Trade Secrets Claims Can Be Tough To Succeed On In The Business Court

If you want to pursue a trade secrets claim in the Business Court, you've got to disclose the details of your trade secret.  The Opinion last week in Unimin Corp. v. Gallo, 2014 NCBC 43 illustrates that point in detail. 

It seems at first blush like a case made for a preliminary injunction for the misappropriation of trade secrets, which is what the Plaintiff Unimin sought.  The individual Defendant, Gallo,  had been Unimin's General Manager of Research and Development.

Gallo had accepted a position with one of Plaintiff's competitors in the business of mining and processing "high purity quartz" (HPQ).

If you are like me, you have dwelt in ignorance of the importance of HPQ to your existence.  It is "one of today's key strategic materials for the high-tech industry."  It is used in semi-conductors, tubing for high temperature lamps, telecommunications devices, and in lenses for telescopes.

The quartz refined into HPQ is mined in only a few places around the world, one of them being in Spruce Pine, North Carolina.  Wherever it is mined, its slight impurities must be removed from the quartz in order to render it true high purity.

Plaintiff Unimin says that it is the global leader in HPQ and that its methods of processing the HPQ which it sells are "confidential, proprietary, and a trade secret." Op. ¶13. It said that Gallo had been the inventor or a "key player" in the development of its trade secrets and that he should be enjoined from using them for the benefit of his new employer.

Hadn't the Plaintiff taken steps to protect itself from Gallo's disclosure of this important and proprietary information?  Of course it had: Gallo was bound up by three separate agreements.  There were two Confidentiality Agreements and a Non-Compete.

The validity of those restrictive agreements wasn't the issue in this case.  Instead, it was whether the Plaintiff had sufficiently identified its trade secrets.

Plaintiff broadly described its trade secrets as the various processes that it followed in refining quartz, but failed to provide enough sufficient specifics to satisfy Judge Bledsoe that the Defendants had been put on notice as to what the trade secrets were.

It is hard to distill from this Opinion what you should show  in pursuing a trade secrets claim in the Business Court, but I will take a stab at it.  (Or if you want the full scope of the Court's analysis, read Paragraphs 35 to 50 of the Opinion).  The answer is not to refer generally to the process you allege is a protected trade secret.  Be prepared to give the details.  Judge Bledsoe said this:

Plaintiff broadly identifies various processes as its alleged trade secrets without offering evidence that those processes are unique to Plaintiff or have been modified by Plaintiff in unique ways.  For example, Plaintiff describes its 'mining process control plan as using "[REDACTED] modeling and process simulations' that develop 'mineral processing strategies' but does not offer evidence explaining what those simulations and strategies are or why these simulations and strategies are unique to Plaintiff.

Op. ¶41.

Apart from the Plaintiff's lack of specificity about its trade secrets, two other factors doomed Plaintiff's request for an injunction.  The first was the argument by Gallo's new employer that any trade secrets claimed to be known to Gallo would be of little use to it, given that its quartz was extracted from a different mine than the North Carolina mine operated by Plaintiff.  Judge Bledsoe found that the differences in the qualities of the different quartz ores "appear to require sufficiently different processes to mine and develop HPQ to render at least some, if not all, of Plaintiff's alleged trade secrets non-transferable."  Op. ¶57.

The second factor was a lack of any showing that Unimin was at risk of Gallo disclosing its trade secrets.  To the Court, this was established by the fact that Gallo had been gone from the Plaintiff's employment for five years before taking a job with his new employer.  During that five year hiatus, he had abided by the terms of his five year non-compete.  Judge Bledsoe ruled that Gallo's:

long-term adherence to his contractual obligations is persuasive evidence that he is not a threat to violate his contractual or other legal commitments to Plaintiff and disclose Plaintiff's alleged trade secrets.

Op. ¶59.

A "mere possibility of misappropriation" under the NC Trade Secrets Protection Act is insufficient to obtain an injunction.  Op. ¶63.

Although Judge Bledsoe had previously granted a Temporary Restraining Order to the Plaintiff, he denied its Motion for a Preliminary Injunction.

 

 

 

Don't Keep Your Trade Secrets Secret If You Are Pursuing A Trade Secrets Claim In The Business Court

I’ve written before about trade secrets claims being dismissed by the Business Court and the NC Court of Appeals because the trade secrets were too broadly referenced and not described with “sufficient particularity".  Two of those cases are Akzo Nobel Coatings Inc. v. Rogers, 2011 NCBC 41; and Washburn v. Yadkin Valley Bank and Trust Co. 190 N.C. App. 315, 660 S.E.2d 577 (2008).

And just yesterday came yet another Rule 12 dismissal of an inadequately pleaded trade secrets claim. Judge Jolly of the Business Court shot down the claim because of the insufficiency of the pleading in AECOM Tech Corp. v. Keating, 2012 NCBC 10.

AECOM has the familiar fact pattern of an employee leaving employment with the plaintiff for a position at the defendant, a competitor, with accompanying claims of unfair and deceptive trade practices, tortious interference with contract, and misappropriation of  trade secrets (which was dismissed).

The allegedly stolen "trade secrets" in AECOM were "customer lists, customer contract information, pricing information, and product information,  These descriptions of the trade secrets were deemed to be too "sweeping and conclusory" to put the defendant on notice of what had been stolen and were dismissed.

Most of the claims survived dismissal because the departing employee (Keating) had been an officer of AECOM.  That meant he owed AECOM a fiduciary duty.  Op. ¶16.  The unfair and deceptive practices claim also stuck because the alleged conspiracy between the new employer and Keating to violate his fiduciary duty could constitute constructive fraud, which makes out a UDTPA claim.

Given that getting trade secrets claims dismissed  in the Business Court now (if the trade secrets are not described with sufficient particularity) is as easy as shooting fish in a barrel, I am declaring a boycott on writing about those types of dismissals.