Opinion
Case No. 5:23-cv-243-MJF
2024-01-10
WWMAP, LLC, Plaintiff, v. BIRTH YOUR WAY MIDWIFERY and Women's Wellness Center LLC, d/b/a Second 2 None Labs, Defendant.
Henry Jared Doster, Doster Law PLLC, Panama City, FL, for Plaintiff. William Nicholson Spicola, William Spicola PA, Tallahassee, FL, for Defendant.
Henry Jared Doster, Doster Law PLLC, Panama City, FL, for Plaintiff. William Nicholson Spicola, William Spicola PA, Tallahassee, FL, for Defendant.
DECISION AND ORDER
Michael J. Frank, United States Magistrate Judge.
Plaintiff asserts a claim for misappropriation of trade secrets pursuant to the Defend Trade Secrets Act, 18 U.S.C. § 1836(b)(1). Defendant moves to dismiss for failure to state a claim upon which relief can be granted. Because Plaintiff successfully stated a claim, Defendant's motion must be denied.
I. BACKGROUND
Plaintiff and Defendant are businesses that conduct medical tests of blood and urine. They operate in adjacent locations in Panama City, Florida. Plaintiff employed a phlebotomist, "Cassidy Hawley," who left Plaintiff's employment to work for Defendant. Hawley purportedly purloined some of Plaintiff's trade secrets and provided them to Defendant. These included customer lists and pricing information. Plaintiff alleges that Defendant utilized these trade secrets to gain a competitive advantage.
II. DISCUSSION
American law recognizes that the protection of trade secrets results in substantial benefits to businesses and society. By protecting commercial entities from theft of their trade secrets, the law encourages individuals to invest in processes and technologies which presumably will benefit consumers. Trade secret law promotes "the efficient operation of industry" by affording those who invested time, capital, or effort into securing trade secrets lawfully to enjoy whatever remunerative benefits these secrets may entail. Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 493, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974). "Self-interest stimulates the mind to activity...." Brooklyn Life Ins. Co. of New York v. Dutcher, 95 U.S. 269, 273, 24 L.Ed. 410 (1877). Absent the protection of trade secrets, enterprises would have little or no incentive to invest more than nominal sums in knowledge or methods that could be purloined with impunity. Ultimately, consumers would suffer from a resulting reluctance to invest in trade secrets. The protection of trade secrets, therefore, allows "businesses to exploit information in the most efficient and profitable manner by rewarding innovators and allowing them to maximize the value of their innovations through commerce," to the benefit of society. Daniel W. Park, Trade Secrets, the First Amendment, and Patent Law: A Collision on the Information Superhighway, 10 STAN. J.L. BUS. & FIN. 46, 46 (2004).
In recognition of the value that trade secrets entail for the American economy, Congress enacted the Defend Trade Secrets Act of 2016 as an amendment to the Economic Espionage Act of 1996. Pub. L. No. 114-153, § 2(e), 130 Stat. 376, 381-82 (2016). The Defend Trade Secrets Act creates a civil cause of action for the misappropriation of trade secrets. The relevant portion of the Act states:
An owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.
18 U.S.C. § 1836(b)(1). Under the Defend Trade Secrets Act, a plaintiff may obtain equitable relief and may recover compensatory damages, punitive damages, and attorneys' fees. Id. § 1836(b)(3).
To state a claim for misappropriation of trade secrets pursuant to the Defend Trade Secrets Act, a plaintiff generally must allege three elements: 1. plaintiff owned a trade secret;
2. the defendant misappropriated plaintiff's trade secret; and
3. the misappropriated trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.
Id. § 1836(b)(1); dmarcian, Inc. v. dmarcian Europe BV, 60 F.4th 119, 141 (4th Cir. 2023); Oakwood Lab'ys. LLC v. Thanoo, 999 F.3d 892, 905 (3d Cir. 2021); Attia v. Google LLC, 983 F.3d 420, 426 (9th Cir. 2020); Compulife Software Inc. v. Newman, 959 F.3d 1288, 1310-11 n.13 (11th Cir. 2020).
A. Plaintiff Alleges that It Owned Trade Secrets
The Defend Trade Secrets Act defines the "owner" of a trade secret as "the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed...." 18 U.S.C. § 1839(4); see Highland Consulting Grp., Inc. v. Minjares, 74 F.4th 1352, 1358 (11th Cir. 2023). Here, Plaintiff sufficiently alleges that it is the rightful owner of information.
