e., an interface 'that can' accomplish certain ends)" but with "no detail as to how the functions are to be carried out and, importantly" with "no articulation of the actual 'design and development' of any such interface that is the actual subject of the trade secret." Ultimately, the court set aside the entire $64 million jury award.

• XpandOrtho, Inc. v. Zimmer Biomet Holdings, Inc., 2022 WL 801743 (S.D. Cal. Mar. 15, 2022)—Sufficiently alleging trade secret

Reflecting a contrasting approach to that discussed in the REXA, Inc. and Goodyear cases summarized above, XpandOrtho allowed a relatively general description of the alleged trade secret to suffice.

XpandOrtho, a start-up medical device company, developed new technology "to address the problem of inaccurate soft tissue balancing during total knee arthroplasty." In 2015, XpandOrtho allegedly shared confidential information with Zimmer Biomet Holdings, a third party purportedly interested in acquiring XpandOrtho. When Zimmer did not proceed with the acquisition, XpandOrtho filed suit against Zimmer, alleging, among other claims, misappropriation of XpandOrtho's trade secrets under the California Trade Secrets Act (CUTSA). Specifically, XpandOrtho accused Zimmer of never having any legitimate intent to acquire XpandOrtho and that Zimmer secretly filed two patent applications relating to XpandOrtho's intellectual property. In its amended complaint, XpandOrtho listed thirteen general trade secrets and added brief descriptions to certain of these. For example, XpandOrtho identified the following as trade secrets:

• "Geometry, dynamics, and kinematics of the XO device" with the description "Detailed three-dimensional geometry of the XO, determined from examining, handling, and measuring the XO device"
• "The designs of sensors for soft tissue balancing devices"
• "Source Code" with the description "Source code for the trial implant firmware version 0.6"

Zimmer challenged the sufficiency of the trade secrets XpandOrtho had identified. The court disagreed with Zimmer, highlighting XpandOrtho's description of "[g]eometry, dynamics, and kinematics of the XO device" as a sufficiently plead trade secret when viewed in conjunction with the "specific examples" that XpandOrtho provided, i.e., "[d]etailed three-dimensional kinematics of the XO as the knee moves through its range of motion, determined from examining, handling, and measuring the XO device."

The court's finding that XpandOrtho's general description of its alleged trade secrets was sufficient to survive the pleading stage offers a reminder that the sufficiency of a trade secret claim is fact dependent and can vary based on jurisdiction.

• Bureau Veritas Commodities & Trade, Inc. v. Cotecna Inspection SA, 2022 WL 912781 (S.D. Tex. Mar. 29, 2022)—Sufficiently alleging trade secret

Bureau Veritas Commodities offers an additional datapoint on how jurisdiction may materially affect the level of detail with which an alleged trade secret needs to be described. In this case, a court in the Southern District of Texas ruled that plaintiffs need not divulge the specifics of their trade secrets in a complaint.

Bureau Veritas specializes in providing inspection and certification services to commodities traders. Beginning in early 2020, BV faced a series of senior employee departures, including its most senior leader within its minerals & metals division, Stefanus Nel, to competitor Cotecna Inspection. BV sued Cotecna alleging that it had conspired with Nel to hire away the senior employees and to misappropriate BV's trade secrets. According to BV's complaint, when its former employees joined Cotecna, they served in nearly identical roles to those they had served at BV and began pursuing business from BV customers, in part, by relying on information taken from BV:

its profits and loss information, financial information, business plans, strategic growth strategies, sales information, operational weaknesses, marketing strategies, customer information, pricing, pricing strategies, sales volume, operational plans, employee compensation, vendor and contractor information, testing procedures, certificates, and laboratory technology.

Cotecna filed a motion to dismiss, calling the categories "vague and broad," and contending that BV was required to plead greater specificity with respect to the descriptions of its alleged trade secrets. The court disagreed with Cotecna, noting that "Bureau Veritas met its burden at the pleading stage" and that "[t]he idea that a plaintiff must disclose detailed descriptions of trade secrets in a public complaint—without any protective order in place would likely defeat the entire purpose of attempting to protect the trade secret in the first place."

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Joshua H. Lerner
WilmerHale
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