532 F. App'x 904
Fed. Cir.2013Background
- Core Laboratories (Texas) provides chemical and radioactive tracer services for hydraulic fracturing; two former employees (Faurot, Bryson) formed Spectrum Tracer Services and conceded they possess Core information, including software.
- Core sued in Texas (later transferred to Oklahoma) for trade secret misappropriation, unfair competition, breach of contract, copyright infringement, and state theft; patents were later added and patent claims were stayed pending PTO reexamination.
- A Spectrum employee (a "whistleblower") submitted an electronic copy of Core’s internal Excel "Software Application" containing 25 worksheets with formulas, business procedures, customer and price lists, and stated he was asked to recreate Core functionality.
- Core filed an emergency motion for a preliminary injunction to enjoin Spectrum’s use of the Software Application and proprietary information; the district court denied the motion, finding monetary damages adequate.
- On appeal the Tenth Circuit reversed: it found Texas substantive law governs the trade-secret claims, held that possession and apparent use of Core’s software presumptively establishes irreparable harm and likelihood of success, and remanded with instructions to enter a preliminary injunction against Spectrum’s use of Core’s trade secrets.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Core is entitled to a preliminary injunction to enjoin Spectrum’s use of Core’s Software Application and proprietary information | Core: Spectrum possesses Core trade secrets, has used or been instructed to incorporate them into Spectrum’s systems, causing customer loss and price erosion; monetary damages are inadequate and irreparable harm is presumed | Spectrum: possession alone does not prove use; whistleblower recanted or limited his statements and denies actual use; monetary damages suffice | Reversed — injunction required. Possession + evidence of instructed copying supports likelihood of success and irreparable harm under Texas law |
| Choice of law governing trade-secret claims after §1404(a) transfer | Core: Texas substantive law applies because case originated in Texas | Spectrum: (implicit) transferee forum law? | Texas substantive law applies to trade-secret claims (transfer does not change substantive law) |
| Whether irreparable harm exists | Core: disclosure/use destroys competitive advantage; lost business and price erosion; irreparable injury presumed when defendant possesses trade secrets and can use them | Spectrum: any harm can be remedied by money; whistleblower denies use | Held: Irreparable harm is presumed where defendant possesses trade secrets and is in position to use them; district court clearly erred in denying irreparable harm |
| Whether stay of non-patent claims should continue during PTO reexamination | Core: requested severance and lift of stay as to non-patent counts given new evidence of misappropriation | Spectrum: had sought stay pending reexamination | Court: remanded for district court to reconsider the stay in light of injunction; stay may be revisited at discretion of district court |
Key Cases Cited
- Van Dusen v. Barrack, 376 U.S. 612 (1964) (transfer under §1404(a) does not change substantive law of transferor forum)
- Hanna v. Plumer, 380 U.S. 460 (1965) (federal courts apply state substantive law and federal procedural law)
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) (federal diversity courts must apply state substantive law)
- Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) (trade secret value lies in competitive advantage; disclosure destroys that advantage)
- Gen. Universal Sys., Inc. v. HAL, Inc., 500 F.3d 444 (5th Cir. 2007) (elements of trade-secret misappropriation under Texas law and definition of "use")
- IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d 191 (Tex. App. 2005) (possession of trade secrets by one able to use them gives rise to presumption of irreparable harm)
- Winter v. Natural Res. Def. Council, 555 U.S. 7 (2008) (standard for preliminary injunctions)
- RoDa Drilling Co. v. Siegal, 552 F.3d 1203 (10th Cir. 2009) (abuse-of-discretion standard for reviewing preliminary injunctions)
- Utah Licensed Beverage Ass’n v. Leavitt, 256 F.3d 1061 (10th Cir. 2001) (remand with instructions to enter injunction when denial was erroneous)
- Landis v. North American Co., 299 U.S. 248 (1936) (court’s authority to stay proceedings)