IP Law Daily, TRADE SECRETS—D. Del.: AI diagnostics company’s amended complaint sufficiently alleged trade secret misappropriation, (Aug 20, 2025)

By Carolin Dennis, B.Sc., LL.B., LL.M.

Claim for trade secret misappropriation survived dismissal because it was plausibly alleged that the AI diagnostics company possessed protectable trade secrets and that the former employee, misappropriated those secrets by conveying them to his new, competing employer.

In a misappropriation of trade secrets suit brought by an AI diagnostics company, the U.S. District for the District of Delaware denied the company’s former employee and his current employer’s motion to dismiss the amended complaint for failure to state a claim. The district court determined that the amended complaint plausibly stated a claim for trade secret misappropriation against both defendants (Digital Diagnostics Inc. v. White, No. 1:24-cv-01179-MN (D. Del. Aug. 18, 2025)).

Background. In January 2022, Digital Diagnostics Inc. (Digital), a healthcare technology company that designs, builds, and implements autonomous AI systems that can diagnose disease hired Justin White as a sales representative. White was responsible for using Digital’s proprietary sales and marketing strategies to develop, grow, and maintain customer relationships. However, White was a subpar employee and consistently failed to meet Digital’s sales quotas, received poor performance reviews. Therefore, after several meetings with White to discuss his lackluster performance and consistent failures to meet his sales targets, Digital dismissed him on August 5, 2024. According to Digital, minutes after being fired, White logged onto the company’s server and saved hundreds of sensitive proprietary documents – trade secrets to an external hard drive (Hard Drive). White continued to download Digital materials to the Hard Drive over the next three days, from August 5 to 7.

Later, White leveraged Digital’s confidential information to secure employment with its direct competitor AEYE Health, Inc. (AEYE), a company that develops diagnostic health care technology such as a “1-minute AI diabetic eye exam at any point of care.” After being hired, White provided AEYE with more than 5,500 customers leads, all 100% new contacts. Digital confronted White and AEYE by letter on October 4, 2024. After an unsuccessful effort to resolve the issue, Digital sued White. The original complaint asserted causes of action for misappropriation of trade secrets, breach of contract, breach of fiduciary duty, conversion, and computer fraud against White. Digital also moved for a preliminary injunction and temporary restraining order against White to make him stop using or disclosing Digital’s trade secrets, cease using his old Digital-issued devices and accounts, return all devices, accounts, and trade secrets to Digital, and give up his employment at AEYE. Digital additionally sought to conduct expedited discovery into whether White was continuing to wrongfully use Digital’s trade secrets. The district court granted Digital’s motion for expedited discovery and granted-in-part its motion for a preliminary injunction, ruling that White must refrain from using Digital’s trade secrets and computers but that he could continue to work at AEYE.

Digital then moved to amend the original complaint, seeking to bolster its factual allegations and add AEYE as a defendant. The district court granted Digital’s motion to amend. Digital filed the amended complaint, which asserted counts for violation of the federal Defend Trade Secrets Act (DTSA), and Iowa Uniform Trade Secrets Act (IUTSA) against both White and AEYE (collectively, defendants), as well as claims for as well as claims for breach of contract, breach of fiduciary duty, conversion, and computer fraud against White. The defendants moved to dismiss the two trade secrets counts for failure to state a claim.

Trade secret misappropriation claim. To prevail on a claim for misappropriation of trade secrets under both the DTSA and the IUTSA, a plaintiff must establish (1) the existence of a trade secret, (2) that the trade secret was protectible, and (3) that it was misappropriated by the defendant. The defendants challenged the first and third elements. The defendants argued that the files White took from Digital, saved on his Hard Drive, and brought to AEYE were not “trade secrets” because they were client target lists that could be compiled from publicly available data. Further, the defendants contended that the Amended Complaint failed to allege that AEYE “misappropriated” any trade secrets because AEYE did not improperly acquire or use the materials that belonged to Digital.

Digital asserted that it took numerous security measures to protect its proprietary information, such as non-disclosure agreements with third-parties, confidentiality agreements for in-house employees, and cyber security protocols for its hardware and software. Digital also claimed that the proprietary information at issue is highly unique and valuable and is not generally known to or readily ascertainable by others outside of Digital. However, the defendants contended that White only handed over two customer identification documents, a Contacts File and a Target List, neither of which are trade secrets.

The district court noted that even assuming that the defendants are right that customer target lists culled from public sources cannot be trade secrets that still would not be enough to defeat Digital’s trade secrets claims because information will not necessarily be deprived of protection as a trade secret because parts of it are publicly available. A confidential compilation and organization of public information can amount to a trade secret. Further, the district court noted that the amended complaint explained that AEYE and White could use the proprietary business value modeling tools that Digital had painstakingly developed to convince customers to invest in AEYE’s products rather than Digital’s. Accordingly, even if White did only share those two documents with AEYE, they are adequately alleged to be trade secrets. Lastly, after White became an AEYE employee, he specifically knew that accessing Digital’s proprietary information or using it at AEYE was improper.

The district court also rejected AEYE’s argument that the amended complaint did not adequately allege misappropriation of trade secrets. AEYE argued that even if it did receive Digital’s trade secrets from White, it did not do so “improperly,” and, moreover, that the amended complaint failed to allege that AEYE used them. However, the amended complaint made overwhelming allegations of improper acquisition and use. The allegations claim that White and AEYE took advantage of trade secret information to obtain an economic benefit, competitive advantage, or other commercial value. The amended complaint also alleged that AEYE management repeatedly discussed how White could leverage the information he gained from his time at Digital to benefit AEYE, and then followed through by accepting White’s list of more than 5,500 customer contacts. The defendants attempted to dismiss these allegations as unsupported speculation. But they are circumstantial, not conclusory, and precisely the type of allegations the Third Circuit has held to be sufficient in trade secret misappropriation cases.

Accordingly, the district court found that the amended complaint plausibly stated a claim for trade secret misappropriation against both AEYE and White.

The Case is No. 1:24-cv-01179-MN.

Judge: Noreika, M.

Attorneys: Margaret M. Dibianco (Dibianca Law, LLC) for Digital Diagnostics Inc. William R. Dunny (Potter Anderson & Corroon LLP) for Justin White. Andrew C. Mayo (Ashby & Geddes) for Aeye Health Inc.

Companies: Digital Diagnostics Inc.; AEYE Health, Inc.

Cases: AINews TechnologyInternet TradeSecrets DelawareNews