Advanced Fluid Sys. v. Huber - 958 F.3d 168 (3d Cir. 2020)

Rule:

The United States Court of Appeals for the Fourth Circuit has held that a party asserting a misappropriation claim under Maryland's Uniform Trade Secrets Act need only demonstrate lawful possession of a trade secret, and not ownership in its traditional sense, to maintain such a claim. That holding was based on the premise that the proprietary aspect of a trade secret flows, not from the knowledge itself, but from its secrecy, because it is the secret aspect of the knowledge that provides value to the person having the knowledge. While the information forming the basis of a trade secret can be transferred, as with personal property, its continuing secrecy provides the value, and any general disclosure destroys the value. 

Facts:

This sorry story of disloyalty and deception piled upon deception resulted in verdicts against the wrongdoers. They're not happy about that, but, when the tale is told, it's clear that the result is entirely justified. In brief summary, Kevin Huber stole confidential information from his employer Advanced Fluid Systems, Inc. ("AFS"), first for the benefit of an AFS competitor, Livingston & Haven, LLC ("Livingston"), with whom Huber wanted to ingratiate himself, and then, in another twist of deceit, for a company he created, Integrated Systems and Machinery, LLC ("INSYSMA"; together with Huber, the "Huber Parties"), to compete against both AFS and Livingston. When the facts began to come to light, AFS brought suit against the Huber Parties and Livingston, as well as Livingston employees Clifton B. Vann IV and Thomas Aufiero (together with Livingston, the "Livingston Parties"), alleging various claims under federal and state law, including principally trade secret misappropriation claims under the Pennsylvania Uniform Trade Secrets Act (the "Trade Secrets Act" or the "Act"). There was one other defendant, Orbital Sciences Corporation ("Orbital"), the company from which AFS, Livingston, and INSYSMA were all trying to get business. AFS settled with Orbital before trial, and it is not one of the Appellants here. All of the other defendants are. On summary judgment, the District Court held as a matter of law that the Huber Parties were liable under the Trade Secrets Act for misappropriating AFS's trade secrets. Then, following a bench trial, the Court held the Livingston Parties jointly and severally liable with the Huber Parties for that misappropriation, and it held all Appellants except Aufiero and INSYSMA liable for breach of fiduciary duty or aiding and abetting that breach. As remedies for the tortious conduct, the Court awarded compensatory damages from all Appellants, exemplary damages under the Act from Huber, and, based on the breach of fiduciary duty, punitive damages from all Appellants except INSYSMA and Aufiero.

Issue:

Must AFS's claim for trade secrets misappropriation fail because AFS does not "own" the purported trade secrets at issue?

Answer:

No.

Conclusion:

The court held that AFS was not required to show ownership because its lawful possession of the trade secrets was sufficient, and the course of conduct evident in the record showed that the employer clearly had permission to hold and use the secrets. The district court did not abuse its discretion by refusing Livingston’s request to grant the extraordinary relief of a new trial because it had a sound rationale for overlooking Livingston’s attorney's technical non-compliance with local pro hac vice rules where it already had sufficient information to determine whether he should be admitted to practice pro hac vice, and it did not wish to further delay a case that was ready for trial and had taken four years to get there.