To state a misappropriation claim under the Defend Trade Secrets Act, a plaintiff must identify the trade secret in question with sufficient specificity. Syntel Sterling Best Shores Mauritius Ltd. v. The TriZetto Grp., Inc., 68 F.4th 792, 800 (2d Cir. 2023). In attempting to allege the "existence of a trade secret" element, a plaintiff must "describe the subject matter of the trade secret with sufficient particularity to separate it from matters of general knowledge in the trade or of special persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies." Navigation Holdings, LLC v. Molavi, 445 F. Supp. 3d 69, 75 (N.D. Cal. 2020) (quotation omitted).
A plaintiff successfully can state a claim of misappropriation of trade secrets without revealing in the complaint—which typically is a public document—the precise information that plaintiff alleges constitutes a trade secret. Revelation of the precise trade secret in the complaint might jeopardize the secrecy of the information. InteliClear, LLC v. ETC Glob. Holdings, Inc., 978 F.3d 653, 662 (9th Cir. 2020). A plaintiff is not required to reveal in its complaint the very trade secret the plaintiff is seeking to protect through a misappropriation of trade secrets claim. Cisco Sys., Inc. v. Chung, 462 F. Supp. 3d 1024, 1047 (N.D. Cal. 2020). Nevertheless, a plaintiff generally must allege three facts to allege the first element: (1) the nature of the purported trade secret; (2) the purported trade secret has economic value by virtue of it being secret; and (3) plaintiff employed reasonable measures to maintain the secrecy of the information.
1. The Nature of the Purported Trade Secrets
In the Defend Trade Secrets Act, Congress defined the term "trade secret" broadly. 18 U.S.C. § 1839(3); see Inteliclear, LLC, 978 F.3d at 657. Under the Act, "financial, business, scientific, technical, economic, or engineering information" can constitute trade secrets. 18 U.S.C. § 1839(3). With respect to the nature of the purported trade secrets, a plaintiff need only allege sufficient facts to plausibly indicate that a trade secret was involved and to give the defendant notice of the material that the plaintiff claims constitutes a trade secret. DynCorp Int'l v. AAR Airlift, Grp., Inc., 664 F. App'x 844, 848 (11th Cir. 2016) (per curiam). Plaintiff alleges that four general "items" of its financial and business information constitute trade secrets:
• a list of Plaintiff's costs of administering its medical tests;
• a list—including contact information—of medical professionals who had referred patients to Plaintiff;
• a list of Plaintiff's customers; and
• records of revenue and calculations of profit and loss.
Various courts have held that this type of information can qualify as a "trade secret" for purposes of a misappropriation of trade secrets claim. See, e.g., Allstate Ins. Co. v. Fougere, 79 F.4th 172, 179, 191-93 (1st Cir. 2023) (customer lists and price information); Ahern Rentals, Inc. v. EquipmentShare.com, Inc., 59 F.4th 948, 955 (8th Cir. 2023) (customer lists, pricing information, and marketing strategies); API Ams., Inc. v. Miller, 380 F. Supp. 3d 1141, 1149 (D. Kan. 2019) (customer lists, sales results, and product lines). Plaintiff, therefore, alleges sufficient facts to satisfy this facet of the first element.
2. Independent Economic Value Derived From Secrecy
"Not everything with commercial value constitutes a trade secret." Synopsys, Inc. v. Risk Based Sec., Inc., 70 F.4th 759, 772 (4th Cir. 2023). The "essence of a trade secret is that it derives its value from secrecy." Stromback v. New Line Cinema, 384 F.3d 283, 305 (6th Cir. 2004). Accordingly, a plaintiff seeking to state a misappropriation claim under the Defend Trade Secrets Act must allege that the purported trade secret "derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information." 18 U.S.C. § 1839(3)(B). To allege this aspect of the first element, a plaintiff generally must tie the value of the information at issue to its secrecy. See generally Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1012, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984) (noting that the "economic value" of a trade secret "lies in the competitive advantage over others" that a possessor "enjoys by virtue of its exclusive access to the data"); Synopsys, Inc., 70 F.4th at 771 ("This element requires proof not just of value, but of value specifically tied to secrecy.").
A "unique combination" of publicly available information, "which adds value to the information, also may qualify as a trade secret." Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1291 (11th Cir. 2003) (construing Georgia law); Fougere, 79 F.4th at 189 (noting that compilations of publicly-available information may qualify as a trade secret under federal law "when it would have been immensely difficult to collect and compile it in the form in which it appeared in the compilation"); Computer Care v. Serv. Sys. Enters., Inc., 982 F.2d 1063, 1074 (7th Cir. 1992) ("A trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process design and operation of which in unique combination affords a competitive advantage and is a protectable trade secret.").
