January 2015
Trade Secret Misappropriation Claim Cannot Be Dismissed as Time-Barred or Factually Implausible Merely Because Misappropriations Occurred Repeatedly over Twenty Years
| Judges: Prost, Newman, Taranto (author) |
| [Appealed from S.D. Fla., Judge Moore] |
In ABB Turbo Systems AG v. TurboUSA, Inc., No. 14-1356 (Fed. Cir. Dec. 17, 2014), the Federal Circuit reversed the district court’s dismissal of a trade secret misappropriation claim because the district court relied on judgments about the timeliness of the claim and the presence or absence of reasonable protections for the trade secrets that went beyond what is authorized at the complaint stage.
ABB Turbo Systems AG and ABB Inc. (collectively “ABB”) design, produce, and sell exhaust gas turbochargers and turbocharger parts, primarily for use in large, ocean-going vessels and in power plants. According to ABB, Johan Franken (“Hans”) previously worked for ABB but stopped working for ABB in 1986 to found TurboNed Service B.V. (“TurboNed”) and compete with ABB in the market for parts and servicing of ABB-sold turbochargers. Hans established TurboUSA, Inc. (“TurboUSA”) in the 1990s, and a son of Hans, Willem Franken (“Willem”), became the president of TurboUSA.
ABB initiated a patent infringement action against TurboUSA and TurboNed in 2012. Subsequently, ABB amended its complaint to add claims of trade secret misappropriation and civil conspiracy to misappropriate trade secrets under Florida law, and to join Hans and Willem Franken as defendants for those claims. Among other things, ABB alleged in its amended complaint that Hans and TurboNed paid one ABB employee for ABB’s confidential information and TurboUSA hired a former ABB employee who stole ABB’s confidential data. ABB alleged that its secrecy maintenance efforts included imposing confidentiality and nondisclosure obligations on ABB employees that have access to ABB’s trade secrets, marking documents as confidential, and restricting physical and electronic access by third parties to trade secrets.
After ABB stipulated to the dismissal of bankrupt TurboNed, the remaining defendants filed motions to dismiss the entire amended complaint under Fed. R. Civ. P. 12(b)(6). The defendants also argued that the trade secret and conspiracy claims should be dismissed because they were time-barred by a Florida statute that requires that a trade secret claim be brought within three years. The district court granted the motions as to ABB’s trade secret and conspiracy claims, reasoning that ABB’s claims were filed too late because ABB claimed misappropriation of its secrets over a period of nearly thirty years or, given the scope of the alleged misappropriations, it was unlikely the trade secrets were the subject of reasonable efforts to protect their secrecy.
“It is enough that ABB’s amended complaint certainly does not state facts making apparent that ABB actually or constructively discovered the alleged misappropriations [outside of the statute of limitations].” Slip op. at 10.
The Federal Circuit held that the district court’s decision exceeded the limits on factual assessments appropriate when ruling on a motion to dismiss. The Court stressed that dismissal on timeliness grounds is proper only when the complaint alleges facts making it apparent that ABB discovered or, “by the exercise of reasonable diligence[,] should have . . . discovered” the alleged misappropriations at least three years before it sued in June 2012. Slip op. at 9 (quoting Fla. Stat. § 688.007). The Court explained that dismissal was improper in this case because the amended complaint said nothing to identify an actual or constructive discovery before June 2009 or allege when or how ABB discovered the misappropriations.
As to the alternative ground for dismissal, the Federal Circuit held that Florida law requires only “reasonable” protections and that the complaint stage is not well suited to determining what precautions are reasonable in a given context. The Court decided that ABB’s specific factual allegations of protective measures were enough to survive a motion to dismiss, emphasizing the importance of a “context-specific” application of Fed. R. Civ. P. 8. The Court explained that detectability turns on the acts of miscreants, and those acts have no particular bearing on whether the actions of the secret owner in seeking to protect against disclosure were adequate.
Accordingly, the Court reversed the district court’s judgment and remanded for further proceedings.
*Kumiko Kitaoka is a Law Clerk at Finnegan.
