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ESI Spoliation Found to Support Claim of Misappropriation of Trade Secrets

Posted on May 31st, 2017

Destruction of ESIIn Systems Spray-Cooled, Inc. v. FCH Tech, LLC, et. al., Case No. 16-1085 (W.D. Ark., May 16, 2017), Plaintiff sued Defendants for misappropriation of trade secrets and confidential information. Plaintiff purchased its technology from UCAR Carbon Company, Inc. in 1999. The individual Defendants, Henry and Campbell, are former employees of Plaintiff and both were subject to employment agreements with confidentiality and non-compete clauses. Campbell’s employment with Plaintff was eventually terminated, while Henry resigned his employment with Plaintiff voluntarily. Several years after the end of their employment with Plaintiff, Henry and Campbell formed Defendant FCH Tech, which they admit was formed in part to compete with Plaintiff. Plaintiff sued Defendants, acknowledging that the non-compete agreements had expired but asserting that the confidentiality provisions did not expire until 2018. Plaintiff sought injunctive relief to prevent Defendants from designing or supplying low pressure spray cooling equipment to the steel industry for three years.

Plaintiff alleged that the misappropriation by Defendants was conducted in a number of ways, including via external data storage devices. Specifically, Plaintiff alleged that the individual Defendants connected external data storage devices to the work laptops issued to them by Plaintiff and downloaded trade secrets from the work laptops to the external devices.  The downloads to the external drives included information such as design drawing and estimate worksheets.  When Defendants’ employment with Plaintiff ended, they did not return the external storage devices to Plaintiff.  During discovery, Plaintiff’s computer forensics expert analyzed the laptops and determined that Campbell connected the external storage device to the computer two days after being fired, while Henry connected the device to his laptop after resigning but before his last day of work. The expert futher determined that the external storage device contained folders with the same names as folders on Plaintiff’s servers. Plaintiff filed a Motion for Preliminary Injunction, and Defendants turned over their own computers for examination. The expert concluded that software had been installed on the Defendants’ computers after the Preliminary Injuction Motion had been filed and that CCleaner had been run on both computers shortly thereafter. Defendants’ explanation for this activity on the hard drive was that that the hard drives had been replaced “in the ordinary course of business” because of technical issues. The court found intentional destruction of ESI for the purpose of preventing inspection and awarded an adverse inference instruction against Defendants, and that Defendants pay Plaintiffs’ attorneys’ fees and costs regarding the issue.

Now, Plaintiff argues that the destruction is evidence of misappropriation. Defendants argue that the evidence is not direct evidence. However, the court noted that direct evidence of misappropriation is “rarely available and not required” to maintain a theft of trade secret action. The court found that destruction of the hard drives supported a conclusion that Defendants destroyed evidence of misappropriation. Ultimately, the court granted the motion in part and denied it in part, granting a limited injunction and ordering a bond.

ILS – Plaintiff Electronic Discovery Experts

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