As indicated in my last two posts, I am way behind in covering the recent developments in Massachusetts restrictive covenant law (noncompetes, nonsolicits, no-recruits, etc.), trade secret law, and related issues — but I’m catching up as quickly as I can.
Today’s update involves misappropriation of trade secrets and 93A: Insulet Corporation v. EOFlow Co., Ltd. (United States District Court for the District of Massachusetts, summary judgment decision).
Executive Summary
Insulet claimed that three former employees, together with a competitor (EOFlow), its related entity (Nephria Bio), and EOFlow’s CEO, misappropriated trade secrets related to Insulet’s insulin patch pump.
On cross-motions for summary judgement, the court:
- Identified the standard for the discovery rule as applied to the Defend Trade Secrets Act (DTSA) and found that a jury would need to decide if Insulet’s DTSA claims were time-barred;
- Held that Insulet’s description of its trade secrets was adequate, but struck “including” language, because it suggested there could be additional, not-yet-identified trade secrets;
- Held that Insulet’s 93A claims (unfair and deceptive trade practices) do not lie, as the alleged conduct did not occur primarily and substantially in Massachusetts; and
- Held that the intra-corporate conspiracy doctrine precluded all but one of the conspiracy claims.
Facts and motions
The case involves the alleged misappropriation of trade secrets concerning the design and manufacture of an insulin patch pump made by Insulet called the “Omnipod.” (An insulin patch pump is an “adhesive wearable device that monitors patient glucose levels and directly delivers insulin to” the person wearing it.)
The facts as found by the court are typical. A former employee (Luis Malave) worked for the plaintiff (Insulet) for about eight years. Later (in this case, seven years (2017)), the employee began working for a competitor (in this case, EOFlow). Two other former employees (Steven DiIanni and Ian Welsford) whose Insulet employment overlapped with Malave’s began working with EOFlow at about the same time that Malave did (in 2017).
Instructively, when leaving Insulet, DiIanni “initially refused to sign a termination agreement requiring him to return company documents and reiterating his duty to abide by the terms of his prior confidentiality agreement. He instead retained copies of Insulet’s documents containing the asserted trade secrets.”
Further, the court noted:
Plaintiff’s second amended complaint alleges that during their employment with Insulet, DiIanni and Welsford transferred thousands of confidential corporate documents to their personal computers; kept those documents after their tenure with Insulet ended; and later provided the information from those documents to Malave (who by that time had begun working for EOFlow), Kim, and EOFlow. Among other things, those documents included detailed information concerning the design and the engineering history of the device, including such things as failure analyses.
In 2017, “the same year that EOFlow hired Insulet’s former employees, EOFlow began developing its second-generation EOPatch 2.” That version became available in Korea in 2021.
There were factual questions about when exactly Insulet first saw the EOPatch 2, and when it should have realized that the EOPatch 2 was allegedly based on Insulet’s trade secrets. But it seems undisputed that, in February 2023, Insulet obtained and analyzed an EOPatch 2. According to Insulet, that version of EOFlow’s patch “utilized a system that was substantially identical to that found in the Omnipod.” Insulet further alleged that “the design similarities resulted from the misappropriation of trade secrets by Malave, DiIanni, and Welsford, who allegedly stole information about the Omnipod’s design while working at Insulet and later disclosed that information to EOFlow.”
In May 2023, “Medtronic — a large medical device company and one of Insulet’s competitors — announced its intention to acquire EOFlow for $738 million.”
Insulet brought the lawsuit in August 2023.
Subsequently, “both parties moved for partial summary judgment.”
Defendants made four arguments:
(1) the DTSA claims are time-barred; (2) the descriptions of two of plaintiff’s trade secrets lack sufficient specificity; (3) the alleged misconduct did not occur “primarily and substantially” in Massachusetts, as required by Mass. Gen. Laws ch. 93A; and (4) the intra-corporate conspiracy doctrine bars the civil-conspiracy claim.
(Emphasis added.)
Insulet moved for summary judgment on defendants’ statute of limitations defense.
The court ruled that “defendants’ motions for summary judgment will be granted as to the Chapter 93A claims; granted in part as to the civil-conspiracy claims; and otherwise denied, and plaintiffs’ motion for summary judgment will be denied.” (Emphasis added.)
Statute of limitations under Defendant Trade Secrets Act
Relying on the Supreme Court case Merck & Co. v. Reynolds, the district court rejected application of an “inquiry notice” standard to DTSA claims (even though it has been adopted by many other courts, albeit without much analysis) and held “that a cause of action accrues under the DTSA when ‘the misappropriation with respect to which the action would relate’ is (1) actually discovered or (2) ‘by the exercise of reasonable diligence should have been discovered.’ 18 U.S.C. § 1836(d). And based on the reasoning of Merck, it does not accrue when the plaintiff merely has sufficient information to put it on inquiry notice.”
