An asphalt plant manufacturing company is time-barred from bringing trade secret claims under the Defend Trade Secrets Act and Iowa Uniform Trade Secrets Act, a federal appeals court ruled.
CMI Roadbuilding Inc. was on notice of possible trade secret misappropriation since 2002, even if it didn’t have exact knowledge of the misappropriation, the U.S. Court of Appeals for the Eight Circuit said April 4.
The case illustrates that “trade secret theft is a real issue, and if you suspect something, you need to keep on top of it and not sleep on your rights,” David Cohen, president of intellectual property consulting firm Kidon IP Corp, said.
CMI owns technology related to manufacturing asphalt plants and related equipment. The company stopped making replacement parts for its products and sought vendors to make them instead. CMI sent technical drawings, plans, and specifications to these vendors.
Iowa Parts Inc. sold and manufactured CMI replacement parts. Several Iowa Parts employees previously worked at companies whose intellectual property is now owned by CMI. One of those companies, Terex Corp., sent a letter to an Iowa Parts employee in 2002 telling him that it knew of the company’s operations, and that it would be “a crime” to disclose any of CMI’s Terex trade secrets.
CMI sued Iowa Parts in 2016 for trade secret misappropriation, after Iowa Parts “transitioned from making smaller and cheaper ($50 to $250) parts to larger component parts, which cost more in the range of $300,000 to $400,000.”
The court disagreed with CMI’s argument that it couldn’t have “discovered” the misappropriation before Iowa Parts began selling larger parts, because the smaller parts could have been reverse engineered without the trade secrets.
“The case stands as a cautionary tale to companies who might view a trade secrets theft as too small to investigate,” Anne Li, a partner at Crowell & Moring LLP, said. “The seeds of that theft are planted and continue to grow over time and, once that happens, there is no redress.”
The court ruled CMI was time-barred from bringing its suit because it “was aware a problem existed” when Terex sent the letter in 2002. “At the point it was on notice there was a possible problem, it had a duty to investigate, regardless of its exact knowledge,” the court said.
Cohen said the court made the right call. “The duty to investigate where the trade secret owner has a real suspicion is real and cannot be shrugged off with a simple letter,” he said.
Judge C. Arlen Beam wrote the opinion, joined by Judges Duane Benton and Ralph R. Erickson.
Hiltgen & Brewer and Lederer & Weston represented CMI. Zarley Law Firm represented Iowa Parts.
The case is CMI Roadbuilding, Inc. v. Iowa Parts, Inc., 8th Cir., No. 18-1075, 4/4/19.
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(Updated with additional reporting throughout)