The Federal Circuit recently held that the dismissal of a trade secrets complaint for failure to state a justiciable claim was not warranted merely because the misconduct allegedly involved a number of wrongdoers and began many years before the complaint was filed.

Overview of the case. ABB alleged that, during a several decade period, some of its former employees engaged in a conspiracy to misappropriate — and to pass to alleged co-conspirator competitors — confidential information relating to its products. The district court dismissed on the grounds that the relevant statute of limitations had expired and that ABB had not been reasonably diligent in protecting its trade secrets. On appeal, the judgment was reversed. ABB’s allegations of wrongdoing were deemed sufficient to withstand a motion to dismiss. The case was remanded for further proceedings. ABB Turbo Systems, AG v. TurboUSA, Inc., Case No. 2014-1356 (Fed. Cir., Dec. 17, 2014).

The alleged conspiracy and resulting lawsuit. In 1986, Hans Franken left the employ of ABB, a designer and manufacturer of turbochargers and turbocharger parts, and founded a competitor. Over the course of more than 20 years, employees of ABB allegedly transferred to Hans’s company confidential information relating to parts embodying ABB’s patented inventions.

In 2009, Hans sold his company to TurboUSA, a corporation managed by Hans’s son Willem and partly owned by Hans. In connection with the sale, ABB’s documents in Hans’s company’s files supposedly were altered to disguise their source. TurboUSA allegedly continues to use ABB’s secrets, enriching Hans and Willem.

In 2012, ABB sued Hans, Willem, and TurboUSA for patent infringement, trade secret misappropriation, and conspiracy. The patent infringement claims were settled, Hans was dismissed as a defendant, and the trade secret and conspiracy case against TurboUSA and Willem continued until it was dismissed by the district court. ABB appealed.

The Federal Circuit’s decision.

  1. Statute of limitations. According to the appellate tribunal, the district court erred when it dismissed the complaint based on the statute of limitations. That is an affirmative defense which ordinarily may not be used as a basis for dismissal on the pleadings unless the time-bar is evident on the face of the complaint (not so here). The trial court surmised that ABB “should have had at least an inkling that something was amiss.” The complaint, however, alleges concealment efforts made by the defendants, is silent with respect to when or how ABB discovered the misappropriation, and does not state facts demonstrating that ABB actually or constructively discovered the misconduct more than three years before the litigation was initiated.
  2. Protection of confidentiality.  ABB’s pleading alleged various actions the company took to protect its trade secrets. The trial court surmised that ABB’s efforts to protect secrecy probably would be deemed insufficient. The federal circuit held that only “reasonable” care is required, and “the complaint stage is not well-suited to determining what precautions are reasonable in a given context.”

Takeaways. This case teaches that a complaint which alleges the relevant facts as the pleader understands them, and which aligns those factual allegations with the operative legal principles as ABB seemingly did here, has the best chance for surviving a Rule 12(b)(6) motion. On appeal, ABB’s pleading was found to satisfy those minimum standards. So, the parties will have an opportunity to take some discovery before the trial court decides whether further litigation would be futile.