As the court explained, “a mere cause for concern is not enough to trigger the running of the limitations period under the DTSA. Instead, the analysis turns on when a hypothetical similarly situated company, exercising reasonable diligence, should have discovered the misappropriation.”
Denying both parties’ summary judgment motions on the statute of limitations, the court held, “there are multiple material factual disputes concerning the time at which a reasonably diligent company should have discovered the alleged misappropriation. The question of the accrual of the statute of limitations is thus proper for the jury.”
Specificity of claimed trade secrets
The court started by explaining the broad scope of trade secret law:
The definition of what may be deemed a “trade secret” under the DTSA is broad. Under the DTSA, a trade secret includes “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible.” The information must “derive[ ] independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure of use of the information.”
A protectable trade secret may include “any confidential information used in a business that gives [the owner] an advantage over competitors who do not know or use it.” Notably, “[a] trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which, in unique combination, affords a competitive advantage and is a protectable secret.”
The court then turned to the identification requirements:
For the purposes of bringing a DTSA claim, a plaintiff must “adequate[ly]” describe the asserted trade secrets “with clarity that can be understood by a lay person.” “[A] court should not have to ‘sift through technical data to distill out a trade secret.’”
Although “courts have required specificity” when evaluating the adequacy of a trade secret description, “specificity is highly fact dependent.” Ultimately, courts must approach the analysis with “a modicum of common sense” that recognizes the fundamental purpose of requiring plaintiffs to describe their trade secrets with specificity: to allow defendants to effectively prepare a rebuttal and to ensure that the trier of fact can actually understand the claims asserted.
(Citations omitted.)
Insulet identified two purported trade secrets. The court took them in turn.
The first claimed trade secret was the “CAD Files for the Omnipod.” Insulet identified them as “Insulet’s CAD files for its components, sub-assemblies, and complete assembly provide detailed 3-dimensional renderings with precise nominal dimensions for the Omnipod components as well as the relative positioning of different components (e.g., offsets) within an assembly, including, among other things, native assembly CAD files and the .STP export of the 13800-PODASSEMBLY.” Insulet further stated: “the CAD files at issue included ‘the 13800-pod-assembly file for the Eros Omnipod (including EOFLOW_04366457) and the CAD files cited in Exhibit G to the Expert Report of M. McGowan.’ Exhibit G of [the] expert report contains a list of more than 1,300 files.”
The court explained, “‘It is well settled that detailed manufacturing drawings … are prima facie trade secrets.’ And ‘[w]hen material such as design drawings or manuals are trade secrets based on a unique combination of both protected and unprotected material, a plaintiff should not be obligated to identify which components of the protected material is secret.’”
Further, it stated, “a plaintiff must do more than merely allege that its ‘computer-aided design files are secret because they contain computer-aided design models.’ But when a plaintiff provides concrete evidence that its misappropriated files contain valuable trade secrets, that is sufficient to avoid summary judgment on the ground of lack of specificity.” As the court observed, referring “to ‘dimensions and tolerances’ or other details contained in the ‘engineering drawings and blueprints’ constituting the trade secret” is sufficient.
The court concluded that Insulet had satisfied its obligations by providing “sufficient particularity for a lay person to understand.” The description “articulates the substance of the secrets in narrative form — stating that the secrets at issue are the ‘three-dimensional renderings’ containing ‘precise nominal dimensions for the Omnipod components’ along with the ‘relative positioning of different components’ — and [cites] a specific set of files containing that information . . . .”
The court also observed that “plaintiff need not spell out every single piece of public and non-public information . . . . The CAD files . . . surely comprise information that is both protected and unprotected. But requiring plaintiff to detail the murky line between each public and non-public piece of information within the CAD files would be impractical, and goes well beyond plaintiff’s legal obligation to “adequate[ly]” describe the asserted trade secret.”
The only aspect of the description that the court took issue with was “plaintiff’s inclusion of the phrase ‘including, among other things’ in its description of the CAD files . . . .” The court noted that the reference was not to “a defined and exhaustive list,” but rather, “to indicate that the enumerated files are (or may be) a representative, non-exhaustive list of the files constituting” the alleged trade secret. While Insulet sought “to preserve flexibility as it reviews delayed or yet-to-be-produced documents,” the court concluded that “that door cannot be left ajar.”
The second claimed trade secret was the “Design History File” (allegedly a term of art in the medical device industry) for the Omnipod Eros. That file, and therefore the second claimed trade secret, contained “15 individually listed components, as well as the combination of those components,” which Insulet’s expert described “as a ‘playbook’ for any medical-device company, including a competitor, to manufacture the subject device in an economically advantageous way.”
Finally, the court noted that, while the Design History File might “contain[] a voluminous amount of information[,]. . . that is not enough to render a trade-secret description insufficiently specific.” Nor did the fact that public information was included matter, as the unique combination could be a trade secret.
