A federal district court recently issued summary judgment in favor of a retail defendant in a trade secret misappropriation case involving the alleged misappropriation of a CBD cream formula. On September 3, 2020, Healthcare Resources Management Group, LLC ("HRMG") filed suit in the Southern District of Florida against several parties, including hemp products retailer Medterra CBD, LLC ("Medterra"), alleging that Medterra misappropriated its proprietary trade secret formula for a CBD cooling cream by selling a product similar to HRMG's cream. On May 14, 2021, Medterra filed an amended motion for summary judgment against HRMG, arguing that HRMG's claims for trade secret misappropriation could not stand, as the partial list of HRMG's ingredients disclosed to it did not constitute a protectable trade secret formula, nor did Medterra "use" or "disclose" any secret formula owned or controlled by HRMG. The court agreed with Medterra, granting its summary judgment motion in full on October 27, 2021. This case serves as an important reminder that trade secret misappropriation claims require proof that a trade secret was either wrongfully acquired, used, or disclosed by the alleged wrongdoer—mere similarity of products is insufficient to succeed on a claim absent these additional elements.
Factual & Procedural Background
The case underlying Medterra's motion for summary judgment is Healthcare Resources Management Group, LLC v. EcoNatura All Healthy World, LLC, et al., in which HRMG sued various defendants, including Medterra, for trade secret misappropriation related to its CBD cooling cream. Specifically, HRMG alleged that Medterra misappropriated its proprietary CBD cream formula which, according to HRMG's complaint, "consists not only of the combination of specific ingredients; it also includes the relative percentages of each individual ingredient and the manner in which the specific amount of each ingredient gets blended with the remaining ingredients to form a finished product."
The relationship between the parties is as follows: Medterra is a hemp-product retailer, which would purchase EcoNatura All Healthy World, LLC's ("EcoNatura") CBD cream from HRMG and resell the product to Medterra's customers. When Medterra and EcoNatura ended their business relationship with HRMG, Medterra began purchasing the CBD cream from EcoNatura directly. HRMG offered to sell Medterra its own CBD cream, but Medterra declined the offer. Notably, at no point did Medterra formulate or manufacture its own product: its role was limited to purchasing and reselling the cream from the supplier.
Despite this, HRMG alleged that Medterra knew the formula and process for making its CBD cream, and continued to sell a cream using HRMG's proprietary information after their relationship ended. In reality, HRMG only disclosed to Medterra a partial list, created by EcoNatura, of ingredients that were included in the CBD cream and their relative percentages. However, Mederra allegedly did not know that these ingredients were supposedly HRMG's propriety formula, nor did it know the process for manufacturing these ingredients. And as stated earlier, Medterra played no role in manufacturing the product.
Medterra's Motion for Summary Judgment
Accordingly, on May 14, 2021, Medterra filed an amended motion for summary judgment, arguing that it did not misappropriate trade secret information because (1) HRMG did not identify a protectable trade secret; (2) Medterra did not misappropriate any trade secret information; and (3) HRMG did not show damages as a result of Medterra's alleged misappropriation. Medterra further argued that it did not violate the FDUTPA, as (1) HRMG did not establish any "deceptive" or "unfair" practice; (2) the FDUTPA claim is preempted by Section 688,008, Florida Statutes; and (3) HRMG could not establish compensable "actual damages."
Ultimately, on October 27, 2021, the court agreed with Medterra and granted its motion for summary judgment as explained below. The court found that there was no evidence that any information amounting to the alleged trade secret was conveyed to Medterra or that Medterra used or disclosed that information. It further agreed with Medterra that the FDUTPA claim was preempted.
The court also granted Medterra's motion for summary judgment, dismissing all three causes of action against it: (1) violations of the Florida Uniform Trade Secrets Act ("FUTSA"); (2) violations of the Defend Trade Secrets Act ("DTSA"); and (3) violations of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA").
Claims for Violations of the DTSA and FUTSA
Legal Standard
To establish a violation of the DTSA, a plaintiff must show: (1) that it owns a valid trade secret; (2) that the trade secret relates to a product used, or intended for use, in interstate commerce; and (3) that the defendant misappropriated the trade secret. See 18 U.S.C. § 1836(b)(1); IT Works Mktg., Inc. v. Melaleuca, Inc., No. 8:20-cv-1743, 2021 WL 1650266, at *7 (M.D. Fla. Apr. 27, 2021). Similarly, to prevail on a FUTSA claim, a plaintiff must demonstrate that "(1) it possessed a trade secret and (2) the secret was misappropriated." Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279, 1297 (11th Cir. 2018).
