Federal Circuit Case No. 25-1807
Oral Argument — 01/05/2026 · Case 25-1807 · 51:50
0:00
Judge Dyk
That leads us to our final case this morning, number 25, 1807, Insula Corporation v. Eel Float Company Limited.
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Ms. Priebler?
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Appellant Attorney
Good afternoon, Your Honors, and may it please the Court.
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The District Court committed a series of legal errors in this case, but two errors were particularly fundamental,
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one going to liability and one going to damages.
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On liability, the District Court was wrong to split from every other court to consider the issue
0:28
by rejecting the Inquiry Notice Standard of Accrual for the Statute of Limitations in the trade secrets context.
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On damages, the District Court's award of avoided cost damages is duplicative of the permanent injunction,
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which cuts off any ability to use the asserted trade secrets and so already prevents any enrichment to EO flow
0:49
from having avoided the cost of developing those secrets.
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I want to begin by talking about the Statute of Limitations issue in this case
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because it was a central factor.
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It's a problem that existed from the outset of the case, and it's an issue that, if it's resolved in our favor,
1:03
would take care of all of the issues we've raised on appeal.
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Judge Dyk
So you try to get around the Merck case by suggesting there was an established rule
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before the enactment of the federal statute.
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Could you address that?
1:18
I'm not sure that I see that, and there may be one or maybe two Court of Appeals cases
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and some District Court cases.
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But I don't know.
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I don't see an established practice for inquiry notice under the Uniform Trade Secrets Act.
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Appellant Attorney
Well, absolutely, Judge Dyke.
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I'm happy to address that, and I think it's important to focus not just, of course,
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on how the courts have interpreted the Defend Trade Secrets Act after it was enacted in 2016,
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but as your question touched on, also the Uniform Trade Secrets Act,
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because it's undisputed that Congress, when it enacted the statute,
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was expressly trying to track the accrual language from the UTSA,
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the context, and I think that also makes relevant all of the state misappropriation statutes
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that were likewise modeled on the UTSA.
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And it's not just a case here or there.
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It's not like this was a one-off rule with just a couple of circuits
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or just a couple of district courts.
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We've cited dozens of cases in our brief that all uniformly held
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that the statute begins to run at the moment of inquiry notice.
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That is, the first moment where the plaintiff perceives that there's a real potential problem here
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and a reasonable person would start investigating.
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In other words, mere suspicion.
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Well, I think it goes a little beyond mere suspicion.
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So it's not just a hunch or blatant speculation, for example.
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But when you have the kind of inquiry notice that the district court recognized existed here,
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where the plaintiff perceived that there was a product that was, in its own words,
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a clone of its own product, and specifically tied that to the fact
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that there were former employees of Insulate who were now employed by EOFLOW,
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who had had access to all of the asserted trade secrets in this case,
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courts have recognized that that's not just mere suspicion.
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That's real notice that there's a potential problem.
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And what it does is it triggers this affirmative duty to investigate
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because Congress did not want plaintiffs who have that kind of notice
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to just sit back and sit on their hands
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and not undertake the most basic steps to try to understand
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whether they can resolve the problem, what exactly is going on,
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and to file suit if necessary to resolve the problem.
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Have you answered Judge Dyke's question yet?
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I have another question.
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Judge Dyk
I didn't think so.
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I mean, other than saying there are lots of cases,
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but some of those cases really are not clear that they're applying inquiry notice like C-TRAC.
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I mean, I'm not sure that inquiry notice and the discovery rule is all that different
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because if you look at some of those cases, C-TRAC is an example,
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what they say is that even under the discovery standard,
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that if you have access to the trade secrets and there's similarity in the product,
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that that's sufficient to satisfy the discovery standard.
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And one of my questions ultimately is going to be whether that's the situation that we have here.
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But I'm opposed to if you have more on the statutory standard.
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Yeah, I do. I do.
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Judge Prost
I guess it's hard for me, and I know there's a lot in there, other cases,
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and it does a lot to distinguish.
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The cases and what we're talking about, one, the Epstein case, I think, preceded the statute.
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The other case coming out of Iowa was dealing with a different statute with different language.
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So why don't we look at the statutory language?
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Because that's where I start, begin, and end,
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and I can compare it to the language in Merck and conclude that they're not different.
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But why don't we just look at the DTSA?
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It runs the clock from the date on which the misappropriation is,
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it's discovered, begin and end there.
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And then it adds, or the exercise of reasonable diligence should have been discovered.
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And I don't see daylight, so you can tell me why I'm wrong,
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between the statutory language and the jury instruction,
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which is the subject of the challenge this morning in this case.
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Appellant Attorney
Well, sure. So let me try to take on both portions of those questions.
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And I want to focus first on the statutory language,
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because I think the key language here,
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and this is what provides a relevant distinction from Merck in response to Judge Dyke,
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is the second part of the accrual standard that you just read, Judge Prost.
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That is the reference to the exercise of reasonable diligence
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by which the misappropriation should have been discovered.
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So that's Congress writing into this statute
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an express focus on the exercise of reasonable diligence,
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which naturally calls to mind conducting an investigation
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when you're put on notice that there might be a problem.
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And that, in fact, is how the lower courts have routinely interpreted this language
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in the context under the UTSA and the state misappropriation context,
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which is the state misappropriation context.
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Where the statutes did use very similar language.
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Judge Prost
And so where did the court go astray in the jury instruction?
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Because the jury did presumably, and you're not challenging this on a fact basis,
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the jury looked at this language and said,
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did they exercise reasonable diligence?
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In the absence of reasonable diligence, would this have not been discussed?
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What's wrong with the language in the instruction?
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Appellant Attorney
So there were two problems with the jury instruction.
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I want to say at the outset that we think that we were entitled to summary judgment on this issue,
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as the district court itself recognized that if it's inquiry notice as we understand it,
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then this should never have gone to a jury.
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But even just drilling down on the jury instructions,
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I think there were two critical problems here.
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And the first is that the district court specifically rejected our request
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to instruct the jury on inquiry notice,
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and instead didn't just stop at the statutory language,
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but then provided the jury with additional instruction
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about the kinds of considerations they could take into account
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that would only be relevant after some point of inquiry notice,
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after the inquiry notice.
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After part of the investigation has occurred.
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So I think that was one problem.
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The second problem is that the district court specifically said
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that jurors should think about a hypothetical reasonably diligent company
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and not look at the actual actions of insolent in this case.
