FRE 404(b) and Trade Secrets Disputes: To Admit or Deny?

Orrick - Trade Secrets Group

Orrick - Trade Secrets Group

In a recent decision, an Eastern District of Texas court conducted an analysis under Federal Rule of Evidence Rule 404(b) outside the criminal context to allow evidence of “other acts” in a trade secrets litigation.  The decision appears to be the first application of Rule 404(b) to a trade secrets dispute by a court in the Fifth Circuit.

The case, Resman, LLC v. Karya Property Management, involves the alleged misuse by Defendants of Plaintiff’s property management software.  Defendants sought to preclude the introduction of any evidence of Defendants’ alleged use of other third-party software in the development of Defendants’ competing software, on the basis that such evidence constitutes impermissible character evidence under Rule 404(b) because it would suggest to a jury that because Defendants copied other software, they likely copied Plaintiff’s.

Federal Rule of Evidence 404(b) prohibits the admission of evidence of “a crime, wrong, or other act” to prove a person’s character to show that the person acted in accordance with that character on a particular occasion.  The court acknowledged that Rule 404(b) generally is limited to the criminal law context but pointed to Fifth Circuit precedent applying the rule in the civil setting and analyzed the parties’ opposing arguments “via this borrowed lens.”

Applying the analysis typically used in criminal cases, the court noted that it resolves admissibility of “other acts” by first determining whether the evidence is “intrinsic or extrinsic to the cause of action.” “Other acts” are “intrinsic”—and thus do not implicate Rule 404(b)—when the evidence of the other act and the evidence of the alleged cause of action are “inextricably intertwined or both acts are part of a single criminal episode.”

Here, the court agreed with Plaintiff that the evidence of Defendants’ “other acts” was intrinsic because it simultaneously evidenced Defendant’s alleged misuse of Plaintiff’s software and Defendant’s use of software belonging to third parties (e.g., a single email in which Defendant received portions both parties’ software).  Accordingly, the court agreed with Plaintiff that the acts were “inexplicably intertwined and of the same episode.”  The court concluded that “[w]ithin 404(b)’s framework, this evidence is intrinsic and helps to ‘paint the picture’ of Defendant’s actions,” and “[p]rohibiting Plaintiffs from using the evidence would result in the jury receiving an incomplete story due to the entanglement” between the other software and Plaintiffs’ software.  The court further denied Defendants’ motion to exclude under FRE 403.

While Rule 404(b) has not been widely used in this manner, trade secrets litigants should consider the role of evidence of “other acts.”  Trade secrets plaintiffs will want to discover and seek to admit such evidence “to complete the story,” while trade secrets defendants will want to preclude the use of any evidence of “other acts.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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