In this case, Plaintiff sufficiently alleges that the purported trade secrets—a list of the costs of administering medical tests; a list of medical professionals who referred patients to Plaintiff; a customer list; and financial information, such as revenue, profit, and loss—derived their value from not being generally known. Indeed, this information is of a type that astute businesses generally would safeguard—and typically would not share with competitors—as this information could afford competitors an economic advantage and would lose economic value to a plaintiff if it were disseminated freely. For example,
customer lists typically hold economic value "by not being generally known"; if a customer list generally were known, "the value of that list would decline as its members become inundated with rival offers." dmarcian, Inc., 60 F.4th at 141. Information—such as a confidential price list—that would allow a competitor to undercut a plaintiff's prices also sufficiently derives economic value from not being generally known. Fougere, 79 F.4th at 179, 191-92.
With respect to this facet of a misappropriation claim, Plaintiff alleges that:
• the list of costs for the medical tests Plaintiff provides would allow a competitor to cut its prices to a level that would harm Plaintiff economically and perhaps drive Plaintiff out of business;
• the list of medical professionals who had referred business to Plaintiff could be used to contact these individuals to solicit business for a competitor; and
• records of Plaintiff's financial information—including calculations of profit and loss—could be used by a competitor to set prices detrimental to Plaintiff.
Plaintiff sufficiently alleges facts which indicate that, were this information made public, its value to Plaintiff would diminish substantially and this information derives its value from its purported secrecy.
3. The Measures Plaintiff Employed to Maintain Secrecy
Under the Defend Trade Secrets Act, for information to constitute a "trade secret," the owner of the information must employ reasonable measures to ensure the secrecy of the information. Fougere, 79 F.4th at 192; InteliClear, LLC, 978 F.3d at 660. "Failure to take such steps is persuasive evidence that the secret has no real value." BondPro Corp. v. Siemens Power Generation, Inc., 463 F.3d 702, 708 (7th Cir. 2006). Accordingly, to state a claim of misappropriation of trade secrets, the owner of the purported secret must allege that it had "taken reasonable measures to keep such information secret." 18 U.S.C. § 1839(3)(A).
Under the Defend Trade Secret Act, there "is no precise definition" of what constitutes "reasonable measures" to ensure secrecy. ClearOne Commc'ns, Inc. v. Bowers, 643 F.3d 735, 768 (10th Cir. 2011). Measures can qualify as "reasonable" even if they are imperfect or they ultimately fail to thwart misappropriation. The owner of a trade secret is not required to employ all possible measures to preserve secrecy. Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531, 542 (7th Cir. 2021). A plaintiff can establish a misappropriation of trade secrets claim without demonstrating that it kept its trade secrets "under lock and key only for the viewing eyes of company officials with the highest security clearance." Tax Track Sys. Corp. v. New Inv. World, Inc., 478 F.3d 783, 787 (7th Cir. 2007) (construing Illinois law). Indeed, many trade secrets would lose their economic value if they were restricted only to the elite cognoscenti of a company, as this would prevent many businesses from using such information effectively to generate economic value. Thus, the reasonableness of a plaintiff's efforts to maintain secrecy depends on the particular circumstances of each case. Adler v. Loyd, 496 F. Supp. 3d 269, 281 (D.D.C. 2020).
Among other facts, the reasonableness of the measures employed to maintain secrecy is a function of the nature of the purported secret, the economic value of the secret relative to the costs of employing various security measures, the probability of misappropriation, the magnitude of the harm that would result from
misappropriation, the size of the business and the number of its employees, and the extent of the business's need to disseminate the secret to exploit its economic value. See Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 179-80 (7th Cir. 1991); Exec. Trim Constr., Inc. v. Gross, 525 F. Supp. 3d 357, 380 (N.D.N.Y. 2021). In short, assessing the reasonableness of measures taken to ensure secrecy is a factually intensive endeavor.
For example, many businesses would derive no value from their own customer lists if they could not share them with their sales or marketing departments. Likewise a manufacturer might need to share blueprints or schematics with a subcontractor who will provide components of a machine. Limited dissemination of a trade secret when it is necessary to exploit the economic value of the secret does not preclude such items from being protected as "trade secrets." See generally United States v. Lange, 312 F.3d 263, 266 (7th Cir. 2002).
Reasonable measures to keep information secret can include the use of:
• access control policies or measures—such as passwords, thumbprints, or iris scans—to protect computers, documents, and files that contain secrets;
• a safe or locked compartment to store items containing secrets;
• alarm systems;
• camera and surveillance systems;
• non-disclosure or confidentiality agreements;
• warnings to those who have access to secrets;
• paper shredders;
• compartmentalization of information based on "need to know;"
• restrictions on use of photocopiers;
• cyber security measures, such as encryption; and
• security guards.