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And that's error two under the inquiry notice standard,
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because courts have uniformly recognized,
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both before and after enactment of the DTSA,
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that this is a standard that creates an affirmative duty by Congress
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on trade secret owners to actually do something.
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When they perceive the kind of problem that gives rise to inquiry notice.
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So I think that that was a problem also in the jury instructions,
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because the district court could have misled jurors into thinking
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that they should just hypothesize about what a speculative investigation would have looked like,
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and instead they were never prompted to think about
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insolence's actual lack of reasonable diligence here.
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And there were all kinds of things that insolence could have done
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at the moment that it recognized the similarity of the products
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and said this is a clone, it was sounding alarm bells internally,
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and we were able to do something about it.
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And when it also recognized that its former employees
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who had been centrally involved in the design of the product
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were now working at EOflow and were centrally involved
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in the design of the competing product.
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They could have, for example, checked their own access logs or files
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to see if they could discern whether information had been misappropriated.
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They could have come to EOflow and reached out to those former employees
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and given them a reminder of their confidentiality obligations
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or perhaps asked them, do you have any confidential documents?
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They could have sought the return.
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They could have sent a cease and desist letter.
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And I think just going back to the case law
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and looking at how other courts have adjudicated limitations issues
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in the trade secrets context,
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the fact pattern here reflects an astonishing level
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of recognition of a problem, alarm internally.
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Insolence said, we told our lawyers we should try to get samples.
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But then inexplicably, they never undertook
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some of those basic steps of investigation.
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Let me move you on.
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Judge Prost
I don't think this was on your list
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of what you wanted to cover this morning.
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And I certainly want to hear the damages,
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which I think you do call out.
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I don't understand your objection to the jury instruction
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on reasonable measures.
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What in your view did they do that they shouldn't have done?
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I mean, you talk about a temporal limitation.
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I don't know if you're complaining about,
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I'm not sure what you're complaining about
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in this instruction other than the global thing
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that they put some temporal limitation in.
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Appellant Attorney
So let me try to be clear about our concern
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about the instruction.
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We think that it's clear under governing law
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that in a situation like this one,
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where you have an assertion of a continuing misappropriation,
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so it's not like Insolent is just saying,
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this was a trade secret in the past,
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but when it was misappropriated,
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but it's kind of fallen out of any veneer of secrecy.
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Instead, when you've got a company that's saying,
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it remains a trade secret to this day,
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then it's reasonable to look at whether the company
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is taking reasonable measures to protect the secrecy
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of the information for the duration.
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And we think that the jury instruction is going to be,
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the jury instruction on reasonable measures
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could have instead erroneously led the jury to think
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that they could only take into account the measures
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at the time of the initial misappropriation.
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Now, of course, acknowledge that the court said,
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you can think about post-misappropriation.
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Judge Prost
Well, it talked about, it refers to the alleged misappropriation,
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which I think is the continuing misappropriation
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that you're talking about.
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So I'm just not seeing it.
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You want to tell me what's the problem
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with the exact language?
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It says at the relevant time.
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And it says-
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Appellant Attorney
That's exactly it.
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Judge Prost, it's that at the relevant time language,
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because it's suggesting to the jurors
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that there's a singular pinpoint in time where they should be-
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Judge Prost
But then it defines relevant time, doesn't define it,
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but it says, again, it's up to you to determine
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whether they took reasonable measures
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to keep the disputed information secret
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as of the time of the alleged misappropriation.
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Is there anything wrong with that?
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Appellant Attorney
Well, again, I think that in combination with the fact
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that the district court then referred to the relevant time,
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just a few sentences later,
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could have naturally led jurors to think
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that they should consider only the misappropriation,
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for example, in 2018, with respect to some
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of the asserted trade secrets, and not take into account
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the lack of reasonable measures, particularly
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after Insulet perceived the problem and said,
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there might be an IP issue we should investigate,
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but didn't do anything to protect secrecy.
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I did want to have a chance to briefly address damages,
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if I could.
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Judge Dyk
I have one question.
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Oh, of course.
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Before we get there.
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Let's assume, hypothetically, for the moment,
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that you lose on inquiry notice point,
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and that we're dealing with a discovery stand.
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The cases, C-TRAC and others, suggest that the fact
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that you have an access situation, that it's access
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to the trade secrets, and similarity in the product,
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is sufficient as a matter of law
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to invoke the discovery standard.
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You argue, as I understand it, that that's the case here.
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And I'm focusing particularly on the cannula trade secrets,
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and the TIDE files trade secret.
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And could you address whether, under the discovery standard,
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as a matter of law, the evidence compels
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to finding the discovery standard is satisfied?
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Appellant Attorney
Yes, Judge Dyke.
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So I agree with you entirely in how you've articulated
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the legal principle, which is that access and similarity can
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combined create, as a matter of law, a cruel, even
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under a discovery standard.
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And here, the evidence with respect to the cannula
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was that in 2018, the company was able to create, in 2018,
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so we're now five years before Insulet filed suit,
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the cannula was prominently advertised at a 2018 trade
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conference event that Insulet attended.
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This is reproduced at page seven of the Blue Brief,
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where we actually have the poster where the soft cannula,
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with that flat nail head design that was alleged to be a trade
12:45
secret, was put on the promotional poster.
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The product itself, which would reflect
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all of the relevant dimensions in the CAD files,
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was likewise on display, a prototype, at that 2018
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conference.
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And the evidence shows, and was undisputed because it's
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documents, that Insulet went back and said,
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they've cloned our product.
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It bears a stunning resemblance.
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There were other emails that talked
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about how it was identical.
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And so I think this evidence demonstrates that Insulet
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itself perceived the overlap, right?
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So recognized that there was a striking, stunning resemblance
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and a cloned product.
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And then those very same emails tie it to the fact
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that there are former, high-level people from Insulet
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who are now working at EOflow.
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And further, in March 2019, so this is a CEO.
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Judge Prost
Just to interrupt on a small point, the key person
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that you're talking about that departed Insulet
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with the documents, he didn't start working there
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until after the 2018 conference, right?
13:40
Appellant Attorney
No, so there were three relevant employees.
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Judge Prost
Yeah, but one of them, Mr. Delaunay,
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who is featured more prominently than the others in the briefs,
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was not there at the time, just to confirm.