93A claims based on misappropriation of trade secrets
G.L. c. 93A is Massachusetts unfair-competition statute, sometimes referred to as a “mini-FTC Act.” To state a claim under 93A, “the complained-of conduct [must have] occurred ‘primarily and substantially within the commonwealth.’” As the court explained, “[d]efendants bear the burden of proving that the alleged misconduct occurred primarily or substantially outside of Massachusetts.”
The test is “whether the center of gravity of the circumstances that give rise to the claim is primarily and substantially within the Commonwealth.” The court explained that this requires:
a holistic, fact-based analysis, in which the relevant factors include, but are not limited to, “where the defendant commits the unfair or deceptive act or practice,” “where the plaintiff receives or acts on the wrongful conduct,” and “where the plaintiff sustained losses caused by the wrongful conduct.” Despite the inquiry’s fact-intensive nature, courts may still grant summary judgment when the undisputed facts demonstrate that the center of defendants’ misconduct occurred outside of Massachusetts.
(Citations omitted.)
In this case, Insulet claims that “[d]efendants’ misappropriation of [plaintiff’s] intellectual property” constitutes the basis of its chapter 93A claim. But, as the court explained,
“[m]isappropriation refers to the improper acquisition, disclosure, or use of confidential information. Mere possession of confidential information does not constitute misappropriation. Thus, retention of confidential documents alone by plaintiff’s former employees would not constitute misappropriation. Instead, the misappropriation (that is, the unfair conduct) that is potentially actionable under chapter 93A occurred when plaintiff’s former employees allegedly disclosed — and EOFlow allegedly acquired and used— the confidential information concerning the Omnipod.
The court concluded that the actual misappropriation occurred primarily and substantially in Korea (not in Massachusetts), and therefore granted summary judgment to defendants on the 93A claim.
Civil conspiracy claims
The court set the stage as follows:
“Massachusetts recognizes two types of civil conspiracy, so-called ‘true conspiracy’ and conspiracy based on section 876 of the Restatement (Second) of Torts.” “The ‘true conspiracy’ is a very limited cause of action that requires an element of coercion” — an element not alleged in plaintiff’s complaint. Thus, the civil-conspiracy claim here is necessarily based on § 876 of the Restatement (Second) of Torts.
To prove a civil-conspiracy claim based on § 876 of the Restatement, “the [plaintiff] must show an underlying tortious act in which two or more persons acted in concert and in furtherance of a common design or agreement.’” Here, the second amended complaint alleges that defendants engaged in a civil conspiracy by acting in concert to misappropriate plaintiff’s trade secrets in violation of DTSA.
Defendants contend that the conspiracy claim is foreclosed by the intra-corporate conspiracy doctrine, which states that “an agreement between or among agents of the same legal entity, when the agents act in their official capacities, is not an unlawful conspiracy.” The doctrine reflects the fact that a conspiracy requires an agreement between or among two or more separate persons to conduct an illicit act. But “[w]hen two agents of the same legal entity make an agreement in the course of their official duties, … as a practical and legal matter their acts are attributed to their principal.” In such a case, there is no agreement between two or more separate entities, and thus no civil conspiracy. If, however, the agents acted “for their sole personal benefit and thus outside the course and scope of their employment,” then the intra-corporate conspiracy doctrine does not apply.
(Citations omitted.)
The court further explained that “defendants need not have complete unity of interest to assert a valid intra-corporate conspiracy doctrine defense. They need only show that they acted as agents of a principal — here, EOFlow — and did not act for their “sole personal benefit” in the coordination and execution of the alleged misappropriation of plaintiff’s trade secrets.”
Applying that to each defendant, the court granted summary judgment as to Malave, Welsford, Kim, and Nephria Bio, but not as to DiIanni.
Specifically, the court granted summary judgment in favor of Malave, Welsford, and Kim, as each of them was working for EOFlow at the time of the alleged misappropriation. The court also noted that “the record does not suggest that either of [Malave or Welsford] coordinated the theft of plaintiff’s confidential information at any point before their employment with EOFlow began.”
As for DiIanni, the court found a factual issue about whether he was acting as an agent of EOFlow in connection with the alleged misappropriation, and denied summary judgment.
Finally, the court granted summary judgment in favor of another corporate defendant Nephria Bio (which is allegedly majority owned by EOFlow). The court’s rationale was that Insulet had consistently alleged — and the court made rulings based on the allegation — that Nephria Bio was “controlled by EOFlow in the execution of the alleged misappropriation.” Based on judicial estoppel, the intra-corporate conspiracy doctrine applied.
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Firm resources:
We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF) (to be updated for the new exemptions in Illinois and Pennsylvania);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
We hope you find all of these resources useful. More are coming.
And please note, we are grateful for all of the input we’ve received over the years. We welcome any suggestions for improvements that you may be willing to share.
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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the recent noncompete and trade secret caselaw developments.