For information to be considered trade secret under both statutes, the owner must take reasonable measures to maintain the information's secrecy, and the information must derive independent economic value from not being generally known to, or readily ascertainable through proper means, by another person who can obtain economic value from the disclosure or use of that information. 18 U.S.C. § 1839(3); § 688.002(4) Fla. Stat.
Finally, to be liable for trade secret misappropriation, a defendant must either (1) acquire the trade secret by improper means; (2) disclose the trade secret without the owner's consent; or (3) use the trade secret without the owner's consent. See Hurry Fam. Revocable Tr. v. Frankel, No. 8:18-cv-2869, 2019 WL 6311115, at *13 (M.D. Fla. Nov. 25, 2019) (applying the DTSA standard); Scanz Techs., Inc. v. JewMon Enters., LLC, No. 20-22957-Civ, 2021 WL 65466, at *7 (S.D. Fla. Jan. 7, 2021) (applying the FUTSA standard).
Medterra Did Not Misappropriate HRMG's Formula
The crux of HRMG's misappropriation argument is that Medterra knew HRMG had a trade secret in the CBD cream yet utilized the formula for its own profit. However, the court found that even assuming that HRMG had a protectable trade secret, it failed to establish any genuine factual dispute regarding misappropriation as it relates to Medterra.
While HRMG emailed a list of ingredients in its CBD cream to EcoNatura, this email was never shared with Medterra. Further, Medterra was never provided with HRMG's process for blending, mixing, or manufacturing the product. Although HRMG did provide Medterra with a partial ingredient list (written by EcoNatura) that revealed three ingredients in the cream and their percentages, only one of the disclosed ingredients was listed with the same percentage as that which HRMG alleged was part of its protected trade secret. In addition, there is no evidence that Medterra knew the cream was HRMG's alleged trade secret or that Medterra knew anything about the process of manufacturing the product. Finally, considering Medterra is simply a retailer, it did not use HRMG's information to formulate or manufacture its own products.
Therefore, as Medterra did not acquire, disclose, or use any of HRMG's confidential or proprietary information, the court held that it cannot be liable for trade secret misappropriation.
Claim for Violation of the FDUTPA
To succeed on a FDUTPA claim, a plaintiff must show: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. State Farm Mut. Auto. Ins. Co. v. Performance Orthapaedics & Neurosurgery, LLC, 315 F. Supp. 3d 1291, 1300 (S.D. Fla. 2018). A deceptive practice is one in which "there is a representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment." Zlotnick v. Premier Sales Grp., Inc., 480 F.3d 1281, 1284 (11th Cir. 2007).
However, for certain trade secret misappropriation claims, the FUTSA will preempt any FDUTPA claim. § 688.008(1), Fla. Stat. To determine whether the FDUTPA claim will be preempted, a court must consider "whether allegations of trade secret misappropriation alone comprise the underlying wrong; if so, the cause of action is barred by § 688.008." Sentry Data Sys., Inc. v. CVS Health, 361 F. Supp. 3d 1279, 1294-95 (S.D. Fla. 2018). "Thus, a plaintiff's separate tort claim is preempted by [the] FUTSA if there is no material distinction between the plaintiff's FUTSA claim and the other allegation." Id. at 1294–95
Here, the court found that HRMG's FDUTPA claim against Medterra was preempted by its FUTSA claim as there was no material distinction between the two claims. Both claims are premised on Medterra's alleged trade secret misappropriation, as the basis for HRMG's FDUTPA claim is that Medterra sold its proprietary CBD cream without authorization, therefore engaging in unfair, unconscionable, and/or deceptive methods, acts, or practices.
Accordingly, the only unfair or deceptive practice HRMG alleged was the same conduct which formed the basis of its misappropriation claims. Therefore, its FDUTPA claim was preempted.
Takeaways
Before alleging claims predicated upon trade secret misappropriation, a business should ask itself the following two questions: (1) is there any reason my claim would be preempted? (2) even if there is a similar product on the market, was my trade secret improperly acquired, disclosed, or used in creating this product? If the answer to (1) is yes, or if the answer to (2) is no, then a business should carefully analyze whether there is a legal basis to pursue a suit. Not only could you lose at the summary judgment stage, but a motion for sanctions may be brought (as happened here).
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