Of course, this is not an exhaustive list.
Plaintiff alleges that it took several measures to ensure the secrecy of the relevant information:
• storage of the trade secrets in secure accounts—not accessible to the general public—with third-party service providers such as HubSpot, American Esoteric Laboratories, Quickbooks, and Poynt;
• use of passwords;
• limitations on access to the trade secrets based on an employee's duties and their respective needs for access; and
• prompt revocation of information technology access upon termination of employment.
Plaintiff, therefore, sufficiently alleges that it had taken reasonable measures to ensure the secrecy of the relevant information.
B. Plaintiff Alleges that Defendant Misappropriated a Secret
Under the Defend Trade Secrets Act, a broad spectrum of conduct constitutes "misappropriation" of a trade secret. 18 U.S.C. § 1839(5). A person "misappropriates" a trade secret by "acquisition" when he "knows or has reason to know that the trade secret was acquired by improper means ...." Id. § 1839(5)(A). Additionally, a person misappropriates a trade secret by "disclosure or use" when he discloses or uses the trade secret "without express or implied consent" and either:
(i) used improper means to acquire knowledge of the trade secret; (ii) at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was
(I) derived from or through a person who had used improper means to acquire the trade secret;
(II) acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or
(III) derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; ....
Id. § 1839(5)(B)(i)-(ii); see Compulife Software Inc., 959 F.3d at 1311 n.13. Any "exploitation of the trade secret that is likely to result in injury to the trade secret owner or enrichment to the defendant is a 'use' ...." Penalty Kick Mgmt. Ltd., 318 F.3d at 1292 (quoting RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 40 cmt. c (AM. L. INST. 1995)).
The term "improper means" "includes theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means" though it "does not include reverse engineering, independent derivation, or any other lawful means of acquisition." 18 U.S.C. § 1839(6)(A)-(B). But "improper" is not coterminous with "unlawful." See Compulife Software Inc., 959 F.3d at 1312; see also RESTATEMENT (THIRD) OF UNFAIR COMPETITION, § 43 cmt. c. Unless "the holder voluntarily discloses [the trade secret] or fails to take reasonable precautions to ensure its secrecy," even otherwise lawful activity can constitute misappropriation. E. I. duPont de-Nemours & Co. v. Christopher, 431 F.2d 1012, 1015-16 (5th Cir. 1970).
As to the misappropriation element, Plaintiff alleges that it employed Cassidy Hawley as a phlebotomist. Pursuant to her duties, Hawley had access to Plaintiff's trade secrets during her term of employment and for two days thereafter. In the two days after she resigned her position with Plaintiff—and after Hawley already had agreed to work for Defendant—Hawley logged in to the third-party accounts that contained Plaintiff's trade secrets. Hawley did this without Plaintiff's permission. Within days after she ceased working for Plaintiff, Defendant employed Hawley. Defendant almost immediately reduced the prices of some of its medical tests.
Furthermore, within a week of Defendant hiring Hawley, Defendant posted on its Facebook page Plaintiff's monthly revenue calculations. Hawley previously had access to this information and it was not generally known by the public—until Defendant posted it on its Facebook page. In addition to posting these calculations, Defendant stated on its Facebook page that it would offer "lower, more affordable pricing" than Plaintiff.
Plaintiff sufficiently alleges that Hawley accessed and then shared with Defendant Plaintiff's purported trade secrets. Plaintiff also sufficiently alleges that Defendant used this information to compete with Plaintiff, for example, by altering its prices below what Plaintiff was charging customers for certain medical tests and by contacting medical professionals who had referred business to Plaintiff, to solicit business for Defendant.
Plaintiff also alleges that, at the time Defendant used Plaintiff's trade secrets, Defendant knew that this information was confidential. Alleging that Defendant knew the information was confidential is not quite the same thing as alleging that Defendant "at the time of disclosure or use, knew or had reason to know" that the trade secret was acquired by Hawley through improper means, etc. But a person can infer an allegation of guilty knowledge from the totality of the allegations in
Plaintiff's amended complaint, and this court must draw all reasonable inferences derived from the facts Plaintiff alleges and consider them in the light most favorable to Plaintiff's claim. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Plaintiff, therefore, also sufficiently alleges this element.
