Split CAFC Issues Precedential Decision on Trade Secret Statute of Limitations Standard

The U.S. Court of Appeals for the Federal Circuit (CAFC) in a precedential decision today reversed a district court’s judgment upholding a jury verdict of trade secret misappropriation and damages. The CAFC majority, with Judge Prost dissenting, found that the statute of limitations to bring a claim under the Defend Trade Secrets Act (DTSA) had expired. The decision reverses a $59.4 million damages award and was authored by Judge Dyk.

Insulet Corporation sued EOFlow, Co. Ltd., EOFlow, Inc., and its chief executive officer and major stockholder Jesse Kim (EOFlow) for misappropriation of its trade secrets relating to its adhesive, wearable insulin patch pump called the Omnipod and EOFlow’s own patch pump, called the EOPatch 2. The misappropriation was alleged to have occurred after EOFlow hired several former Insulet employees to help develop and commercialize the EOPatch 2.

A jury in the U.S. District court for the District of Massachusetts found that EOFlow had misappropriated four Insulet trade secrets and that the claims were not time-barred, and awarded damages that were ultimately reduced by the district court to $25.8 million in compensatory damages and $33.6 million in exemplary damages following the verdict. Also following the jury verdict, the court dismissed Insulet’s associated patent claims “without prejudice,” dismissed EOFlow’s motion for judgment as a matter of law (JMOL) on multiple grounds, including that Insulet’s claims were time-barred, and issued a permanent injunction.

Jurisdiction

On appeal, the CAFC first determined whether it had jurisdiction to hear the claims, considering the patent claims associated with the suit had been dismissed without prejudice. While “[n]ormally, an amendment to a complaint that dismisses patent claims without prejudice will divest this court of its jurisdiction over the appeal,” the majority opinion explained that “a dismissal nominally without prejudice may effectively be a dismissal with prejudice if the statute of limitations has run.”

Here, argued EOFlow, Insulet’s voluntary dismissal of the patent infringement claims and the amendment to its complaint deleting those claims “functioned as a dismissal with prejudice because refiling of the claims would be barred by the six-year statute of limitations.” The CAFC agreed with EOFlow that, since the complaint alleged infringement occurring in June 2018, Insulet was “barred from ‘refiling of the same claim’ of patent infringement because the statute of limitations expired in June 2024.”

Insulet attempted to argue that it is not barred from bringing suit related to acts of infringement more than six years ago, it is only barred from recovery for such acts, but the CAFC called that “a distinction without a difference” because the “‘legal positions’ of the parties were altered by the dismissal.” Insulet also argued it alleged multiple other acts of infringement including ones from 2022, but the CAFC said this was irrelevant with repsect to the 2018 claim at issue.

The opinion finally also rejected Insulet’s argument that “the cases establishing that a dismissal is with prejudice when the statute of limitations has run only apply to involuntary dismissals,” citing Hilton Int’l Co. v. Union de Trabajadores de la Industria Gastronomica, 833 F.2d 10, 11 (1st Cir. 1987) as support for its assertion that “it is well-established that this is also ‘clearly the rule if the dismissal is voluntary’ and ‘any other result . . . would be most unfair.’”

The CAFC therefore determined that it had jurisdiction.

Trade Secret Statute of Limitations

Turning to the statute of limitations with respect to the federal trade secret claims, the CAFC ultimately held that, under its interpretation of 18 U.S.C. § 1836(d), Insulet knew or should have known about the alleged misappropriation by March 2019, meaning it should have filed suit by 2022—”3 years after the date on which the misappropriation with respect to which the action would relate is discovered or by the exercise of reasonable diligence should have been discovered.” However, Insulet filed its claim on August 3, 2023.

Employing the “access-plus-similarity” standard from DTSA case law, the majority found the evidence showed that Insulet had sufficient knowledge—both generally and with respect to each alleged trade secret—of similarity between EOFlow’s device and its own outside of the statute of limitations.

While Insulet argued the access plus similarity standard does not apply and that the statute of limitations began to run only when it had “detailed and specific knowledge of the misappropriation,” the CAFC said “the standard is substantial similarity,” and therefore “detailed knowledge of all of the relevant facts underlying the misappropriation is not required.” The majority continued:

“The relevant question is ultimately whether Insulet had sufficient knowledge to state a claim for trade secret misappropriation before the critical date, not whether it had sufficient evidence to prove misappropriation of its trade secrets.”

Insulet further argued that it was unable to bring its claim until after the critical date for several reasons, but the CAFC rejected all of these.

Dissent

Judge Prost’s dissent charged the majority with erring in four main ways: “(1) it conflates its application of the discovery rule with the inquiry-notice standard, (2) it adopts a framework not supported by the case law, (3) it encourages plaintiffs to race to the courthouse with undeveloped claims based on mere suspicion, and (4) it improperly substitutes our own fact findings for those of the jury.”

Prost first argued that the statute clearly calls for the so-called discovery rule—under which “the clock starts when a reasonably diligent person discovered (or should have discovered) the misappropriation”—to be applied, not the “inquiry-notice standard”—under which “the clock starts when a reasonably diligent person would have begun to investigate a potential misappropriation.”

While the majority said that even under the more rigorous discovery rule Insulet should have known about the misappropriation earlier, Prost said the majority opinion did not demonstrate any meaningful difference between the discovery rule and the inquiry-notice standard, and that “proper” application of the discovery rule would have found that Insulet’s complaint was timely filed.

Prost said he found the access-plus-similarity framework helpful as well, but “I do not agree with how the majority defines the access- plus-similarity framework and applies it to the facts in this case.”

The majority opinion criticized Prost’s dissent in part for failing to conduct a fact-intensive analysis, but Prost said “[t]hat’s not this court’s role.” He added:

“When reviewing challenges to the sufficiency of the evidence supporting the jury’s verdict, we must view the evidence in the light most favorable to Insulet and draw ‘all factual inferences and resolving all credibility determinations in [its] favor.’”

Ultimately, said Prost, the majority decision undermines the role of the jury as fact finder.

EOFlow was represented by Cooley LLP and Insulet was represented by Goodwin Procter LLP.

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