CAFC Affirms District Court’s Ruling That Trade Secrets Were Not Sufficiently Identified Under Statute

The U.S. Court of Appeals for the Federal Circuit (CAFC) on Wednesday affirmed a district court decision finding that Applied Predictive Technologies, Inc. (APT) had failed to sufficiently identify its trade secrets under either the state or federal trade secrets statutes.

Business analytics company APT sued MarketDial, Inc. and John Stoddard in the U.S. District Court for the District of Utah for patent infringement and trade-secret misappropriation and later added Morgan Davis as a defendant and added breach-of-contract and tort claims. Stoddard formerly worked with consulting firm McKinsey & Company, Inc. where he was part of a team that evaluated software, including APT’s Test & Learn (“T&L”) software. Davis worked for Boston Consulting Group and Stoddard shared APT’s documents with him while he was still with McKinsey. Stoddard and Davis then left their firms to found MarketDial, which competes directly with APT.

The Utah district court granted Market Dial’s motion to dismiss APT’s breach-of-contract claim against Stoddard, finding that APT “failed to establish that it was a third-party beneficiary of Stoddard’s Employee Agreement.” It then found that APT “failed to sufficiently identify and define its alleged trade secrets and failed to provide sufficient evidence that they derive independent economic value from not being generally known or readily ascertainable, as required by both” the Defend Trade Secrets Act (DTSA) and the Utah Uniform Trade Secrets Act (UUTSA) and granted summary judgment for MarketDial.

On appeal, APT argued the district court erred in granting summary judgment because it did demonstrate that its Standard Deployment Guide (SDG), Partner Capabilities Briefing (PCB) and customized data feeds qualify as trade secrets. APT also argued it was an intended beneficiary of the employment agreement between Stoddard and McKinsey.

On appeal, the CAFC agreed with the district court that APT failed to identify its trade secrets “in a manner that allows the fact-finder to determine if a trade secret exists under the statute.” First, APT’s responses to MarketDial’s questions “provided cursory, high-level descriptions of different categories or sources of information without more.” Second, “APT stated that its alleged trade secrets are compilations, but it failed to provide sufficient definition for a fact-finder to discern whether they derive independent economic value from not being generally known or readily ascertainable, as required by the DTSA and UUTSA.” And third, “the materials and testimony cited in APT’s opposition memorandum did not sufficiently identify and define the alleged trade secrets to meet the statutory definition.”

While APT argued that Utah’s trade secret statute does not require plaintiffs to identify their trade secrets with particularity, the CAFC disagreed. The district court explained that it did not rely on the particularity requirement and “[e]ven under Utah law, plaintiffs must still sufficiently identify and define their trade secrets,” wrote the court. Though there is no particularity requirement under Utah law, the plaintiff still must define the trade secret at issue “in a manner that allows the fact-finder to determine if a trade secret exists under the statute.”

APT also asserted it did not have the burden at summary judgment to show that its trade secrets were not known, but the CAFC again disagreed, saying that “[a]t summary judgment the plaintiff is required to sufficiently identify and define its alleged trade secret such that the fact-finder can discern whether it meets the statutory definition.”  The CAFC further rejected APT’s argument that more than 200 exhibits it included should have been considered more fully by the district court but the CAFC said “the district court correctly determined that it is not enough for APT to include volumes of expert reports, technical documents, and other materials and expect the court to assemble the bits and pieces to gether.” The district court’s summary judgment ruling was therefore affirmed.

As to the breach of contract determination, the CAFC also agreed with the district court’s determination “that the agreement does not show that Mr. Stoddard and McKinsey conferred a separate and distinct benefit to APT,” and therefore confirmed the dismissal of APT’s breach0of-contract claim.

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