C. Plaintiff Alleges a Connection to Interstate Commerce
The Defend Trade Secrets Act requires that the relevant trade secrets be "related to a product or service used in, or intended for use in, interstate or foreign commerce ...." 18 U.S.C. § 1836(b)(1). Plaintiff operates two medical testing centers in Florida. Plaintiff alleges that it "intends to engage in interstate commerce" and that it already offers "its services to customers who reside outside of the State of Florida, including but not limited to residents of the State of Alabama." Both of Plaintiff's locations are within driving distance from Alabama, and Plaintiff advertises online for its "medical testing services." Plaintiff sufficiently alleges that its trade secrets are related to services used in and intended for use in interstate commerce. Plaintiff, therefore, sufficiently alleges the interstate commerce element of a misappropriation claim.
D. Defendant's Argument
Defendant argues that because it already offered customers medical tests prior to any alleged misappropriation of trade secrets, Plaintiff has failed to state a claim upon which relief may be granted. Defendant does not articulate how Defendant's status as a competitor of Plaintiff precludes Plaintiff from stating a misappropriation of trade secrets claim. Defendant also does not cite any authority which supports its argument. The only case cited by Defendant—Sunjoy Indus. Grp., Ltd. v. Permasteel, Inc., No. 2:22-cv-1896, 2023 U.S. Dist. LEXIS 13257, 2023 WL 406211 (S.D. Ohio Jan. 25, 2023)—provides no support.
Sunjoy Industries Group, Ltd., and Permasteel, Inc., sold patio coolers. Sunjoy designed and engineered a cooler known as the "Mason Cooler" and the "Lindmere Cooler." Sunjoy provided the designs for these coolers to a Chinese company that manufactured them for sale in the United States. Later, Permasteel sold coolers that were substantially similar to the Mason and Lindmere coolers.
Sunjoy sued Permasteel for misappropriation of trade secrets. Permasteel moved to dismiss for failure to state a claim upon which relief can be granted. The district court noted that under trade secret law, "information disclosed by a marketed product cannot be secret." Sunjoy Indus. Grp., Ltd., 2023 WL 406211, at *8. This is a correct statement of the law. "Matters of public knowledge or general knowledge in the industry or ideas which are well known or easily ascertainable, cannot be trade secrets. Similarly, matters disclosed by a marketed product cannot be secret." ECIMOS, LLC v. Carrier Corp., 971 F.3d 616, 643 (6th Cir. 2020) (internal quotation omitted).
Because the Mason cooler had been available in the market since 2018, and the Lindmere cooler had been available in the market since 2021, from those dates, anybody—including Permasteel—was free to examine the design of the coolers and reverse-engineer them. In short, once marketed to the public, the designs of the respective coolers ceased to be trade secrets as a matter of law, and thus could be appropriated at will. To the extent Sunjoy alleged otherwise, it had failed to state a claim of misappropriation upon which relief could be granted. Sunjoy Indus. Grp., Ltd., 2023 WL 406211, at *10. Contrary to Defendant's assertion, the Sunjoy Indus. Grp., Ltd., decision did not hold that an established competitor could never be liable for the misappropriation of another competitor's trade secrets. Many misappropriation of trade secrets claims involve employees conveying purloined trade secrets to an existing competitor of a plaintiff. See, e.g., Fougere, 79 F.4th at 179, 191-92; Ahern Rentals, Inc., 59 F.4th at 951-52; Oakwood Lab'ys LLC, 999 F.3d at 898-99. Competitors already established in a particular business typically are the entities with the most incentive to peculate their competitor's trade secrets, because they already are well-positioned to utilize their competitors' trade secrets to generate revenue. Thus, it is businesses already established in a particular field that the law most needs to deter from swiping their competitors' trade secrets.
Congress certainly was aware that competition among businesses can be "fierce, frequently ruthless, sometimes Darwinian in it pitilessness ...." Speakers of Sport, Inc. v. ProServ, Inc., 178 F.3d 862, 865 (7th Cir. 1999). A rule that would immunize competing businesses from liability for misappropriation of their competitors' trade secrets would substantially curtail much of the value of the Defend Trade Secrets Act. There is nothing in the text of the Defend Trade Secrets Act that creates such immunity for competitors. "The statute says what it says—or perhaps better put here, does not say what it does not say." Cyan, Inc. v. Beaver Cnty. Emps. Ret. Fund, 583 U.S. 416, 426, 138 S.Ct. 1061, 200 L.Ed.2d 332 (2018). Courts are "obligated to the text." Heyman v. Cooper, 31 F.4th 1315, 1319 (11th Cir. 2022). Absent textual support, Defendant's argument, and its motion to dismiss for failure to state a claim, necessarily fails.
III. CONCLUSION
Plaintiff's amended complaint alleges the essential elements of a misappropriation of trade secrets claim pursuant to the Defend Trade Secrets Act. Accordingly, Defendant's motion to dismiss for failure to state a claim upon which relief can be granted must be DENIED.
SO ORDERED this 10th day of January, 2024.