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Appellant Attorney
So he was at least on board by summer 2019, where again,
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the prototype was displayed.
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The advertisement remained constant.
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Insulet actually sent lawyers to that conference,
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and so they again got eyes on the product there.
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And I think it just demonstrates that Insulet itself
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was linking up the fact that there was, in their words,
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a cloned product with the fact that there was access.
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And this is often the key fact that might be missing
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or could prevent the claim from accruing.
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You know, just the fact that you have a similar product
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might be enough because it could be reverse engineered
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or something like that.
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But here, what Insulet said internally is, hey,
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our former employees, including very high level people,
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are now centrally involved in the design
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of the competing product.
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And this is a real problem.
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We should pull IP.
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We should get our lawyers involved.
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We should request samples.
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And I think even under the Merck discovery standard,
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that, as a matter of law, demonstrates
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that Insulet was on notice of the claim,
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just as the district court recognized by March 2019.
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May I spend just a minute on damages,
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or I'm happy to answer additional questions
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about the limitations period.
14:57
All right.
14:57
So just a quick point on damages,
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because I want to be really clear about the nature
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of the problem here.
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The district court awarded a permanent injunction,
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which completely locks up the value of the trade secrets
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and makes sure that EOFLO can't receive any benefit
15:12
from having access to those trade secrets
15:14
on a going forward basis.
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But then the district court additionally
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ordered as unjust enrichment damages $26 million,
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which was meant to approximate the full cost of having
15:25
independently developed all of the damages.
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And that's what the relevant trade secrets
15:28
at issue here on appeal.
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And the reason that those are a duplication
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is because if you actually spend the cost to develop
15:35
independently the trade secrets, that's
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what the $26 million would represent,
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then what you get with that is the ability
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to use them going forward.
15:42
That initial investment is
15:44
Judge Dyk
What about the EU and the Korean sales?
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I mean, to some extent, those were permitted and occurred.
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And so why isn't the recovery of some of the costs,
15:57
attributable to those, appropriate?
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Appellant Attorney
So I don't think that the $26 million of avoided cost
16:02
damages could possibly try to capture the very limited sales
16:05
that have occurred in Korea and the EU.
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That was never Insulet's theory of damages in this case.
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And in fact, the evidence at trial that was undisputed,
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this is at appendix 21183 to 84, was
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that EOFLO had, from those sales during the relevant time,
16:21
generated only $3 million in revenue
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and actually never any profits.
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Profits were zero, because EOFLO,
16:27
had already invested tens of millions of dollars
16:29
in the development of EO patch 2.
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And it didn't have the product on the market
16:33
long enough to ever recoup that initial investment.
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So I think that shows that you couldn't possibly
16:38
say that this avoided cost damages measure was meant
16:41
to try to target those discrete sales.
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And notably, Insulet itself, that wasn't its damages theory.
16:47
It was kind of swinging for the fences here
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and trying to get, simultaneously,
16:51
the permanent injunction that forever bars the ability
16:54
to use these trade secrets, while also
16:57
duplicating that by trying to get a monetary reward
17:00
at the full cost.
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Judge Prost
Well, can I add, you talk about duplicating,
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but I'm going back to the statute again.
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And the statute treats them differently, the remedy.
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It talks about injunctions.
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It talks about damages for actual losses.
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And then there's this other category, damages
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for unjust enrichment.
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And it's talking, it seems to me, so tell me if I'm wrong,
17:19
that unjust enrichment doesn't involve,
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it's about what the defendant gained.
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It's not what the other side lost.
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Is that kind of a fear characterization
17:28
of unjust enrichment?
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Appellant Attorney
Yes, with the tweak that sometimes what the defendant
17:32
gained is meant to try to put a value on what the plaintiff
17:36
lost.
17:37
Judge Prost
Yeah, but it's something different
17:40
based on what they lost.
17:42
It's something different.
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And this goes to, I mean, whatever EOFLO did,
17:46
and even in the light of a permanent injunction,
17:49
they derived some benefits, arguably.
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That's the question.
17:53
Did they decrease their resources?
17:56
Did they reduce their research costs?
17:57
Are they decreasing the costs going further,
18:00
even though the trade secrets themselves are off the table?
18:04
Wouldn't that be a fair characterization
18:07
of what we're talking about here in terms of avoided damages?
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Appellant Attorney
So conceivably, I think that a trade secret plaintiff could
18:13
come in and try to prove that type of unjust enrichment.
18:16
But that wasn't Insulet's theory of damages here.
18:19
And I don't see any way to suggest
18:21
that the full measure of the full amount of what it would
18:24
cost to independently develop the plaintiff, which, I think,
18:26
is the trade secrets, could possibly
18:28
try to capture that kind of discreet point
18:30
you're making, Judge Prost, about the possibility
18:32
of some marginal enrichment that might have occurred
18:36
from not immediately putting those costs in upfront.
18:39
I think that would have to be a much lower measure of damages.
18:41
And it was ultimately Insulet's decision
18:43
how it wanted to litigate this case
18:45
and what kind of damages it wanted to pursue.
18:48
I would say, as well, you mentioned
18:49
that the statute contemplates you
18:51
can have the award of both an injunction and damages.
18:53
And I think that's true.
18:54
But I'd point the court to the Second
18:56
Circuit's decision in the Sintel case,
18:58
and most recently, the Fifth Circuit's decision
19:00
in the CSC case, which we sent a 28J letter about.
19:04
Those are the two circuit courts that have most recently
19:06
considered this issue of possible duplication
19:08
between these remedies, both under the DTSA.
19:11
And they articulate the relevant principles
19:13
just as I've described them here.
19:15
They make very clear that you might
19:17
be able to have those remedies together when, for example,
19:20
the defendant's use of the trade secrets
19:22
entirely destroyed their value.
19:23
So there is some additional harm to the plaintiff that you need
19:26
to account for, or when you might be able to possibly measure,
19:29
just as you touched on, Judge Prost,
19:30
that discrete period of time before the injunction issued.
19:33
But neither of them said you could
19:36
award the full cost of avoided cost damages.
19:38
Can I cover one more issue before we leave?
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Judge Prost
On the DHF.
19:42
Another major issue, at least for me in this case,
19:45
is whether or not that satisfied the definition of trade
19:48
secrets.
19:49
Now, DHF is not included in this $29 million, right?
19:53
That's right.
19:54
So that's not going to be affected.
