IP Law Daily IT servicing company not entitled to new trial on trade secrets claim against former employee
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Monday, August 10, 2020

IT servicing company not entitled to new trial on trade secrets claim against former employee

By Brian Craig, J.D.

A jury properly rejected a misappropriation of trade secrets claim, but the district court erred in awarding damages for breach of contract involving solicitation of former employees because such a restraint is contrary to California law.

A federal district court in Texas did not err in denying an information technology servicing company’s motion for a new trial on its misappropriation of trade secrets claim against a former employee and competitor, the U.S. Court of Appeals in New Orleans had held. The Fifth Circuit found that there was not an "absolute absence" of evidence to support the jury’s verdict that the competitor did not misappropriate trade secrets. The Fifth Circuit concluded, however, that the district court erred in awarding $287,702 in damages for breach of a non-solicitation agreement by the former employee on summary judgment because California law has a strict antipathy towards restraint of trade of any kind (Six Dimensions, Inc. v. Perficient, Inc., August 7, 2020, Southwick, L.).

An information technology servicing company, Six Dimensions, Inc., sued Perficient, Inc., a competing information technology servicing company, and a former employee for misappropriation of trade secrets, unfair competition, and breach of contract. Six Dimensions alleged that the former employee violated a 2014 agreement barring solicitation of employees, and a 2015 agreement when the former employee severed her employment with Six Dimensions. The district court entered summary judgment for Six Dimensions on its claims for breach of contract. The court held that the 2014 agreement and 2015 agreement were separate contracts and that both had been breached. The district court granted summary judgment for Perficient holding that the California statute on unfair competition did not apply extraterritorially. After a trial on the remaining issues, the jury found that Perficient did not misappropriate trade secrets but that the former employee breached the contract. The jury award $287,702 in damages for breach of contract, which the district court entered as a final judgment based on the verdict. The parties cross-appealed.

Misappropriation of trade secrets. The Fifth Circuit held that the district court properly denied a motion for a new trial on the claim for misappropriation of trade secrets. District courts should not grant a new trial on evidentiary grounds unless the verdict is against the great weight of the evidence. Here, the jury found Perficient did not misappropriate the Six Dimensions training materials on an acquisition theory. Six Dimensions argued that the evidence clearly showed an absolute absence of evidence to support the jury’s verdict. While a former employee undoubtedly possessed training materials through improper means after his termination of employment because he retained a thumb-drive, there was not an absolute absence of evidence to support the jury’s verdict that Perficient had not misappropriated these training materials through acquisition. The training materials were not entered into evidence and Six Dimensions did not present any testimony on how the training materials were improperly used. Without the training materials in evidence to compare with a more detailed account of a conversation to support misappropriation, the evidence did not compel that Perficient acquired the training materials through the conversation. Therefore, the district court did not abuse its discretion in refusing to find the jury’s verdict contrary to the great weight of the evidence.

Unfair competition. The Fifth Circuit also held that the district court did not err in entering summary judgment for Perficient on the unfair competition claim. Six Dimensions argued that Perficient violated California’s Unfair Competition Law. The district court held that Six Dimensions’ claim failed as a matter of law because Six Dimensions did not allege, or cite any evidence showing, any misconduct or injuries occurring in California. The California statute does not apply where none of the alleged misconduct or injuries occurred in California.

Breach of contract. The Fifth Circuit held, however, that the district court misapplied California law on the breach of contract claim involving an agreement barring solicitation of former employees. In analyzing the breach of contract claim, the appeals court first held that California state law, rather than Texas law, applied to the breach of contract claims. The Fifth Circuit then held that the district court erred in finding breach of contract involving the 2015 agreement because a California statute has a strict antipathy towards restraint of trade of any kind which voids the contract barring solicitation of former employees. The district court abused in its discretion in denying the former employee an opportunity to extend the arguments she had already made about the 2014 Agreement and have them apply to the 2015 Agreement. Therefore, the Fifth Circuit reversed the judgment on breach of contract that awarded $282,702 in damages against the former employee.

This case is No. 19-20505.

Attorneys: Michael Patrick Doyle (Doyle, LLP) for Six Dimensions, Inc. Patrick S. Richter (Jackson Lewis, PC) for Perficient, Inc.

Companies: Six Dimensions, Inc.; Perficient, Inc.

MainStory: TopStory TradeSecrets GCNNews LouisianaNews MississippiNews TexasNews

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