Illinois trade secret dispute proceeds on theory of inevitable disclosure

In Marquis Procap Systems LLC v Novozymes North America Inc the Central District Court of Illinois has allowed both a misappropriation claims and a breach-of-contract claim to move forward. This case demonstrates valuable lessons for trade secret owners on how to approach, avoid and mitigate possible misappropriation. In particular, it addresses the issue of whether one can obtain relief for trade secret misappropriation before it happens.

Background

Marquis Procap Systems, a renewable energy company in Illinois, filed a trade secret misappropriation action against one of its suppliers, Novozymes North America Inc (CD Ill, no 20-cv-1020, DI 1, 14 January 2020). The suit was prompted by Novozymes announcement of an “exclusive partnership and commercialisation agreement” with one of Marquis’ competitors. Following years of discovery, earlier this year Marquis has sought to amend its complaint to allege that it is entitled to relief – not just for any actual misappropriation, but also for the future threat that the defendant would inevitably use or disclose its trade secrets (Id, DI 290, 14 February 2023, amended complaint).

This spring, facing a motion to dismiss, Marquis acknowledged that it had no direct evidence to show that Novozymes ever shared its trade secrets with the competitor. Nonetheless, Novozymes’ motion to dismiss was denied, because Marquis had brought claims under the federal Defend Trade Secrets Act and the Illinois Trade Secrets Act, both of which allow for injunctions for threatened misappropriation (Id, DI 359,1 May 2023, order and opinion on the defendant’s motion to dismiss).

Here, Marquis alleged that it spent great effort and over $30 million to develop proprietary processes for recovering suspended solid material from by-products generated during corn-to-ethanol production. It also claimed that it had entered into a non-disclosure agreement (NDA) with the defendant in order to explore a partnership, after which it spent months helping the defendant conduct a “deep dive” on its technology during the diligence period (Id, DI 290, see pages 33 to 46). With the protection of the NDA in place, Marquis alleged that it willingly shared confidential details about its methodologies, choice of equipment, and testing parameters and procedures.

The district court’s ruling

In denying the motion to dismiss, the district court judge assessed whether there was sufficient evidence in the record that the defendant’s partnership with Marquis’ competitor would lead to the inevitable disclosure of plaintiff’s trade secrets (Id, DI 359). Marquis claimed that the defendant had been in discussion with it – and its competitor – in the same timeframe (Id, DI 366, 9 May 2023, answer to amended complaint). It alleged that the same group of the defendant’s scientists was involved in both projects and that – despite the defendant’s assertion that its new partner was not interested in Marquis’ technology – that new partner filed a patent application covering the same.

The court concluded that this case was not necessarily one in which a competitor directly copied trade secrets, but where it might still substantially benefit from possessing such trade secret knowledge, specifically the “years of expensive trial and error” work that the plaintiff undertook when developing its product. In addition to allowing the misappropriation claims to proceed, the court also allowed Marquis’ breach-of-contract claim to move forward because the agreement explicitly allowed for remedies to enjoin an actual or “threatened breach” of it.

The road ahead

Marquis still has a battle to face. Novozymes has denied that it received trade secrets from  Marquis (Id, DI 366, 9 May 2023, answer to amended complaint). It also alleged that Marquis knew – even before it proposed the NDA – that the defendant was working with other ethanol technology companies and that the critical features of the plaintiff’s purported proprietary technology had been disclosed in a patent several years earlier. Finally, Novozymes claimed that the plaintiff has, years into the case, been unable to identify its trade secrets with particularity.

Lessons for trade secret owners

First, if you are concerned about what a potential partner might do with your confidential information, consider drafting an NDA that includes provisions for actual or threatened breaches.

Second, if you find yourself contemplating litigation – where there are statutory and factual bases to do so – consider pleading both misappropriation and threatened misappropriation.

Last, during trade secret litigation, work to identify the factual record that will identify misappropriated trade secrets with particularity as early as possible.