ABB Turbo Sys. AG, et al. v. TurboUSA, et al.
Addressing the standard for pleading trade secret misappropriation and conspiracy under Florida law, the U.S. Court of Appeals for the Federal Circuit reversed an order from the U.S. District Court for the Southern District of Florida granting a Rule 12(b)(6) motion to dismiss. The district court dismissed based on two alternative views: either the plaintiff should have known about the misappropriation before statute of limitations expired or the trade secrets were not reasonably protected given the “enormity of the scope of misappropriation” without plaintiff’s detection. The Federal Circuit concluded that the district court’s rationale was inadequate to support dismissal. ABB Turbo Sys. AG, et al. v. TurboUSA, et al., Case No. 14-1356 (Fed. Cir., Dec. 17, 2014) (Taranto, J.).
Plaintiff ABB makes and sells exhaust-gas turbochargers for use in ocean vessels and power plants. What started as a complaint for patent infringement against a former employee turned competitor became an amended complaint for misappropriation and conspiracy after ABB received information suggesting that its former employee had conspired to steal ABB’s trade secrets. Allegations included TurboUSA paying at least one ABB employee for the confidential information and hiring a former ABB employee who possessed stolen trade secrets. ABB alleged that this conspiracy spanned over 30 years and involved high-level ABB employees.
Under Florida trade-secret law a trade secret claim must be brought “within 3 years after the misappropriation is discovered or by the reasonable exercise of diligence should have been discovered,” and the allegedly misappropriated information must have been “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Given the allegation that the conspiracy spanned over 30 years and involved high-level ABB employees, the district court reasoned that had ABB exercised reasonable diligence, it “should have at least had an inkling that something was amiss” at some point before filing suit in 2012. Given that ABB apparently did not realize anything was amiss, the district court further reasoned that it was “highly unlikely that the Trade Secrets were the subject of reasonable efforts to protect their secrecy.” Thus, the district court concluded ABB’s trade secret claim was either time-barred or did not allege a trade secret for want of reasonable protection. ABB appealed.
On appeal, the Federal Circuit explained that a statute of limitations bar is an affirmative defense and plaintiffs are not required to negate an affirmative defense in their complaint, unless it is “apparent from the face of the complaint that the claim is time-barred.” Here, it was not apparent. On the issue of reasonable efforts from ABB to protect its trade secrets, the Federal Circuit deferred to Florida law, which requires only that a trade secret be reasonably protected making clear that “[p]rotections may be legally adequate to confer legal status as secrets, but still not perfectly prevent misappropriation.” Indeed, “detectability turns on the acts of the miscreants, such as their furtiveness and concealment efforts,” not on a trade secret owner’s efforts to protect it from disclosure.
Citing Twombly/Iqbal, the Court explained that at the pleading stage, the court’s role is to determine if the factual allegations go beyond being “merely consistent with” liability to “plausibly suggest[ing]” liability. To make this determination, the Federal Circuit noted the importance of a “context-specific” application of Rule 8 and the need to recognize that direct evidence of some facts, such as the alleged covert efforts at play here, “may be distinctively in the defendant’s possession, requiring that the threshold standard of plausibility be applied to more circumstantial evidence.” With that, the Federal Circuit reversed, remanded and awarded costs to ABB.