966 F.3d 46
1st Cir.2020Background:
- TLS, a Puerto Rico tax-planning firm, developed client-specific "Capital Preservation Reports" (CPRs) and a U.S. Possession Strategy for tax arbitrage using Puerto Rico tax incentives.
- Rodríguez (former TLS managing director) and ASG signed nondisclosure agreements; Rodríguez later worked for ASG and GOS and advised former TLS clients about exiting TLS membership.
- TLS alleged (1) Rodríguez downloaded two CPRs from TLS Dropbox without authorization and (2) Rodríguez/ASG misappropriated the Strategy in advising two former clients; TLS sued for trade-secret misappropriation and breach of NDAs.
- The district court granted summary judgment for TLS on the NDA claims, found CPR and the Strategy were trade secrets, and after a bench trial held Rodríguez/ASG liable for misappropriation and entered injunctive relief.
- The First Circuit reversed: it held TLS failed to prove either the CPRs or the Strategy qualified as trade secrets and concluded the NDAs were unreasonably broad and unenforceable under Puerto Rico law; remanded with instructions to enter judgment for defendants.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TLS's CPRs are trade secrets | CPRs contain protectable, nonpublic compilations/processes unique to TLS | CPRs are client-specific and largely public; TLS failed to identify secret elements with specificity | Court: TLS failed as a matter of law to identify specific, non-ascertainable trade-secret elements; CPRs not trade secrets |
| Whether the U.S. Possession Strategy is a trade secret | Strategy (including use of promissory notes/security agreements) is a unique, nonpublic method giving TLS an advantage | Underlying components were public/common; TLS offered no proof the substance was not readily ascertainable | Court: TLS did not show the Strategy's substance was not readily ascertainable; not a trade secret |
| Enforceability of nondisclosure agreements | NDAs valid and bar misuse of TLS confidential information | NDAs are overbroad, functionally like noncompetes, and violate Puerto Rico public policy per Arthur Young | Court: NDAs are unreasonably broad and unenforceable under Puerto Rico law; cannot be judicially narrowed |
| Procedural: waiver and summary-judgment rulings | District court correctly found waiver and granted TLS summary judgment on NDA claims | Defendants preserved enforceability argument; district court erred in finding waiver | Court: District court’s waiver finding unsupported; summary judgment for TLS on NDA claim was erroneous |
Key Cases Cited
- Arthur Young & Co. v. Vega III, 136 D.P.R. 157 (P.R. 1994) (establishes Puerto Rico public-policy limits on post-employment restraints and reasonableness review)
- IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581 (7th Cir. 2002) (trade-secret claimant must define secrets with sufficient specificity)
- Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263 (7th Cir. 1992) (requiring particularized identification of alleged trade secrets)
- AMP, Inc. v. Fleischhacker, 823 F.2d 1199 (7th Cir. 1987) (overly broad confidentiality clauses may be unenforceable as unreasonable restraints)
- Nasco, Inc. v. Gimbert, 238 S.E.2d 368 (Ga. 1977) (broad nondisclosure covenants that protect nonconfidential information are unenforceable)
- Markman v. Westview Instruments, Inc., 517 U.S. 370 (U.S. 1996) (illustration that other IP regimes have pre-defined boundaries, contrasting with trade-secret claims)