19:55
But it is subject to.
19:56
It is subject to the injunction.
19:57
How would the injunction be affected, if at all,
20:01
if we were to conclude against you on all the other issues,
20:07
but that that was not a trade secret?
20:10
What does that do to the actual injunction?
20:12
Appellant Attorney
I think what that would mean is that the portion
20:15
of the injunction that prohibits EO flow from using the DHF
20:18
on a going forward basis would have
20:20
to be removed from the injunction.
20:22
Judge Prost
Is there an overlap between that and the other categories
20:24
of trade secrets?
20:25
I imagine there is, right?
20:26
Appellant Attorney
Yeah, there is.
20:27
So the three other assorted trade secrets
20:29
were alleged to be part of the DHF.
20:31
One of the problems here is that we don't actually know exactly
20:34
what the DHF encompasses.
20:35
And in fact, that's our argument about how it wasn't sufficiently
20:38
defined to the jury.
20:40
But Insulet has alleged that the DHF extended far
20:43
beyond those three other assorted trade secrets
20:46
and encompasses kind of all of the accumulated product
20:49
knowledge.
20:50
Judge Prost
So do you think that's something, if that were the conclusion,
20:52
the district court would have to sort it,
20:53
it would be up to the district court to sort it out.
20:55
But there's no way we can do that here.
20:56
Appellant Attorney
Well, right.
20:57
So I think at that point, if you agree with us,
20:58
that that, as a matter of law, did not sufficiently
21:00
define the trade secret.
21:02
And of course, last time this case was before this court,
21:05
it was a similar problem, where it
21:06
was just a hazy grouping of information
21:08
that was advanced as an asserted trade secret.
21:11
Then I think the court could say, as a matter of law,
21:13
that this should not have been submitted to a jury,
21:15
and where no reasonable juror could have concluded
21:18
this is protected, and reverse on that basis
21:20
with respect to the DHF.
21:22
Of course, we'd hope for the court to reverse with respect
21:24
to all of the issues.
21:25
Sure.
21:26
Judge Reyna
Counsel, could you make just a brief comment on the DHF,
21:30
whether or not it's a trade secret?
21:34
Appellant Attorney
Absolutely.
21:34
I appreciate the chance to do so, Judge Reyna.
21:36
So the problem with the DHF as an asserted trade secret
21:40
is that the outer meets and bounds of exactly what
21:43
Insulet was claiming to be secret
21:45
were never precisely defined for the jury or for us.
21:48
This was kind of a shape-shifting trade secret
21:50
throughout the course of the proceedings below.
21:52
But by the time we got to trial, Insulet
21:54
tried to claim that an exhibit that they introduced,
21:57
Exhibit 2177, was the DHF.
22:00
The problem with that is that their own witness, Julie
22:03
Perkins, who testified about that asserted trade secret,
22:06
acknowledged that the thing that was exhibited in court
22:09
was only parts of the DHF.
22:11
She conceded that there were certain parts of the DHF that
22:14
were apparently within the trade secret definition,
22:16
but were not included in the exhibit,
22:18
including things like test protocols, test reports,
22:22
standard operating procedures, and so forth.
22:24
OK.
22:24
So that meant that the thing in court was not the DHF.
22:27
Now, Insulet's other argument has
22:29
been that there's a regulatory definition of a DHF.
22:32
So that gives notice.
22:33
But the problem with that is, again, the thing
22:36
that was claimed to be the trade secret DHF
22:38
does not correspond to the regulatory definition.
22:41
For example, the standard operating procedures
22:43
are part of the trade secret DHF,
22:46
but appear nowhere in the regulation.
22:48
And vice versa, there are aspects of the regulation
22:50
that don't correspond with the categories of information.
22:53
Judge Prost
And what is the relevance of the regulation?
22:54
Does the regulation compel that it's a trade secret?
22:57
No, not at all.
22:58
Appellant Attorney
So I understand Insulet to have fallen back on the regulation
23:03
as a way to try to salvage this claim about the DHF,
23:06
because Insulet recognizes that the exhibit was not complete.
23:10
But the problem with that is that the regulation
23:11
couldn't provide the sufficient definiteness, especially
23:14
in a circumstance where the thing alleged
23:17
to be the trade secret doesn't actually
23:19
correspond to the regulatory definition
23:21
when you line those two things up against each other.
23:23
So I think the question is, what is the definition?
23:24
And the court could conclude, again,
23:25
as it did at the PI stage, with respect
23:27
to a similar problem, that ultimately this
23:30
amounted to a sweeping claim of protection with respect
23:33
to all of the product knowledge that went into the Omnipod.
23:36
And that just isn't sufficient to create
23:38
a precise definition of what was a protectable trade secret
23:42
here.
23:43
Judge Dyk
OK.
23:43
We'll give you two minutes for a vote.
23:46
Mr. Kelly.
23:51
Judge Hughes
Thank you, Your Honor.
23:52
May it please the court.
23:53
I do want to begin with jurisdiction, if I may,
23:56
because.
23:57
We obviously think that whichever court of appeals
23:59
has jurisdiction should affirm the jury's verdict of will
24:04
hold malicious infringement.
24:05
And we've submitted that that is the first circuit
24:08
for the simple reason that this case does not
24:10
arise under the patent laws.
24:12
We amended the complaint that resulted in the district court
24:17
dismissing the patent claims without prejudice,
24:19
and that this court has said in cases like Chamberlain
24:23
is the test in this case, because you
24:26
look at the amended bleeding.
24:27
And you look at whether the amended bleedings arise
24:30
under patent law.
24:31
Once the patent claims were dismissed without prejudice,
24:34
this case ceased to arise under patent law.
24:37
So we think the first circuit has jurisdiction.
24:41
And the other side's rule, which is not supported by any case
24:46
from any circuit, this court, or any of the regional circuits,
24:49
which also have to confront this issue,
24:52
it would enmesh both this court and the regional circuits
24:54
in very difficult patent statute of limitations questions.
24:57
Just in order to figure out whether they have jurisdiction
25:00
over any given case.
25:01
Our rule is simple.
25:02
It looks at the face of the judgment.
25:04
In this case, the judgment does not
25:06
bar re-litigation of anything.
25:08
It says in both faces, all caps.
25:10
Judge Dyk
Well, in practical matter, it does,
25:11
because the statute of limitations is wrong.
25:13
Judge Hughes
Respectfully, no, Judge Dyke.
