CAFC Finds Faulty Assessment of Trade Secret Elements in Overturning Insulin Patch Injunction
“[T]he Federal Circuit ruled that this ‘hazy grouping of information’ lacked the specific definition required to constitute a trade secret.”
Last week, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential decision in Insulet Corp. v. EOFlow, Co. Ltd., reversing a lower court’s entry of a preliminary injunction in a trade secret case involving insulin pump patches. The Federal Circuit found that the record developed by the district court in the case was insufficient to support injunctive relief, and that the district court utilized a definition for trade secret that was “severely overbroad.”
Physical Components of Insulet’s Alleged Trade Secrets Not Sufficiently Described
Insulet filed its trade secret suit in early 2023 in the District of Massachusetts against EOFlow after medical technology company Medtronic had reportedly begun due diligence in pursuit of acquiring EOFlow. Both companies had developed wearable insulin pump patches, Insulet debuting its OmniPod product in the early 2000s and EOFlow releasing the EOPatch in 2011. In 2017, when EOFlow began developing an updated EOPatch product, that company hired four employees that had previously worked with Insulet. Insulet’s lawsuit included claims under the federal Defend Trade Secrets Act (DTSA) and sought injunctive relief preventing EOFlow from disclosing technical information to Medtronic.
Last October, U.S. District Judge F. Dennis Saylor, IV, entered a preliminary injunction preventing EOFlow from marketing any product based on Insulet’s trade secrets. Insulet immediately appealed this ruling to the Federal Circuit, prior to a second injunction entered by Judge Saylor this April limiting certain geographical carveouts that allowed EOFlow to serve foreign patient populations in several countries. On appeal, EOFlow argued that Insulet’s right to relief was limited by the three-year statute of limitations for trade secret claims codified at 18 U.S.C. § 1836(d), which should have been addressed by the district court when analyzing Insulet’s likelihood of success on the merits of its trade secret claim.
The Federal Circuit’s opinion, authored by Circuit Judge Lourie, agreed that the district court ignored a factor material to Insulet’s likelihood of success when it deemed the statute of limitations to be irrelevant to the analysis. Even if the statute of limitations was properly dealt with, the district court also abused its discretion in its definition of a trade secret protectable under the DTSA. Judge Saylor had defined the trade secret in this case as “any and all confidential information of Insulet” and “any information that contains, derives from, or incorporates such Confidential Information.”
In finding this definition to be “severely overbroad,” the Federal Circuit ruled that this “hazy grouping of information” lacked the specific definition required to constitute a trade secret. For example, the district court enjoined EOFlow from disclosing all “design drawings and specifications for each physical component and subassembly” of the accused EOPatch products without analyzing which components constituted Insulet’s trade secret. Along with failing to specifically identify Insulet’s intellectual property, the district court also neglected its assessment of whether Insulet took reasonable measures to protect the alleged trade secret as well as whether that trade secret was reasonably ascertainable through proper means.
District Court Failed to Meaningfully Engage With Several Trade Secret Factors
While the district court found that the possibility of reverse engineering alone does not defeat a trade secret claim, the Federal Circuit found this to be erroneous, especially given evidence of OmniPod tear-down videos posted online and Insulet’s own publication of OmniPod’s core components. The district court also erred by failing to consider Insulet’s patent disclosures when considering whether the alleged trade secret could be reasonably ascertained, the Federal Circuit ruled. OmniPod components that have become public knowledge due to their disclosure in patent specifications would be unlikely to merit trade protection, the appellate court noted.
The Federal Circuit found further fault with the district court’s treatment of the independent economic value of the alleged trade secret as required by Section 1836(d). The district court’s determination that “the value of a small number of secrets that solve critical problems can be greater than the sum of its parts” did not sufficiently evaluate the trade secret alleged by Insulet. The sweeping injunction granted by the court was also undermined by the district court’s recognition that Insulet failed to prove that EOFlow benefited from trade secrets.
EOFlow also succeeded on its appeal of the district court’s findings on irreparable harm and the public interest. The Federal Circuit agreed that it was improper for the district court to neglect an assessment of irreparable harm due to the strong likelihood of Insulet’s success. The district court also credited Medtronic’s potential acquisition of EOFlow, but the Federal Circuit, applying First Circuit case law from Charlesbank Equity Fund II v. Blinds To Go (2004), held that irreparable harm must be based on something more than future conjecture. Adding that the district court failed to meaningfully engage with the public interest factor, as Judge Saylor “s[aw] little impact one way or the other,” the Federal Circuit found nothing in the record to support the granted injunctive relief.
The Federal Circuit concluded by noting it was only ruling on the likelihood of Insulet’s success, not barring Insulet from succeeding on its trade secret claims. While the April 2024 injunction was not before the appellate court, it suggested the district court retract that relief as well in light of this opinion.
Image Source: Deposit Photos
Author: DmitriySk
Image ID: 460033308
Steve Brachmann
Steve Brachmann is a graduate of the University at Buffalo School of Law, having earned his Juris Doctor in May 2022 and served as the President of the Intellectual Property […see more]
