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In Assessing Statute of Limitations, Earlier Suspicions of Trade Secret Misappropriation Do Not Give Rise to a Constant Future Duty to Investigate

11-1245
August 01, 2012
DeRoo, Pier D.

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Last Month at the Federal Circuit - September 2012

Judges: Linn (author), Dyk, O'Malley

[Appealed from: E.D. Tex., Judge Schell]

In Raytheon Co. v. Indigo Systems Corp., Nos. 11-1245, -1246 (Fed. Cir. Aug. 1, 2012), the Federal Circuit reversed the district court’s dismissal of Raytheon Company’s (“Raytheon”) misappropriation of trade secret claims as untimely under a three-year statute of limitations.

Ex-Raytheon employees formed Indigo Systems Corporation (“Indigo”) in 1996 and began providing consulting services to Raytheon and other companies. Concerned that Indigo was actively recruiting Raytheon employees and gaining access to its trade secrets, Raytheon obtained assurances from Indigo and entered into an agreement prohibiting such activities. This agreement terminated in 2000.

In 2004, after Indigo won a contract over Raytheon to supply military cameras, Raytheon acquired and dissected an Indigo camera as part of its “routine competitive analysis,” when it discovered evidence of trade secret misappropriation. Raytheon sued Indigo and FLIR Systems, Inc., the parent corporation of Indigo, in 2007, and the district court dismissed Raytheon’s claims as time-barred on SJ because Raytheon knew or should have known of the misappropriation before it purchased the Indigo camera, rejecting Raytheon’s discovery rule and equitable tolling defenses to the statute of limitations.

On appeal, the Federal Circuit held that the district court impermissibly drew factual inferences against Raytheon, the nonmoving party, on SJ. The Court found that certain facts, including that Raytheon waited almost six months to dissect the camera after obtaining it, supported a reasonable inference in Raytheon’s favor that it did not suspect anything and had no actual knowledge of misappropriation before dissecting the camera.

The Court also determined that the district court erred in concluding that Raytheon, regardless of its actual knowledge, should have suspected Indigo more than three years before filing suit. The district court’s analysis presumed that Raytheon should have begun suspecting Indigo’s misappropriations once their agreement terminated in 2000, based on Raytheon’s pre-2000 suspicions, which gave rise to that agreement. But the Court rejected the notion that Raytheon “was on permanent inquiry notice” after the agreement expired, as this inference ignored Indigo’s past assurances. Because the district court had drawn factual inferences against Raytheon, the Court explained that “[i]t was for the jury and not for the district court to decide when Raytheon should have first discovered the facts supporting its cause of action.” Slip op. at 13.

Accordingly, the Court reversed the district court’s grant of SJ and remanded for further proceedings.

Summary authored by Pier D. DeRoo, Esq.