IP Law Daily, TRADE SECRETS—C.D. Ill.: Inevitable disclosure doctrine supports trade secret misappropriation claims under federal and Illinois law, (May 2, 2023)

By Kevin M. Finson, J.D.

The risk of future disclosure of wrongfully obtained trade secrets amounted to injury-in-fact for standing purposes, even if monetary damages cannot be recovered.

An ethanol distillation company had standing to bring suit for trade secret misappropriation under federal and Illinois law against a former partner in development of processing technology, the federal district court in Peoria, Illinois, has held. Even though there was no evidence of actual disclosure of the claimed secrets, the risk of future disclosure of wrongfully obtained trade secrets was an injury-in-fact for case or controversy purposes. The plaintiff alleged that disclosure of its trade secrets was inevitable because the former partner was using the same research team to collaborate with a competitor of the plaintiff on the same products without protecting the plaintiff’s trade secrets. The question of whether the plaintiff could recover damages based a theory of inevitable disclosure was reserved (Marquis ProCap System, LLC v. Novozymes North America, Inc., May 1, 2023, Mihm, M.).

Marquis ProCap System, LLC (Marquis) was a dry-mill ethanol facility engaged in the business of producing fuel grade ethanol and other co-products of ethanol distillation. Over the course of several months, Marquis engaged in exploration of a potential partnership with Novozymes North America, Inc. (Novozymes), a supplier of enzymes and microbes used in the processing of ethanol distillation products. Marquis claimed that it shared trade secrets with Novozymes under a Mutual Confidentiality Agreement. Novozymes then, to the surprise of Marquis, announced a partnership with Marquis’s competitor Green Plains. Marquis alleged that because the same individual scientist employees of Novozymes had worked on both projects, they could not help but use the information they had learned from Marquis in their competing work with Green Plains.

Marquis brought suit for trade secret misappropriation under the Defend Trade Secrets Act (DTSA) and the Illinois Trade Secrets Act (ITSA) against Novozymes and Green Plains, and for breach of contract against Novozymes. Green Plains was dismissed from the case for lack of personal jurisdiction. After the close of discovery, which lasted some three years, Novozymes moved to dismiss for lack of subject matter jurisdiction, arguing that Marquis had not suffered an injury in fact as was required for Article III standing.

Standing—inevitable disclosure. Novozymes argued, and Marquis acknowledged, that there was no direct evidence that Novozymes had disclosed any of the claimed secrets to Green Plains. Marquis argued that evidence of an actual disclosure was not required and that its case was focused on the threat of a future disclosure, which it saw as inevitable because the same individuals to whom Marquis had disclosed its secrets were now working on the same problems with a competing company.

The court explained that the inevitable disclosure theory of harm from an employee who could not help but use confidential information was well supported by Seventh Circuit precedent. In evaluating whether a defendant will inevitably disclose trade secrets in his or her new position under the ITSA, courts consider (1) the level of competition between the former employer and the new employer; (2) whether the employee’s position with the new employer is comparable to the position he held with the former employer; and (3) the actions the new employer has taken to prevent the former employee from using or disclosing trade secrets of the former employer. Saban v. Caremark Rx, L.L.C., 780 F. Supp. 2d 700, 734-35 (N.D. Ill. 2011).

In this case, Marquis established that (1) Green Plains was a direct competitor, (2) Novozymes was in a similar position of helping Green Plains improve its protein capture as it was when it was collaborating with Marquis as Novozymes sent the same scientists to work on both projects, and (3) Novozymes did not take sufficient steps to protect Marquis’s trade secrets until well after the lawsuit was filed.

Although the Seventh Circuit and Central District of Illinois have not squarely addressed whether the theory of inevitable disclosure applies to the DTSA, the court also saw no reason why the inevitable disclosure doctrine could not support Marquis’s claim under the DTSA, given the similar statutory language. Moreover, “other courts have acknowledged that the DTSA and ITSA are generally analyzed together and have suggested that the theory of inevitable disclosure would apply to the DTSA,” the court said. The court also noted that both the federal and state trade secrets statutes explicitly allowed injunctive relief to prevent future harm.

The court denied Novozyme’s motion to dismiss. The court, however, added that the parties will be allowed to provide additional briefing on the issue of whether money damages for trade secret misappropriation are recoverable under the inevitable disclosure theory.

The Case is No. 20-1020.

Attorneys: John F. Stoviak (Saul Ewing Arnstein & Lehr LLP) for Marquis ProCap System, LLC. John J. Cotter (K&L Gates LLP) for Novozymes North America, Inc.

Companies: Marquis ProCap System, LLC; Novozymes North America, Inc.

Cases: TradeSecrets IllinoisNews