Judge Wallace Addresses Competing Motions to Dismiss in Case Involving Non-Disclosure Agreements and Trade Secret Misappropriation
November 7, 2019
In Brightstar Corp. v. PCS Wireless, LLC, C.A. No. N18C-10-250-PRW-CCLD, Judge Wallace granted defendant/counterclaim plaintiff PCS Wireless, LLC’s motion to dismiss the plaintiff’s misappropriation of trade secrets claim (Count I), and granted in part and denied in part plaintiff/counterclaim defendant Brightstar Corp.’s motion to dismiss PCS’s fraud (Count I) and breach of the implied covenant (Count III) counterclaims.
The action arose from an effort between Brightstar and PCS to negotiate a strategic alliance and potential merger. The parties commenced negotiations under a buy/sell agreement that included pricing terms, non-solicitation, and confidentiality provisions. Ultimately, the negotiations failed and the parties initiated litigation. Brightstar brought claims for breach of the non-disclosure agreement and trade secret misappropriation. For its part, PSC asserted counterclaims for fraud, breach of the implied covenant of good faith and fair dealing, misappropriation of trade secrets, and breach of contract. Both parties moved to dismiss certain of the claims against them.
Judge Wallace first considered PCS’s motion seeking to dismiss the claim of trade secret misappropriation. To survive a motion to dismiss a trade secret claim, the complaint must plead (1) the existence of a trade secret, (2) that the plaintiff communicated the trade secret to the defendant, (3) that the communication was pursuant to an express or implied understanding that the defendant would maintain the secrecy of the information, and (4) that the trade secret has been misappropriated. Alarm.com Hldgs., Inc. v. ABS Capital P’rs Inc., 2018 WL 3006118, at *7 (Del. Ch. June 15, 2018). Judge Wallace found that the complaint adequately alleged existence of a trade secret because the complaint alleged the existence of information that (1) was not generally known or readily ascertainable, (2) derived independent economic value from not being generally known, and (3) was subject to reasonable efforts to maintain secrecy. Judge Wallace, however, found that Brightstar had failed to plead facts sufficient to support misappropriation because the complaint merely pled that “PCS misappropriated Brightstar’s pricing information and used it to solicit business from Brightstar’s suppliers.” The complaint did not plead specific details suggesting how PCS impermissibly used the pricing information, so Judge Wallace dismissed the claim.
Next, Judge Wallace considered Brightstar’s motion to dismiss the counterclaims of fraud and breach of the implied covenant. Judge Wallace determined that PCS failed to plead its fraud claim with particularity under Rule 9(b), and found the claim duplicative of the breach of contract claim. Judge Wallace did allow the implied covenant claim to stand, however, after finding that the contract was truly silent on the total amount owed by PCS to Brighstar post-termination. Accordingly, the Court granted in part and denied in part Brightstar’s motion.
Analysis: Heightened competition and increased employee mobility in certain industries have resulted in an explosion of trade secret litigation in recent years. As a result, trade secret litigation is becoming increasingly common in the CCLD. Indeed, claims of trade secret misappropriation were involved in one of the largest trials ever in the court in terms of dollars sought. Incyte Corp. v. Flexus Biosciences, Inc., C.A. No. N15C-09-055 MMJ CCLD. Although the pleading standards for pleading trade secret misappropriation are not onerous, a claimant must still allege facts supporting misappropriation. It is not enough to simply plead that misappropriation occurred—claimants must plead how the misappropriation occurred.