June 21, 2019

Trade Secret Claims Tanked Based Upon Delay

Holland & Knight Trade Secrets Blog
Steven E. Jedlinski

Recently, the Eighth Circuit Court of Appeals considered the three-year statute of limitations provisions of the Defend Trade Secret Act (DTSA) and Iowa Trade Secrets Act (UTSA). In the underlying district court action, CMI Roadbuilding, Inc. brought a number of claims against Iowa Parts, Inc., related to a trade secret dispute over engineering drawings and parts for fabrication machinery in the asphalt industry. The district court disposed the entire case on summary judgment finding that the CMI's claims were timed barred.

On appeal, CMI argued that that the ruling was contrary to the discovery rule — which tolls the statute of limitations until the date that harm is or reasonably should have been discovered. The discovery rule is written into both the DTSA and UTSA 18 U.S.C. § 1836(d); Iowa Code § 550.8. The appellate court rejected the argument and confirmed that the statute of limitations clock for CMI's DTSA claims began as soon as CMI was on notice that its trade secrets were being misused by Iowa Parts. More specifically, CMI knew that its component part technology was being utilized by Iowa Parts as early as 2002. However, it was not until over a decade later when Iowa Parts suddenly raised its prices on competing products, that CMI brought suit against Iowa Parts in 2016. The ultimate focus was when CMI was aware a problem existed because once a plaintiff is on inquiry notice, he is charged with knowledge that a reasonably diligent investigation would have disclosed and has a duty to do such an investigation, regardless of the plaintiff's exact knowledge. Based on the record at summary judgment, the Court noted several instances from 2002 to 2014 where it concluded that CMI either knew or should have known that its technology was being utilized and advertised by Iowa Parts. For example, in 2002, Terex (an entity acquired by CMI) sent a letter to an Iowa Parts employee (formerly employed by Terex) warning him not to use engineering documents with authorization. Additionally, in 2011, Iowa Parts' website was touting that its employees had worked for CMI (or its predecessors) and gained valuable information. The Eighth Circuit ultimately concluded that no reasonable jury could look at CMI's delay in filing from 2002 to 2016 and conclude a reasonable person would have waited so long to discover Iowa Parts' alleged misappropriation. The judgment was affirmed and CMI's trade secret claims were extinguished.

This is a good reminder for companies to train its employees to timely bring any concerns of intellectual property misappropriation (especially by competitors) to the attention of the appropriate personnel. In this case, CMI lost its opportunity to seek recourse against a significant market competitor based upon delay alone.

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