25:15
The judgment does not bar anything.
25:18
The judgment does not bar re-litigation of anything.
25:20
And that is the test.
25:23
And I would dispute the premise if the limitations period is
25:26
run.
25:27
But for me, that's the question.
25:27
The question is, did the district court
25:29
adjudicate the patent claims so that the judgment that you're
25:34
reviewing, does it rest in part on patent law?
25:37
It does not, because the district court never
25:40
answered any question of patent law.
25:42
The claims were stayed for the entire duration of the case.
25:45
Judge Reyna
Doesn't it matter whether the dismissal was
25:48
out of prejudice or not?
25:49
Judge Hughes
It does.
25:49
And in this case, the dismissal was, in bold face, all caps,
25:52
without prejudice.
25:53
It's the other side that is asking you to look behind that
25:55
and say, well, it's real.
25:57
It's really with prejudice, because if the claim were
26:01
asserted, and if we timely asserted the statute of
26:04
limitations, we would win.
26:06
But that is not a proper jurisdictional inquiry.
26:09
And there is no case from this court or any other court that
26:12
applies that.
26:13
And I would . . .
26:15
Judge Dyk
Well, there are cases that apply that.
26:17
Pardon?
26:18
There are cases that rely on the statute of limitations
26:21
running . . .
26:21
Judge Hughes
In the sanctions context, but not the jurisdictional context.
26:24
And you can see why that would make a difference.
26:26
Jurisdictional rules should be controlled.
26:27
It's clean and easy to apply, especially for the regional
26:30
circuits when they are confronted with a question of
26:33
patent statute of limitations.
26:34
If that were the threshold for deciding whether they have
26:38
jurisdiction, it would really enmesh them in questions that
26:41
really should be for this court.
26:43
So cases like Saralsky, that the other side has cited,
26:46
are all about the sanctions context.
26:49
We've pointed that out in our brief.
26:51
I didn't see any response to that in their reply.
26:53
So I disagree that the claim is time-barred, but more,
26:57
fundamentally, I disagree that that's the question that should
27:01
matter for jurisdiction.
27:02
Okay.
27:02
Judge Dyk
Let's go on to the statute of limitations . . .
27:04
Of course.
27:05
. . . issue.
27:05
Let's assume, hypothetically, that we agree with you about Burke and that
27:10
inquiry notice is not the right standard and the discovery standard is
27:14
correct.
27:15
But at the same time, under cases like C-TRAC, access plus similarity is
27:21
sufficient as a matter of law to satisfy the discovery standard.
27:26
Now, here, looking at two of the trade secrets, the cannula trade secret and the CAD files
27:34
of the trade secret, put aside the other two, as I read the record, there is undisputed
27:40
evidence from EOFLOW that the trade shows and the prospectus disclosed that the product
27:53
had those features to it.
27:55
And then I looked to see whether there is any evidence to the contrary, and I didn't
28:01
see any evidence to the contrary.
28:03
So could you address that, please?
28:05
Judge Hughes
Absolutely.
28:06
So let me just note, parenthetically, because you mentioned C-TRAC, I'm not sure that's
28:11
even a UTSA case because Texas had not adopted the UTSA at that point.
28:15
The point is that, like, it doesn't apply the same statutory language.
28:18
So we need to be focused on when would you have discovered the misappropriation.
28:23
Judge Dyk
And so . . .
28:25
Is that access and similarity sufficient?
28:27
Judge Hughes
So I think that you should look at cases like us, like SOCAL from the Seventh Circuit, to
28:33
understand what access and similarity mean, because I think that that could be used imprecisely.
28:37
Judge Dyk
I thought you were agreeing that that's the right standard.
28:39
Judge Hughes
But yes, but the question is access to what.
28:42
You have to have access to . . . because remember that the limitations period is applied trade
28:48
secret by trade secret.
28:49
That was a contested issue below.
28:51
The district court resolved that in favor of going trade secret by trade secret.
28:54
Your question asks to go trade secret by trade secret.
28:57
So the question would be, did they have, did they have access, did we know that they had
29:03
access to the cannula trade secret?
29:06
Remember that the cannula trade secret is not the existence of a cannula.
29:09
It is not the existence of a soft cannula.
29:11
It's not even the existence of a cannula with a nail head design.
29:15
It's how our cannula is constructed, in a precise way.
29:19
. .
29:20
Judge Dyk
mind that former employees had access to it.
29:22
Judge Hughes
Right?
29:22
We didn't know that they had the documents with them that they gave to EOFLOW to pirate our invention.
29:29
And that's the key point that Ms. Prelogger suggested, that there are things that we could have done.
29:35
She did not suggest that any of them would have given us the necessary information to discover the misappropriation.
29:42
And that's what the focus needs to be on, that we did not know that they had the CAD files.
29:48
Judge Dyk
Let's put aside for the moment the access question and focus on the similarity question.
29:53
It is the case, with respect to those trade secrets, that there is testimony from the EOFLOW witnesses
29:59
that you could have determined that from the trade show and the prospectus.
30:05
And I'm looking to see whether there was contrary testimony from your witness.
30:11
Absolutely.
30:11
I didn't see it.
30:12
Judge Hughes
From multiple witnesses, including one of the defendants, page 20877.
30:16
Judge Dyk
Okay, 20877.
30:18
What time is that?
30:19
Judge Hughes
20877 is volume either 3 or 4.
30:24
4, thank you.
30:42
Right, so I would take you, are you at the page, Your Honor?
30:47
Judge Dyk
20877.
30:48
That's right.
30:48
Judge Hughes
So top right-hand corner, which is page 111, most of the way down.
30:54
You can't see the method by which the cannula was manufactured by looking at these devices, right?
30:58
I don't think so, no.
30:59
And above that, the same questions for the ODA algorithm, the design history file.
31:05
So.
31:06
Recall that the sample at the.
31:08
Judge Dyk
Okay, so where's the testimony about the CAD file?
31:11
I'm sorry?
31:12
Where's the testimony about the CAD file?
31:14
Judge Hughes
Okay, I don't, Mr. Malave didn't testify here about the CAD file.
31:18
Right.
31:19
Right, but the, let's see.
31:26
Judge Dyk
Give me.
31:28
I don't understand that the cannula trade secret is limited to the method of manufacturing, right?
31:36
Judge Hughes
No, I disagree, Your Honor.
