Cross-Office Trade Secrets Team Obtains Multimillion-Dollar Settlement and Permanent Injunction in Case Involving Misappropriation of Trade Secrets and Copyright Infringement

CHALLENGE

Four former senior officers of the company (including its former president), who were all onboarded as part of a merger, secretly started a competing logistics business and recruited dozens of our client’s other employees, after these executives had just been paid millions of dollars from the merger. After defendants had successfully moved one key customer and were poised to strike deals with others, all while secretly armed with our client’s confidential information, our client secured a preliminary injunction enjoining defendants from further interference with its customers, despite defendants’ lead argument that as California residents, California’s prohibition against restrictive covenants should apply to them, rather than their agreements’ chosen law of Delaware. But defendants’ misconduct did not stop there. In defiance of the injunction, they continued to covertly initiate contact with our client’s customers, feigning a misinterpretation of the court’s order. In addition, forensic analysis of over a dozen computer devices later revealed that defendants, despite their efforts to destroy evidence of their misconduct, had infringed the source code to our client’s proprietary data tracking software, which defendants had previously touted to our client’s customers as a state-of-the-art technology.

SOLUTION

The Seyfarth team was able to shed light on the full scope of defendants’ misconduct only after prevailing on multiple motions to compel and 40 depositions were taken around the country of party witnesses, nonparties, damages experts, and software experts. Through its aggressive pursuit of justice, the team was able to convince two former employees to “come clean” and reveal the depraved actions of the defendants, which included hacking into our client’s servers to steal source code, the widespread destruction of evidence, and witness tampering.

RESULTS

After three trips to the US Court of Appeals, including a petition for writ of mandamus, and a second preliminary injunction hearing, on June 23, 2020, US District Judge granted summary judgment in favor of our client. The court found that defendants solicited our client’s largest customers in violation of the restrictive covenants in their stock award agreements with the company, unlawfully misappropriated and misused our client’s trade secrets in violation of the Defend Trade Secrets Act, knowingly engaged in copyright infringement of our client’s software, and breached their fiduciary duties, among other tortious misconduct. The court further granted our client a permanent injunction, forever enjoining defendants from using our client’s trade secrets.

The Seyfarth team successfully fended off another appeal of the permanent injunction order to the Second Circuit, the Judge scheduled an October 2021 trial date to determine the amount of damages to which our client is entitled, and whether defendants’ conduct rose to the level of willfulness, such that our client would be entitled to exemplary damages under the Defend Trade Secrets Act, punitive damages, and attorneys’ fees. 

In the days leading up to the trial, after two key defense witnesses recanted their prior testimony and confessed to their misdeeds, defendants’ counsel reached out and waved the white flag. The team structured a settlement package that required defendants to pay millions to our client, abide by a one-year, court-endorsed consent injunction restricting defendants from contacting 14 of our client’s key customers, with an additional $2.5 million penalty in the event of any breach of the settlement, and a permanent injunction to protect trade secrets. The case concluded in October 2022 with a dismissal and permanent injunction entered.