Sixth Circuit Rejects Dubious Trade Secret Claim

If you are thinking about bringing a trade-secret-misappropriation suit, do not take a ready-fire-aim approach. Before filing the lawsuit, you need to be able to articulate the precise trade secret at issue and how it was misappropriated. A recent case decided by the Sixth Circuit, Dice Corp. v. Bold Tech., 2014 WL 260094 (6th Cir. Jan. 24, 2014) gives an example of a trade-secrets claim that probably never should have been filed. A link to the opinion is below.

This case involved a dispute between two competitors who provide services and software to alarm companies. An alarm company using the plaintiff’s software decided to change to the defendant’s. In this circumstance, there needs to be a transition period, during which the alarm company is still using the plaintiff’s software, while running the defendant’s software in parallel on other servers. This ensures that the new software is properly monitoring the alarm signals before it goes live.

The plaintiff, perhaps angry over the loss of a client, accused the defendant of accessing and using its proprietary information during the transition process. It brought claims under the Michigan Uniform Trade Secrets Act, among others.

The trade-secrets claim was based on supposed misappropriation of (1) a file containing a master list of alarm codes, and (2) “receiver drivers” software that takes incoming signals and converts the data to the plaintiff’s standard. The Sixth Circuit rejected both. As to the list of codes, the court said:

The plaintiff fails to explain how this information, even if uniquely coded, is a trade secret. The [file] is a compilation of labeling codes created by manufacturers, not the plaintiff. The codes were collected by the plaintiff’s customers, not the Plaintiff. The plaintiff has not put forward an explanation of how the value of its unique labeling is derived from it not being readily ascertainable by proper means.

Regarding the software, the Sixth Circuit noted that “neither in the operative complaint nor in the plaintiff’s response to the defendant’s motion for summary judgment can we find a trade secret claim based on receiver drivers or software that performs that function.” Even if the plaintiff had properly pleaded a claim on this basis, the court still would reject it since “other than a generalized explanation of what the receiver drivers do, the plaintiff has failed to explain whether the receiver drivers derive economic value from their secrecy.”

Takeaway: This seems like the latest in a long line of trade-secrets cases that never should have been brought in the first place. Filing a lawsuit and litigating it through appeal is not cheap. Before doing so, make sure you can (1) explain what trade secret(s) were actually misappropriated, and (2) plead and prove the misappropraition (or at least feel comfortable that discovery is likely to lead to the evidence necessary to prove your claim). If you have difficulty doing either, think very carefully whether the suit should be filed. As the (overused) saying goes, sometimes discretion is the better part of valor.

Dice Corp. v. Bold Tech.

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