31:38
Judge Dyk
It is just the method of manufacturing?
31:40
Judge Hughes
It's the precise specifications and method of manufacturing.
31:44
That's right.
31:44
Judge Dyk
The precise specification, you mean the dimensions of the cannula?
31:48
Judge Hughes
So Ms. Prelogger suggested, and I do not know what she's basing this on,
31:54
that you could identify the dimensions of the cannula by going to the trade show.
31:59
That's just not correct, because the device displayed at the trade show had the cannula snipped off.
32:05
Judge Reyna
I've got to deal with the testimony here.
32:07
Judge Hughes
But the testimony was that the cannula was snipped off.
32:10
Of the version displayed at the trade show, there was no cannula.
32:14
Judge Reyna
When you look at a trade secret, it informs you both what to do and what not to do, right?
32:22
Judge Hughes
It can.
32:25
Right.
32:26
So a number of the trade secrets in this case identified errors and, you know,
32:31
design problems that Insulet had to solve in developing this invention and spent millions of dollars,
32:37
hundreds of millions of dollars, you know, developing responses to those.
32:41
Issues and compiling them and, you know, amassing that knowledge and including the very precise dimensions.
32:49
So the testimony about the cannula.
32:51
Judge Dyk
The dimensions of the final product.
32:54
The dimensions of the final product, right?
32:56
Judge Hughes
Yes, but the testimony, well, Your Honor, the testimony indicates that you could not reverse engineer the information
33:03
about what it takes to manufacture the cannula from just opening up an Omnipod
33:08
because the cannula is soft, it's flexible.
33:11
And the dimensions change, actually, as the needle and the cannula are integrated with each other in the manufacturer.
33:19
Judge Dyk
Okay, well, let's talk about the can files.
33:21
Where's the testimony?
33:23
There is testimony that you could determine whether the can files had been used in the product.
33:30
Where's the testimony that you couldn't figure out whether the can file information was in the product?
33:39
Judge Hughes
I'm not sure.
33:40
I'm not sure.
33:42
I'm not sure I agree with your characterization of what the other side's testimony says.
33:45
That you could determine that the can files had been misappropriated by looking at the product.
33:51
I think their testimony may say that you could see the exterior of the product so that you might...
33:57
Judge Dyk
But where's the testimony that you couldn't?
33:58
That you couldn't see the interior?
34:01
Judge Hughes
There's testimony...
34:02
I unfortunately don't have the page number for this, but I'll tell you what it says.
34:06
Judge Dyk
I want the page number.
34:08
Okay.
34:10
Your co-counsel is trying to help you.
34:16
Judge Hughes
Okay, so footnote two of our brief on page five collects a number of page numbers for the proposition that these details, the can files, could not be gleaned from examining a physical sample.
34:30
Judge Dyk
Okay, but you're not able to point us to the page of the appendix.
34:36
Judge Hughes
It's okay.
34:37
You're asking specifically about the can files.
34:39
Honestly, I did not...
34:40
I don't understand the other side to have testimony to say that the contents of the can files, that it would be knowable by looking at the other side's device.
34:50
Because, I mean, recall that the closest that you could come to the other side's device is, you know, sort of a foot away.
34:57
It had...
34:58
The sample that they had had no cannula.
35:01
It had a clear cover, but you still couldn't see all the way inside.
35:05
What the can files display are extremely precise dimensions.
35:10
And, you know, integrations of parts.
35:13
Like, you couldn't just glance down into a device, and the jury heard testimony about what you could and could not see from several feet away looking into this.
35:24
And more importantly, the jury had in front of it a sample of the same clear device that was at the trade show.
35:31
In other words, that was...
35:32
I obviously don't have that here with me, but that was passed up and down in front of the jury.
35:39
So, yeah.
35:41
The question is, what did they have access to, and what similarity was insolent on notice of?
35:50
And there's no...
35:52
I do not think that the other side can point to evidence that says that their...
35:58
Just looking at their device would give a reasonable observer such indisputable evidence that they had copied not just the exterior,
36:10
not just sort of like...
36:11
the general configuration, but the interior workings down to the kind of fine degree that is reflected in the CAD files.
36:18
Judge Dyk
Okay.
36:19
Do you want to go on to damages?
36:21
Judge Hughes
Sure.
36:22
And my friend also referred to the DHF, and I want to come back to that.
36:26
Go ahead.
36:27
Judge Dyk
You do that first.
36:29
Judge Hughes
Either direction.
36:30
Why don't we do damages?
36:33
The basic point on damages is that the other side got their device to the market.
36:38
And I think that your question, Judge, recognized this.
36:41
It's that they got their device to the market both in Korea and in Europe.
36:44
And so that means that when you're looking at what benefit they gained from misappropriating our trade secrets,
36:53
kind of at the moment they were caught, they'd already gotten on the market.
36:57
So, in other words, if they'd done it themselves without the benefit of the misappropriated inventions,
37:05
they would have had to spend a lot more money.
37:08
And so I understand that their evidence says...
37:11
That they didn't make a profit.
37:13
Well, lots of medical device companies don't make a profit initially.
37:16
The point is that they avoided costs.
37:18
Judge Prost
But what about their sales?
37:19
I mean, how does the $29 million, which was calculated on these three things,
37:23
how does that dovetail with the sales that you mentioned in your big career?
37:28
Judge Hughes
I think the short version is they lost a lot less money,
37:32
or they were a lot less in the hole when they got onto the market
37:38
because they were able to skip.
37:40
They were able to skip the large portions of the development stage
37:43
by relying on the trade secrets.
37:45
And so that's why, unlike in cases like Sintel,
37:49
where the defendant had not actually finished developing its own competing product,
37:55
and so you could prevent them from benefiting from their misappropriation
38:02
simply by stopping them from continuing to rely on the trade secrets.
38:06
But in the case of a company that's actually gotten a product tomorrow,
38:10
and further, caused harm to our trade secrets by, for example,
38:15
submitting patent applications that would have made our trade secrets public.
38:20
So the Second Circuit suggests in Sintel that it should matter
38:24
whether there's risk to the owner.
38:26
In other words, like some intangible damage to the owner of the trade secrets.
38:30
I mean, I think that if you look at the text, those are independent of each other,
38:33
and I don't think that we're required to show that.
38:35
But if we were required to show that, we did,
38:37
because of the...
