top of page
Search
  • Writer's pictureYork Faulkner

The Defend Trade Secrets Act: Key Takeaways from the Federal Circuit’s Insulet v. EOFlow Decision

… According to the district court, the “mere possibility” of reverse engineering could not defeat Insulet’s trade secret claims, and Insulet’s patent disclosures were irrelevant because, “this is not a patent case.”

 


Introduction

 

In Insulet Corp. v. EOFlow, Co. Ltd., No. 2024 (Fed. Cir. June 17, 2024), the United States Court of Appeals for the Federal Circuit reversed a preliminary injunction granted by the United States District Court for the District of Massachusetts. The Federal Circuit held that the district court abused its discretion in ruling that Insulet was likely to succeed on its claim that EOFlow misappropriated Insulet’s insulin pump patch trade secrets. The genesis of this medical device trade secrets case was EOFlow’s hiring of four former Insulet employees.

 

Background

 

Insulet, a leading manufacturer of insulin pump patches, was founded in the early 2000s and received FDA approval in 2005 for its flagship product, the OmniPod®, a wearable insulin pump. The OmniPod® was followed by the OPI-2 and Eros products, with the Eros product receiving FDA approval in 2012 and launching commercially in 2013.

 

Founded in 2011, EOFlow developed its own insulin pump patch, the EOPatch®, which was first launched in South Korea in 2017. Shortly after, EOFlow began developing its next-generation EOPatch 2. During early development of the EOPatch 2, EOFlow hired four former Insulet employees. The EOPatch 2 was launched in South Korea in 2019 and then in Europe in 2022.

 

In early 2023, Insulet learned that Medtronic was seeking to acquire EOFlow and its insulin pump patch product line. After learning of the possible acquisition, Insulet filed suit against EOFlow, asserting, among other claims, violations of the Defend Trade Secrets Act (DTSA). Insulet alleged that its former employees retained confidential documents and that EOFlow’s rapid development and regulatory approval of the EOPatch 2 suspiciously coincided with the hiring of those employees.

 

Insulet moved for a preliminary injunction to prevent EOFlow from discussing the technical details of its insulin pump patches with Medtronic and to halt commercial activities that allegedly involved Insulet’s trade secrets. The district court granted the preliminary injunction on October 6, 2023, which was later amended on October 24, 2023, to permit sales to existing patient populations in South Korea, the European Union, and the United Arab Emirates.

 

The Federal Circuit’s Decision

 

Applying First Circuit law, the Federal Circuit reviewed the district court’s grant of a preliminary injunction for an abuse of discretion. SoClean, Inc. v. Sunset Healthcare Sols., Inc., 52 F.4th 1363, 1367 (Fed. Cir. 2022). The Federal Circuit held that the district court abused its discretion in ruling that Insulet had proven the four factors required to establish entitlement to a preliminary injunction: (1) likelihood of success on the merits, (2) irreparable harm, (3) balance of harms, and (4) public interest​​. See Concrete Mach. Co. v. Classic Lawn Ornaments, Inc., 843 F.2d 600, 611 (1st Cir. 1988) (preliminary injunction factors). Specifically, the Federal Circuit reviewed the district court’s findings regarding likelihood of success, irreparable harm, and public interest.

 

A. Likelihood of Success

 

The Federal Circuit held that the district court abused its discretion in finding that Insulet was likely to succeed at trial for the following reasons.

 

First, the district court failed to determine whether Insulet’s claims were barred by the statute of limitations. Under the DTSA, a civil action for misappropriation of trade secrets must be brought within three years after the date on which the misappropriation is discovered or should have been discovered through the exercise of reasonable diligence. See 18 U.S.C. § 1836(d). EOFlow argued that Insulet’s claims were time-barred because Insulet knew or should have known that EOFlow hired its former employees more than three years before the lawsuit was filed. Although the district court acknowledged EOFlow’s statute of limitations defense, it determined that the defense was irrelevant to its preliminary injunction analysis. The Federal Circuit disagreed, holding that the district court abused its discretion by ignoring the statute of limitations and emphasizing that if the limitations period had expired, Insulet’s claims would be time barred and have no chance of success. Decision at 7.

 

Second, the district court abused its discretion by applying the wrong definition of trade secrets. The DTSA defines trade secrets to include information that the owner has taken reasonable measures to keep secret and that derives independent economic value from not being generally known or readily ascertainable. See 18 U.S.C. § 1839(3). However, the district court’s preliminary injunction defined trade secrets broadly to encompass “any and all Confidential Information of Insulet” and “any information that contains, derives from, or incorporates such Confidential Information,” deviating from the DTSA’s requirement for specifically identified trade secrets that are not generally known or readily ascertainable. Decision at 8. The district court justified its deviation from the statutory definition by stating that “it would be unfair to require at this stage perfection as to the precise number and contours of the trade secrets.” Id. The Federal Circuit disagreed, holding that Insulet had to prove likelihood of success for “at least one, specifically defined, trade secret” instead of the “hazy grouping of information” condoned by the district court in its preliminary injunction ruling. Id. at 8-9.

