IP Law Daily, TRADE SECRETS—1st Cir.: Thermo-electric cooler developer’s trade secret misappropriation claims against semiconductor firm properly dismissed, (Jun 20, 2024)

By Saurabh Kashyap, B.A., LL.B., LL.M.

Restrictions on using the claimed trade secrets had expired under previous agreements.

The First Circuit Court of Appeals affirmed a federal district court’s dismissal of a trade secret misappropriation case brought by Analog Technologies, Inc. (ATI) and its CEO, Dr. Gang Liu, against Analog Devices, Inc. (ADI). The appellate court agreed with the district court and concluded that the restrictions on ADI's use of the trade secrets had expired under a previous agreement, negating ATI's claims (Analog Technologies, Inc. v. Analog Devices, Inc., No. 23-1822 (1st Cir. June 18, 2024)).

Background. The plaintiff/appellant, ATI, specializes in developing thermo-electric cooler (TEC) controllers. These controllers are used in various electronic applications to manage temperature. Dr. Gang Liu, the co-plaintiff/co-appellant, is ATI’s CEO.

The defendant/ appellee, ADI, is a prominent player in the semiconductor industry and designs and manufactures a wide range of analog, mixed-signal, and digital signal processing (DSP) integrated circuits used in electronic equipment.

ATI and Liu initiated this lawsuit in the District of Massachusetts, alleging that ADI had misappropriated its trade secrets following the termination of a 2015 agreement between the parties. The plaintiffs contended that the termination was invalid and that ADI continued to use development materials provided between 2000 and 2004 without authorization, violating the Defend Trade Secrets Act (DTSA) and the Massachusetts Uniform Trade Secrets Act (MUTSA). The district court dismissed the case, ruling that any restrictions on ADI's use of the materials had expired. The plaintiff appealed this decision.

Trade secret definition and misappropriation. Citing Allstate Ins. Co. v. Fougere, 79 F.4th 172, 187 (1st Cir. 2023), the appellate court outlined the requirements for a trade secret under the DTSA, including the necessity of taking reasonable measures to keep information secret. Moreover, it highlighted that under the DTSA, a trade secret includes various types of financial, business, scientific, technical, economic, or engineering information that the owner has taken reasonable measures to keep secret and that derives independent economic value from not being generally known to, or readily ascertainable by, others who could profit from its use. Furthermore, it pointed out that both DTSA and MUTSA require that the trade secret be subject to reasonable efforts to maintain its secrecy and must not be used or disclosed without consent by someone under a duty to maintain its confidentiality.

Expiration of confidentiality obligations. The appellate court concluded that the confidentiality obligations under the 2000 agreement between ATI and ADI expired in 2011, and any non-expiring restrictions on using the development materials were released under the 2015 agreement. This 2015 agreement superseded and replaced the 2000 agreement, releasing ADI from any remaining use restrictions. Therefore, following the termination of the 2015 agreement, ADI's continued use of the development materials did not breach any duty to limit their use.

No revived obligations. Referencing Connors v. Howard Johnson Co., 571 N.E.2d 427, 429-30 (Mass. App. Ct. 1991), the appellate court emphasized the necessity of explicit restrictions to claim misappropriation. ATI argued that the obligations imposed by the 2000 agreement were revived by the 2015 agreement, continuing to restrict ADI's ability to use the development materials. The appellate court disagreed, noting that the 2015 agreement explicitly superseded and replaced the 2000 agreement, releasing ADI from all claims arising from the previous agreement.

Consent to use. The appellate court emphasized that the DTSA and MUTSA both require that using a trade secret constitutes misappropriation only if it occurred without express or implied consent. Citing Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984), the appellate court highlighted that disclosing a trade secret to others without an obligation to protect confidentiality extinguishes the property right in that trade secret. Hence, the appellate court concluded that ATI consented to ADI’s use of the development materials when it relinquished any restrictions under the 2015 agreement.

Interpretation of agreements. In its interpretation, the appellate court found that there were no conditions in the 2015 agreement imposing any obligations on ADI to maintain the secrecy of the development materials or limit their use after the termination of the agreement.

Conclusion. Thus, the First Circuit upheld the district court’s dismissal of ATI’s trade secret misappropriation claims, concluding that there were no enforceable restrictions on ADI’s use of the development materials following the termination of the 2015 agreement.

The Case is No. 23-1822.

Judge: Lynch, S.

Attorneys: Howard B. D'Amico (Howard B. D'Amico PC) for Analog Technologies, Inc. Alexander Paul Ott (McDermott Will & Emery LLP) for Analog Devices, Inc.

Companies: Analog Technologies, Inc.; Analog Devices, Inc.

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