Lack of "Simple" Internet Research Causes DTSA Claim to Expire

In a recent ruling, a federal court in Oklahoma addressed the effect of internet research on a statute of limitations defense for a Defend Trade Secrets Act (DTSA) claim, as well as its impact on proving trade secret misappropriation. In MFE Enterprises, Inc. v. Alphanetics, Case No. 4:24-cv-304-JFJ (N.D. Ok. Dec. 23, 2024), the court denied MFE's request for a preliminary injunction to prohibit defendant Alphanetics from producing and selling a competing product, concluding that "a simple Internet search" by MFE would have revealed the existence of Alphanetics' product as early as 2017. Id. at *6. Moreover, the court ruled that Alphanetics, through its own public domain research, engaged in sufficient due diligence to avoid intentionally misappropriating MFE's trade secrets. Id.

MFE and Alphanetics both develop and manufacture devices that scan for and detect leaks in oil and gas storage tanks through the use of complex magnet and coil technology. Id. at *1. As early as the 1990s, MFE sold its product and required purchasers to execute non-disclosure agreements to protect its trade secrets. Id. In 1995, MFE sold a scanner to Tank Consultants Inc. (TCI), which employed Alphanetics' founder Jeffrey Rosenberg. Id. While at TCI, Rosenberg designed an improved scanner product modeled off of MFE's device, which TCI then began to market and sell. Id. at *2. In 2000, MFE sued TCI for breach of contract and trade secret misappropriation in Texas federal court, and MFE prevailed. Id.

Several years later, Rosenberg began work on a design for a new, updated scanner product and ultimately obtained two patents in 2017 and 2018. Id. During the course of developing his new device, Rosenberg examined expired patents to determine whether certain technology was already in the public domain and not subject to intellectual property protections. Id. After completing development in 2017, Alphanetics posted the product for sale on its website. Id. An MFE executive, while attending a trade show in January 2024, noticed Alphanetics' competing scanner and suspected that the company and Rosenberg had misappropriated MFE's trade secrets based upon the 1995 sale to TCI.

In June 2024, MFE sued Alphanetics under DTSA and various other state statutes and sought a preliminary injunction to prohibit Alphanetics from producing, selling or promoting the competing scanner. Id. at *5. The court declined to issue an injunction for two key reasons: 1) MFE was unlikely to overcome Alphanetics' defense that the DTSA claim was time-barred and 2) MFE was unlikely to succeed in establishing intentional misappropriation. Id.

First, the court wrote that "the evidence indicate[d] that a reasonably diligent person could have performed a simple Internet search in 2017" and discovered the existence of the competing product, thus the three-year statute of limitations for the DTSA claim likely expired sometime in 2020. Id. at *6. Significantly, MFE failed to present any "explanation or evidence" that it could not have discovered the product through ordinary diligence, further bolstering Alphanetics' defense. Second, the court ruled that MFE was unlikely to establish trade secret misappropriation because "Rosenberg intentionally researched [the] public domain" to ensure he would not wrongfully copy any existing intellectual property, and his new device was "a unique configuration" for which he was awarded two patents. Id. at *6. For those reasons, the court rejected MFE's theory that Rosenberg likely misappropriated MFE's trade secrets based upon his knowledge of the product following the 1995 sale to TCI. Id.

The court's denial of the preliminary injunction exposed substantial weaknesses in the merits of MFE's claims and drastically altered the course of the litigation, with the parties agreeing to a dismissal with prejudice in early March 2025.

This case illustrates the importance of diligence efforts, such as web searches of publicly accessible information in assessing issues of trade secret claim liability and accrual. As the court signaled here based on the facts of this particular case, proactive due diligence concerning trade secret misappropriation could be a minimally burdensome business measure to undertake to preserve future causes of action.