February 22, 2021 Top Story

Misappropriation Litigants Must Show Evidence of Impropriety

Mere use of trade secrets by departing employees insufficient for UTSA breach

By Michael Stefanilo Jr.

An appellate court has ruled that a startup competitor of tech giant Apple Inc. failed to satisfy its burden of proof in establishing a misappropriation claim based on its former employees’ retention and use of purported trade secrets. The ruling highlights public policy considerations favoring free mobility of employees, while also revealing strategies that practitioners may employ to protect their clients when their employees depart for a competitor, according to ABA Litigation Section leaders.

The tech giant Apple was sued for retaining employees of a startup competitor without compensating the startup

The tech giant Apple was sued for retaining employees of a startup competitor without compensating the startup

iStockphoto by Getty Images

Multi-Round Acquisition Negotiations Falter

In Hooked Media Group, Inc. v. Apple Inc., Hooked Media Group, Inc. sued Apple alleging misappropriation of trade secrets under the Uniform Trade Secrets Act (UTSA), among other things. Apple had sought to acquire Hooked’s team of engineers, but Hooked preferred “acquisition possibilities” of a larger magnitude, including the sale of its technology and market share. Apple declined to purchase Hooked but indicated that it might be interested in paying a “finder’s fee” for the engineering team as part of an “acqui-hire.” Instead, Apple proceeded to contact and retain three Hooked employees, including its chief technical officer, without providing Hooked with any compensation.

The trial entered summary judgment in favor of Apple. Hooked appealed to the Sixth District Court of Appeals for the State of California, one of 47 states and the District of Columbia to adopt the UTSA.

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