Elmagin Capital, LLC sued Chao Chen, Karl Petty, and their new entities, Entergrid, LLC and Entergrid Fund I, LLC, alleging that Chen and Petty misappropriated Elmagin's confidential trading strategies in violation of a Non-Disclosure Agreement, the federal Defend Trade Secrets Act (DTSA), and Pennsylvania's Uniform Trade Secrets Act (PUTSA). Chen had previously worked for Elmagin, signed an NDA prohibiting the use of confidential information, and left in 2018 to start Entergrid, where he developed new trading strategies called Hydra and Gryphon. Elmagin claimed these new strategies copied its proprietary Breck and Faber strategies. At trial, the jury found that the Breck and Faber strategies qualified as trade secrets but concluded that Chen did not use them to develop the new strategies. The district court subsequently denied Elmagin's motions for judgment as a matter of law and a new trial, and also denied Chen's request for attorneys' fees, leading to cross-appeals.
The Third Circuit applied a plenary standard of review to the denial of judgment as a matter of law, asking whether there was a legally sufficient evidentiary basis for the jury's verdict. The court explained that while trade secret law protects business methods with independent economic value that are kept secret, it does not protect general knowledge or the combination of well-known elements. Misappropriation requires proof of disclosure or use without consent, often proven through circumstantial evidence of access and similarity. Here, the jury was instructed to assess the whole strategy rather than individual steps. The appellate court found that the jury's determination—that the strategies were similar enough to be trade secrets but distinct enough to avoid misappropriation—was supported by the evidence. Regarding the attorneys' fees claim, the court addressed Chen's argument that the Seventh Amendment entitled him to a jury decision on the issue. The court held that attorneys' fees claims were historically decided by judges in English courts in the 1700s and remain equitable matters. Therefore, the district court correctly decided the fees issue as a matter of law, and Chen was not entitled to a jury determination.
The original jury verdict stands, meaning Elmagin cannot recover damages for misappropriation, and Chen and Petty are not liable for using the strategies. The decision clarifies that while a plaintiff can establish the existence of a trade secret, they must still prove actual misappropriation to succeed. Furthermore, the ruling solidifies that attorneys' fees in trade secret cases are judicial determinations, preventing defendants from forcing a jury to decide on fee awards even if the plaintiff's case ultimately fails on the merits of misappropriation.
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