Federal Court Reminds Trade Secret Owners That the Statute of Limitations Isn't Everything When it Comes to Misappropriation Claims

Several years after an employee leaves your company, you realize that he or she has been using confidential and proprietary information acquired from your business to compete against you. Your non-compete agreement with the employee had expired before the employee started using the information, and you know that the statute of limitations under your state’s trade secrets laws has expired. So you’re out of luck, right?

Not necessarily. In its recent decision in Aspen Technologies, Inc. v. M3 Technology, Inc., the Fifth Circuit Court of Appeals affirmed judgment and an award of money damages and a permanent injunction resulting from a jury verdict on claims of trade secret misappropriation. The plaintiff, a business that sold software packages for use in the petrochemical and chemical industries, sued a former employee who was leaving for a competing business, which in turn had been formed by other former employees of plaintiff. In discovery, the plaintiff discovered that the competing business was using plaintiff’s trade secrets, in the form of software code, for its own competing products. 

The plaintiff business added the competing business as a defendant, alleging misappropriation of trade secrets, as well as a claim for copyright infringement. Despite the defendant’s arguments that the three-year statute of limitations had elapsed for these claims, and despite the fact that the other former employees who had started the competing business were no longer subject to non-compete agreements when the trade secrets were used, the jury found that misappropriation had occurred. The Fifth Circuit affirmed, stating that the jury could have reasonably found that the plaintiff could not have known about the competitor’s use of trade secret code until discovery took place in litigation—which would toll the statute of limitations on the trade secret claim. The court also noted that the defendant corporation had sent letters to the plaintiff, assuring the plaintiff that it was not using the plaintiff’s trade secrets in its business, supporting a conclusion that the defendant had fraudulently concealed its misconduct.   

The takeaway here is that if you find yourself in the position above—learning that former employees are apparently using your trade secrets, years after their termination and after any non-compete language may have expired, and after the statute of limitations has apparently run—take heart, as there may still be steps you can take to address that conduct. Of course, there is a catch—this decision was based on the plaintiff being unable to timely discover the misappropriation by reasonable diligence, and by the plaintiff reasonably relying on the defendant’s denials of misconduct, so an owner of trade secrets that buries its head in the sand after an employee leaves for a competitor may not have the same success in protecting its rights.