• Can a Trade Secret Licensee State a Claim?

    by  • May 15, 2010 • trade secret

    It can in Wisconsin. In Metso Minerals Industries, Inc. v. FLSmidth-Excel LLC, there was no question that the plaintiff, Metso, was only a licensee of the secret, not the owner. Two of the defendants were former employees of Metso and one of its licensees, but now are employees of the corporate defendant Excel. Metso accused the two of taking technical data sheets and design information for a rock crusher and also accused two high-ranking officers at Excel of actively encouraging the acquisition of the trade secrets.

    The defendants moved for summary judgment on the theory that only the owner of a trade secret has standing to state a claim for misappropriation of a trade secret. Trade secret law is state law, and Wisconsin has adopted a version of the Uniform Trade Secrets Act it codifies at Wis. Stat. § 134.90. There is no controlling decisional state law in Wisconsin on the issue, so it was up to the federal court judge to decide what the state court would say about the situation.

    In Wisconsin, the statute states:

    (2) Misappropriation. No person, including the state, may misappropriate or threaten to misappropriate a trade secret by doing any of the following:
    (a) Acquiring the trade secret of another by means which the person knows or has reason to know constitute improper means.

    The defendants’ first argument was that the language “of another” means “of the owner,” but that was a no-go. The comments to the Uniform Trade Secret Act make clear that this phrase means, in the situation where there are multiple owners of a trade secret, that a claim can only be brought by the one from whom the trade secret is misappropriated, not the other owners. The fact that the comment contemplated multiple owners “taught away” from an interpretation that only an owner may bring an action.

    Another section of the statute seemed more promising:

    (3) INJUNCTIVE RELIEF. (a) 1. A court may grant an injunction against a person who violates sub. (2).

    . . .

    (b) In exceptional circumstances, an injunction granted under par. (a) may condition future use of a trade secret by the person who violated sub. (2) upon payment of a reasonable royalty by that person to the owner of the trade secret for no longer than the period of time for which the court may enjoin or restrain the use of the trade secret under par. (a).

    Here, only the owner of the trade secret can get royalties, so isn’t the statute in general talking about owners? Not good enough, according to the court, because the plaintiff wasn’t seeking a royalty, only injunctive relief and damages. Those sections don’t say anything about “owner.”

    The defendants then haul out some case law, none of it controlling and, as the court decides, all of it distinguishable. In Omnitech Int’l., Inc. v. Clorox Co., 11 F.3d 1316, 1323 (5th Cir. 1994), the plaintiff had no interest at all in the trade secrets. In RMS Software Dev., Inc. v. LCS, Inc., 1998 WL 74245 (Tex. App. Feb. 19, 1998), the case was about the Colorado Uniform Trade Secret Act, which differs from the Wisconsin act by referring to the owner in the definition of trade secret. Althin CD Medical, Inc. v. West Suburban Kidney Center, S.C., 874 F.Supp. 837 (N.D. Ill. 1994) could be distinguished because the case was about contractual rights, specifically that the plaintiff did not have the right to bring a lawsuit in its license from the trade secret owner.

    There was one case the court conceded was in defendants’ favor, Gabriel Int’l, Inc. v. M & D Industries of Louisiana, Inc., 719 F.Supp. 522 (W.D. La. 1989), a conclusory four pages, but it was trumped by DTM Research, L.L.C. v. AT & T Corp., 245 F.3d 327 (4th Cir. 2001). The Metso court agreed with the DTM Research court that “the law does not protect ownership in information as such but rather protects the owner from the use of improper means to obtain that information or from its improper use.” The claim therefore can be brought by anyone in possession of the secret against those who misappropriate it. It also doesn’t have to be an exclusive licensee, as is the case in patent law, because a trade secret claim is more similar to a breach of confidence than interference with property, so it is the victim of the misappropriation who has been wronged and therefore has the claim.

    Assuming a statute is more like Wisconsin than Colorado, DTM Research looks like the case to follow, the Metso court citing these courts for doing so (parentheticals by the court):

    • DaimlerChrysler Services v. Summit Nat’l, 2006 WL 1420812, *8 (E.D. Mich. 2006) (“The Court agrees with the holding in DTM Research that for purposes of trade secrets law, the focus is appropriately on the knowledge, or possession, of the trade secret, rather than on mere ‘ownership’ in the traditional sense of the word.”)
    • Parking Co., L.P. v. Rhode Island Airport Corp., 2005 WL 419827, *3 (R.I. Super. 2005) (citing DTM and holding that Rhode Island’s UTSA “does not require ownership of the property in order to have trade secret protection thereof.”)
    • Fast Capital Marketing, LLC v. Fast Capital LLC, 2008 WL 5381309, *12 (S.D. Tex. 2008) (quoting and discussing DTM Research approvingly in case in which party who possessed, but did not own, trade secrets was permitted to sue for misappropriation)
    • In re Cayman Island Firm of Deloitte & Touche, 2001 WL 1042233 *2-3 (Tex. App. 2001) (adopting DTM’s rationale in order to interpret that Tex.R. Evid. 507–which allows the owner of a trade secret the privilege of refusing to disclose the secret–also allows possessors of a trade secret to utilize the privilege as well.)

    Metso Minerals Indus., Inc. v. FLSmidth-Excel LLC, No. 07-cv-926 (E.D. Wis. May 7, 2010).

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