A review of significant developments, cases, and verdicts throughout the United States in 2021 in trade secrets law
Confidentiality of Trade Secrets
A powerful legal tool in the toolbox for a company seeking to foil expected or ongoing misappropriation of its trade secrets is the issuance of a preliminary injunction before its lawsuit proceeds to trial. But that entails demonstrating to the court that the company has sufficient evidence to prove its case and is likely to prevail at trial, no small feat. In Life Spine Inc v Aegis Spine Inc., decided by the Seventh Circuit Court of Appeals, Life Spine prevailed in its claim that Aegis misappropriated the exact dimensions of Life’s patented expandable spinal implants when Aegis released a competing device shortly after Aegis had begun distributing Life Spine’s product. Life Spine’s application for injunction resulted in a nine-day evidentiary hearing with testimony from the parties and an expert witness. Life Spine sued under both the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act.
Life Spine had to overcome significant challenges in order to prevail, which it ultimately did when the trial court enjoined Aegis and its business partners from making, marketing, distributing, selling, or obtaining intellectual property rights in Life Spine’s implants. Aegis contested the trade secret claim on the premise that Life Spine lost the element of confidentiality when it disclosed information about the implants in its patent application. Life Spine demonstrated that notwithstanding the limited disclosure to the government and hence the public, its trade secrets claim was limited to the precise specifications and granular measurements of the implants which were not published in the patent. These measurements were beyond standards in the industry and not common knowledge.
Life Spine demonstrated that it employed reasonable measures to maintain the confidentiality of not only specifications but also the implants themselves to guard against reverse engineering. Life Spine monitored access to devices in its marketing and sales displays. Life Spine sold its devices only to hospitals and surgeons. The device packages were only opened during surgical operations, for confidentiality and sterilization purposes. Even then, distributors were required to be present during the procedure. Absent Aegis’s access due to its distributor relationship and violation of the anti-reverse engineering provisions of the non-disclosure agreement, Aegis would not have been able to obtain the device and ascertain its exacting measurements, nor pricing which helped it undercut Life Spine’s prices. Aegis’s violation of the non-disclosure agreement not only constituted breach of contract, it was integral to its ability to misappropriate Life Spine’s trade secrets through reverse engineering.
A misappropriation of trade secrets action, by its very nature, mandates a case-by-case analysis. More often than not, a motion for preliminary injunction will be decided on the papers rather than an evidentiary hearing with testimony. Honing in and limiting the information a plaintiff claims to constitute a trade secret is instrumental to obtaining injunctive relief. Resisting the temptation that grips many a plaintiff to liberally identify all its stolen information as trade secrets becomes more critical where a company’s primary litigation objective is to prohibit ongoing misappropriation of its trade secrets rather than recover damages. Many trade secrets cases will not have a clear record of public disclosure as existed in Life Spine, which helps a company resist the temptation. A thorough legal and factual analysis at the outset is therefore integral to achieving success of a company’s objectives.