 

Third, the district court not only failed to require Insulet to specifically identify and prove its trade secrets under the statutory definition but also failed to require proof that Insulet used reasonable means directed to the protection of those specific trade secrets. Instead, the district court merely found that Insulet had implemented routine measures such as system password protection and confidentiality provisions in employment contracts aimed at protecting its business operations generally. The Federal Circuit held, “Finding that Insulet took measures to protect some unidentified ‘set of information’ is not the same as finding that Insulet took reasonable measures to protect specific information alleged to be a trade secret.” Decision at 9.

 

Fourth, the district court failed to determine whether the alleged trade secret information “was generally known or readily ascertainable through proper means,” such as through reverse engineering or public disclosures. 18 U.S.C. § 1839(3)(B). The district court acknowledged that parts of Insulet’s OmniPod® could be reverse engineered and that some information was publicly available, including through Insulet’s own patent disclosures. However, the district court dismissed that evidence as irrelevant. According to the district court, the “mere possibility” of reverse engineering could not defeat Insulet’s trade secret claims, and Insulet’s patent disclosures were irrelevant because, “this is not a patent case.” Decision at 10-11. The Federal Circuit disagreed, noting that the DTSA’s express statutory language, “readily ascertainable through proper means,” embraces “possibilities” and required the district court to address how the possibility of reverse engineering would affect Insulet’s likelihood of success at trial. The district court’s disregard for Insulet’s patent disclosures was likewise an abuse of discretion because it is “axiomatic that ‘matters of public knowledge or of general knowledge in an industry cannot be appropriated’ by an entity as a trade secret.” Allstate Ins. Co. v. Fougere, 79 F.4th 172, 189 (1st Cir. 2023) (quoting Burten v. Milton Bradley Co., 763 F.2d 461, 463 n.2 (1st Cir. 1985)).

 

Fifth, the district court failed to adequately address whether the alleged trade secrets had independent economic value. Under the DTSA, information must not only be kept secret but must also derive independent economic value from its secrecy. See 18 U.S.C. § 1839(3). The Federal Circuit found no fault in the district court’s general proposition that “the ‘value of a small number of secrets that solve critical problems can be greater than the sum of its parts.’” Decision at 11. The Federal Circuit, however, did find that the district court abused its discretion by failing to “sufficiently evaluate whether or not the information that Insulet asserted deserved trade secret protection had independent economic value.” Id.  

 

Finally, the district court failed to make specific findings regarding how the trade secrets were misappropriated. Instead, the district court generally inferred misappropriation from evidence that EOFlow rapidly developed its competing products after employing Insulet’s former employees. Although the Federal Circuit did not reject the district court’s inference, it did, however, fault the district court for failing to sufficiently connect the employment of those individuals to the actual use of Insulet’s trade secrets. While circumstantial evidence may be considered, it does not “obviate the need to prove” each element of trade secret misappropriation and “the full satisfaction of each of the four preliminary injunction factors.” Decision at 12.  

 

B.  Irreparable Harm

 

The Federal Circuit held that the district court abused its discretion in finding that Insulet would be irreparably harmed in the absence of a preliminary injunction. The Federal Circuit noted the district court’s misreading of EEOC v. Astra USA, Inc., 94 F.3d 738 (1st Cir. 1996), which held that “when [the] likelihood of success on the merits is great, a movant can show somewhat less in the way of irreparable harm.” Relying on EEOC, the district court “found that the irreparable harm prong had been satisfied ‘particularly [] because the evidence of likely success on the merits is strong.’” Decision at 13. According to the Federal Circuit, “That conclusion was based on an error of law.” Id. Likely success on the merits does not create a presumption of irreparable harm excusing the presentation of evidence establishing that element for entry of a preliminary injunction. At most, the district court speculated that the “immediate harm” facing Insulet was Medtronic’s acquisition of EOFlow, which would make EOFlow “a real competitor,” resulting in a loss of market share. Id. at 13-14. The Federal Circuit rejected the district court’s conclusion as mere “conjecture” because “the court cites no evidence to support that finding.” Id. at 14. Moreover, the Federal Circuit found that the issue of irreparable harm as framed by Insulet and the district court was mooted by news that Medtronic dropped its bid to acquire EOFlow. Id.

 

C.  Public Interest

 

The Federal Circuit found that “the district court failed to meaningfully engage with the public interest prong” as shown by its statement that it “s[aw] little impact one way or the other.’” Decision at 14. The Federal Circuit concluded that the district court’s “cursory analysis is deficient.” Id. (citing Winter v. NRDC, Inc., 555U.S. 7, 22 (2008) (balance of equities and the public interest are important factors)).

 

Conclusion

 

In conclusion, the Federal Circuit emphasized “what we have not decided” in reversing the district court’s grant of preliminary injunction—clarifying that its decision was not an assessment of the ultimate merits of Insulet’s claims. The court was especially sensitive to its findings regarding Insulet’s likelihood of success at trial. Although noting “to date, it has not shown such a likelihood[,] [t]he ultimate disposition of Insulet’s claims will have to be determined through further proceedings.” Decision at 15. Although this decision represents a significant early loss for Insulet, the Federal Circuit’s detailed decision arguably provides a useful and reliable roadmap for Insulet’s ultimate success at trial, provided it can marshal the evidence required by that roadmap to prove its trade secret misappropriation case.

45 views0 comments

Comments


bottom of page