38:40
not just exploitation of our trade secrets,
38:42
but the risk that they would become public and lose their value.
38:44
Judge Dyk
Yeah, but the problem is that the District Court didn't rely on the foreign sales.
38:49
The District Court's theory as to why he could award the avoided costs
38:56
seems to me pretty thin.
38:59
He talks about concerns about the merger,
39:02
which really, you're not really arguing today and don't make much sense.
39:08
It may be that there was a ground,
39:10
and it may be that there was a ground,
39:10
and he could have adopted, but he didn't, or she didn't.
39:13
Judge Hughes
He did conclude that the jury's award rested on
39:20
partly on avoided costs,
39:22
and partly on other measures of the trade secrets value.
39:25
The point about the merger,
39:27
that went to the other component of the damages.
39:30
That's what he reduced.
39:31
In other words, when reducing the damages award,
39:35
he took that off the table,
39:36
because you could tell that the jury had credited
39:40
our jury with the damages,
39:40
or damages evidence, which included...
39:42
But he didn't rely on the sales that we've been talking about, right?
39:45
He didn't rely on the sales in the sense that...
39:47
Judge Dyk
It's justifying the avoided costs.
39:50
Judge Hughes
Right, and the reason for that is,
39:52
and this really goes fundamentally to why this rule makes sense,
39:56
that the rule the other side is arguing for is that if you...
40:00
Because they wouldn't allow gross revenue as a measure of damages either.
40:05
They would say, well, we were losing money.
40:07
It wasn't profitable revenue,
40:09
so there should be no damage.
40:10
And so their answer is that when you have a product
40:17
that is sold overseas,
40:19
so it's not competing directly in the same market,
40:22
if it doesn't cause the trade secret owner immediate damage,
40:29
that you can essentially exploit it until you get caught
40:32
and pay no damages.
40:34
That is not how unjust enrichment works.
40:36
If you borrow without permission,
40:40
the plaintiff's asset,
40:41
and you make money off of it,
40:43
or one way of making money is avoiding spending money
40:47
that you otherwise would have to spend,
40:48
then you have to disgorge that benefit
40:51
in order to do equity
40:54
and prevent you from enjoying the fruits of your misappropriation.
40:57
I think that's really black-letter law,
40:59
and I think the restatement provisions and treatises in Cintel
41:04
give a nice overview of why this is.
41:08
On the DHF,
41:09
unless the court has any further questions,
41:11
about that point.
41:14
The other side has not given any actual problem
41:20
with the DHF case that we presented.
41:23
We presented a discrete set of documents,
41:26
a knowable, finite set of documents.
41:29
We explained why not all of the contents were confidential,
41:37
because that is how a DHF,
41:41
a design history file works.
41:42
So, Judge Prost, to your question,
41:44
what is the relevance of the regulation
41:45
about a design history file?
41:47
That is the relevance.
41:48
In other words,
41:49
why do we have a design history file,
41:51
and why does it have value as a compilation?
41:53
Now, why did we submit these nine binders from 2012?
41:57
The answer is because that's when Mr. Hamm
42:00
put the design history file on a thumb drive,
42:04
and that wasn't,
42:07
he was doing it in the course of his employment.
42:10
We didn't know that he'd take it,
42:11
and we hadn't taken the thumb drive with him.
42:12
You know, he signed exit paperwork saying that he hadn't.
42:16
But the point is that the design history file itself
42:20
has value in its entirety.
42:22
He deleted a bunch of stuff.
42:24
We weren't able to get his original files,
42:26
and so that's why we had to reconstruct it
42:28
as Exhibit 2177.
42:31
So, the other side wasn't surprised
42:33
by what the contents were.
42:34
In terms of whether the contents were protected.
42:37
Judge Dyk
The fact that they weren't surprised
42:38
doesn't make it a trade secret.
42:39
Judge Hughes
Correct.
42:40
But I think there's ample evidence,
42:42
and I'm happy to take you through it
42:44
category by category.
42:46
Within the design history file,
42:47
without dispute,
42:49
there is the two types of failure modes effect,
42:53
failure mode effects analysis,
42:56
and we established that-
42:58
Judge Dyk
It wasn't presented to the jury that way, right?
43:00
Judge Hughes
We presented a bunch of discrete,
43:04
of identifiable components of the design history file.
43:10
We explained why they were secret,
43:11
why they derive value from being secret,
43:14
why the other side, how we-
43:16
Judge Dyk
It was presented as those were separate secrets?
43:21
Judge Hughes
We lined each of them up.
43:22
We explained both that they are within part
43:25
of the design history file.
43:26
Judge Dyk
But the theory was that the whole file
43:27
was a trade secret, right?
43:29
Judge Hughes
Not that the whole file was secret, Your Honor.
43:32
That the whole file was a compilation trade secret
43:34
that included both confidential and non-confidential documents.
43:37
The jury instruction on that, as I said, was-
43:40
Is quite detailed.
43:41
The other side has not objected to it,
43:42
to the concept that you can have a compilation trade secret
43:45
that includes both confidential
43:48
and non-confidential information
43:50
that derives value from its existence as a discrete thing.
43:53
Medtronic was asking, do you have a design history file?
43:57
It's a question that caused the other side
43:59
to go into what they themselves called
44:02
pants on fire emergency mode, appendix 20895.
44:06
Judge Dyk
What case says that non-secret information
44:08
can be a trade secret?
44:10
Judge Hughes
I refer you to the Allstate case from the First Circuit
44:14
distinguishing the TLS case on this very point
44:18
that a compilation of information can include
44:23
non-secret information if it derives value
44:27
from being a compilation.
44:29
The other side has not objected to that premise.
44:32
That is what the jury instruction says.
44:34
There are detailed instructions on how to treat compilation trade secrets,
44:40
a bit differently from other trade secrets.
44:42
The other side didn't object to those.
44:45
The point is that having a design history file,
44:49
when you're going to submit your device for clearance by the FDA,
44:53
or when you're going to sell your company to Medtronic
44:56
and you're undergoing due diligence,
44:57
having a design history file is essential.
45:00
And they needed quickly to assemble a design history file
45:06
with the kind of backup that they would have had if they developed
45:09
the product themselves instead of stealing from Insulet.
45:13
And so we presented a number of, I don't think it was incumbent on us
45:18
to establish that every single document within the DHF
45:24
was both secret and misappropriated.
