In a recent case, the Eastern District of Virginia found for the plaintiff corporations at the motion to dismiss stage for claims of misappropriation of trade secrets and breach of contract. Here, the court confirmed that software components can be trade secrets covered by the Virginia Uniform Trade Secrets Act. Additionally, the court noted that “after-acquired” subsidiaries may be included within a contract’s definition of “subsidiary,” relevant to breach of contract claims involving subsidiaries of an agreement’s original parties. This case may offer guidance for those involved in matters with similar circumstances.
Apex Advanced Technology, LLC. v. RMSI Private Limited
Plaintiffs Cadsys Technologies and Apex Advanced Technology, LLC are related U.S. companies owned by the same corporate parent, “Cadsys (India) Limited,” located in India. Both Plaintiffs and their parent corporation are providers of geospatial information services (“GIS”) to telecommunications and other wireless carriers. ProAct and ProWorks software systems (the “Proprietary Information”) are the underlying technical and engineering processes in these software tools. Plaintiffs have also developed a Data Management Tool (“DMT”). All intellectual property rights lie with Plaintiff Apex Advanced Technology LLC. Plaintiffs have kept their Proprietary Information secret by requiring technical staff to execute non-disclosure agreements (“NDAs”), requiring the use of passwords, and keeping the source code, methodology, and know-how secret from the public and customers.
Defendant RMSI Private Limited (“RMSI-India”) conducts business in the United States through RMSI-North America (“RMSI-NA”). Defendants have allegedly hired members of Plaintiffs’ technical staff since December 2018, who have direct knowledge of Plaintiff’s Proprietary Information, have “called or otherwise solicited” Cadsys employees, and have induced Cadsys employees to disclose Plaintiff’s Proprietary Information in breach of their NDAs. Plaintiffs also allege Defendants have used the Proprietary Information to benefit themselves in commerce. Plaintiffs allege that Defendants knew that Cadsys employees had each executed NDAs and were under a duty not to disclose Plaintiffs’ Proprietary Information.
Defendants entered into a contract with Byers Engineering Company to undertake GIS and engineering services for AT&T in December of 2018, and Plaintiffs allege Defendants are now using their Proprietary Information without consent to complete this contract. Plaintiffs further allege that Defendants’ website also claims that they use DMT and that the site falsely implies Defendants developed the software.
In March 2016, Plaintiff Apex Advanced Technology LLC, purchased assets from another company named Apex CoVantage LLC (“Apex-C”), which included rights to a Non-Disclosure and Non-Solicitation Agreement (“NDA”) between Apex-C and RMSI India from 2007. The NDA contains a non-compete clause stating that the Receiving Party would not use any Propriety Information to compete with the Disclosing Party, including soliciting it’s customers. The Disclosing Party is identified as Apex-C and its subsidiaries. Apex-C assigned the NDA to Plaintiff Apex Advanced Technology LLC and sold its subsidiaries to Plaintiffs. After signing the NDA, Apex-C disclosed to RMSI-India AT&T’s identity as its customer, information related to AT&T facilities, engineering drawings, information related to AT&T wire centers located in the United States, and the DMT software and related information. Plaintiffs maintain that Defendants have used Plaintiff’s Proprietary Information to solicit business from customers. Plaintiffs filed a complaint alleging multiple claims against Defendants, including misappropriation of trade secrets and breach of contract.
Federal Defend Trade Secrets Act and the Virginia Uniform Trade Secrets Act
To plead a plausible claim of misappropriation of trade secrets under the DTSA and VUTSA, “(1) the information in question must constitute a trade secret, and (2) that trade secret must have been misappropriated.” A plaintiff must allege that: “(1) Defendants acquired, disclosed, or used a trade secret developed by Plaintiffs through ‘improper means;’ and (2) Defendants knew or had reason to know that their knowledge of the trade secret was either acquired under circumstances giving rise to a duty to maintain its secrecy or derived through a person owing such a duty to Plaintiffs.” “Improper means” includes “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”
Both the DTSA and VUTSA define “trade secret” broadly. With these broad definitions, “‘[t]he case law is clear that just about anything can constitute a trade secret under the right set of facts,’ so long as the information (1) has independent economic value by virtue of its being a secret and (2) is subject to reasonable efforts to maintain that secrecy.” Additionally, prior Virginia cases have found that software components can be trade secrets covered by the VTUSA.”
Here, Plaintiffs identified specific Proprietary Information, including automated processes designed to manage GIS data, a methodology that automates error identification and data cleansing of engineering drawings, particular software systems, and the DMT software. The court here determined that “Plaintiffs have plausibly pleaded that the Proprietary Information ‘(1) had economic value from not being generally known and readily ascertainable, and (2) that reasonable efforts were made to maintain its secrecy.’” Thus, the court concluded that Plaintiffs’ propriety information may qualify for trade secret protection under both the DTSA and the VUTSA.
Plaintiffs allege that Defendants hired Cadsys employees, induced them to disclose the Proprietary Information in breach of their NDAs, and continue to disclose and use Plaintiffs’ trade secrets in their business operations despite Plaintiffs’ cease and desist notice. Additionally, Plaintiffs described the events and conduct involved in the alleged scheme to misappropriate, identified a timeline within which they believe the misappropriation occurred, alleged the locations where and means by which Defendants allegedly misappropriated trade secrets, and have articulated the nature of their injuries. Thus, the court determined Plaintiffs plausibly alleged misappropriation of trade secrets under the DTSA and the VUTSA and denied the motion to dismiss.
Breach of Contract
Plaintiffs allege that Defendants breached the terms of the NDA when they used Plaintiffs’ Proprietary Information to compete with Plaintiffs. In Virginia, a breach of contract claim requires: (1) a legally enforceable obligation of a defendant to a plaintiff; (2) breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation.
The court here pointed out that it has previously held that “after-acquired” subsidiaries may be included within a contract’s definition of “subsidiary.” The court also determined that Plaintiffs plausibly plead a violation of the NDA’s non-compete and non-solicitation clause, which prohibits use of “any of the Proprietary Information in any effort to compete with the Disclosing Party, including, but not limited to soliciting any of the Disclosing Party’s customers disclosed during the term of this Agreement.” Thus, the court determined Plaintiffs plausibly alleged a breach of contract claim and denied the motion to dismiss.
Takeaways From Apex Advanced Technology, LLC. v. RMSI Private Limited
Here, the court determined there was enough evidence at the motion to dismiss stage to move forward with Plaintiff’s claims of misappropriation of trade secrets and breach of contract. While at this stage, the court didn’t fully discuss the merits of the claims and whether they’ll ultimately be successful, it did offer some helpful guidance for similar cases. First, the court noted that under previous Virginia precedent, software components can be trade secrets covered by the VTUSA. This information is helpful for those with similar claims of misappropriation of trade secrets based on software components. Additionally, for the breach of contract claim, the court reminded us that it has previously held that “after-acquired” subsidiaries may be included within a contract’s definition of “subsidiary.” This is useful guidance for those with similar breach of contract claims against subsidiaries to the parties of the original agreement.