45:26
We went through six different categories, all within the DHF,
45:30
all secret, all derived value from being secret,
45:34
and all misappropriated.
45:35
And I'm happy to walk you through testimony on each one of those categories
45:38
– the design mode failure analysis, the hardware design document,
45:44
and, frankly, the entire design history file.
45:47
At page 20996 and page 21023, we have evidence that the DHF as a whole is valuable.
45:57
Judge Prost
Can I just ask you – I know you're not going to like this question,
46:01
but let me just ask it, which is, if we were to disagree with you on the DHF,
46:06
what happens with respect to the preliminary –
46:09
the permanent injunction?
46:10
Judge Hughes
I think your question rightly recognizes that that's the only part of the judgment
46:14
that turns on the DHF.
46:17
And I think the only part –
46:18
Judge Prost
And there's an overlap between the categories.
46:20
I mean, is there an overlap between what's in the DHF and what's in the other stuff?
46:26
Judge Hughes
Yes.
46:26
And so I think that it probably would be simplest to ask the district court
46:31
to revise the injunction.
46:33
But, I mean, if we look at the injunction together, like, you'll see that, like, there
46:37
are –
46:39
there are two lines of the trade secrets, and the trade secrets are the four that the
46:42
jury found were valid and infringed.
46:45
And then the operative provisions of the injunction all refer to the trade secrets, kind of the
46:50
defined term.
46:51
So it's possible that it would be as simple as removing the DHF.
46:57
We obviously don't think you should do that because, after all, that part of this appeal
47:01
is under the J. Maul standard, and the – there's really quite ample evidence.
47:07
If the jury was instructed correctly, which the other side appears to concede, that the
47:12
DHF, both as a whole and a number of the components that we presented to the jury, were secret.
47:19
Judge Prost
But you didn't expect us to divvy that up.
47:22
I mean, we're not going to decide here on appeal if we didn't think essentially the
47:28
entirety was a trade secret.
47:31
We don't have to go through and say, but maybe this part was and maybe this part was.
47:35
That's not our job on appeal, if you're right.
47:37
Judge Hughes
Well, your job on appeal is to ask whether the jury, as instructed, had – could
47:44
have found from the trial evidence that the DHF was misappropriated, and recall that the
47:49
compilation trade secret instructions says a substantial part.
47:52
And so I do think that it would not be enough to say, here is a thing that it is not clear
48:00
whether it's in the DHF or is not.
48:02
And really, all of opposing counsel's arguments were – both in the brief and today – were
48:07
along those lines.
48:08
Here are some things that might be considered in a DHF or might not be.
48:13
But the question was not, were they in Exhibit 2177?
48:17
Do they derive value from being secret?
48:19
And were they misappropriated?
48:20
And we showed for a substantial portion of the DHF, which is all our burden consists
48:25
of, that all of those elements were met.
48:30
Judge Reyna
Okay.
48:31
Judge Dyk
Thank you.
48:31
Thank you, Your Honor.
48:33
This preloader has got two minutes.
48:41
Appellant Attorney
Thank you, Your Honors.
48:42
I'll begin with a quick factual clarification.
48:46
Judge Prost, you asked about the employees and when they had left Insulet and when they
48:50
started working for EOflow.
48:51
All of the relevant employees had started by 2017.
48:55
Yes.
48:55
And that includes Diani, who was the central architect of the CAD files and of the Omnipod.
49:01
So I just wanted to clarify that.
49:02
That appears in Appendix 21065.
49:06
On the statute of limitations –
49:08
Judge Prost
Go ahead.
49:08
Appellant Attorney
I'm sorry.
49:09
Judge Prost
Go ahead.
49:09
Appellant Attorney
Yes.
49:10
On the statute of limitations, I want to say that if you put yourself in Congress's shoes
49:16
back in 2016, Insulet says Congress just wanted to embrace the Merck standard, that discovery
49:22
rule.
49:22
But it would have been inexplicable to instead replicate that.
49:25
So I want to say that, in the context of the verdict, there was no inquiry notice.
49:26
from the UTSA that had been subject to this inquiry notice interpretation in the lower
49:31
courts and not use the language from Merck, which was very different.
49:34
That statute just referred to discovery full stop.
49:37
But even under that discovery rule, as Judge Dyck noted, it requires access and similarity
49:43
in order to adequately allege and file a complaint for trade secret misappropriation.
49:47
and there are a number of cases that stand for that proposition, including Leggett and Platt
49:51
from this court, and of course the C-TRAX case that did involve a Texas state law claim,
49:56
but the statutory language there was virtually identical to the DTSA language. It's very clear
50:02
under that case law you don't need to know every single detail to be able to allege trade secret
50:07
misappropriation, and it focuses on similar products. Insulate is saying, oh, you couldn't
50:12
necessarily see every jot and tittle of the information asserted to be a secret, but of
50:16
course if you can just see that in a product, it's unclear how that would qualify it for trade
50:20
secret protection in the first place. Instead, the cases always focus on the idea that you've
50:26
got a similar product, and then you've got employees, former employees, who knew all of
50:30
the relevant confidential information that went into building that product that has regularly
50:35
been found to provide a basis to state a claim, and therefore demonstrates that the statute of
50:40
limitations has run. Quickly on damages, there is no indication that the damages
50:46
being committed to trade secret protection in the first place, but of course if you can just see
50:46
that the cost of the injury was tied to any foreign sales, and there's no way that you could get to
50:50
$26 million from that amount. Instead, that theory of avoided cost damages awarding the full measure
50:55
of what it would have cost to independently develop the trade secrets duplicates the injunction that
51:00
prevents the OFLOW from using those very same trade secrets. And just finally on jurisdiction,
51:06
this court's decision in Chamberlain says that the dividing line is whether the patent claims fell
51:11
out of the case with or without prejudice, and it doesn't matter what label the district court
51:16
used. It's a functional analysis. There are any number of cases from this court and other courts
51:21
saying that when claims are dismissed after the statute of limitations has run, that is effectively
51:27
with prejudice, and a contrary rule would invite the very kind of jurisdiction manipulation we
51:32
might be seeing here, where it's only once the claims come up on appeal and you're thinking
51:36
about appellate issues that Insulate tried to dismiss these patent claims, but it did it after
51:41
the statute of limitations ran, and therefore this court's jurisdiction is secure. So we'd
51:46
ask the court to reverse. Okay, thank you. Thank you.