Elmagin Capital, LLC sued Chao Chen, Karl Petty, and their companies, 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 and signed an agreement prohibiting him from using or disclosing confidential information, including trading strategies. After leaving Elmagin, Chen formed Entergrid and developed new trading strategies called Hydra and Gryphon. Elmagin claimed these new strategies copied its protected Breck and Faber strategies. The case went to trial in May 2022, where the jury found that the Breck and Faber strategies were indeed trade secrets, but that Chen did not use them to develop his new strategies. Following the verdict, Elmagin moved for judgment as a matter of law and a new trial, which the district court denied. Chen also sought attorney's fees, arguing Elmagin brought the suit in bad faith, but the court denied this request as well.
The Third Circuit applied a plenary review standard to the denial of judgment as a matter of law, asking whether there was a legally sufficient evidentiary basis for the jury's verdict. Under the DTSA and PUTSA, a plaintiff must prove the existence of a trade secret, that it was protectible, and that it was misappropriated. While the jury found the strategies were trade secrets, they also found no misappropriation. The appellate court noted that misappropriation can be proven by circumstantial evidence of access and similarity, but when public information and the defendant's own knowledge limit the scope of the secret, more than mere similarity is required. The court found that the jury's conclusion—that the defendants' strategies were distinct enough not to constitute misappropriation—was supported by the evidence. Regarding the attorney's fees claim, the court addressed Chen's argument that the modern nature of the DTSA and PUTSA required a jury trial under the Seventh Amendment. The court rejected this, citing precedent that attorney's fees claims were historically decided by judges in English courts in the 1700s. Therefore, the determination of whether a suit was brought in bad faith and whether fees should be awarded is a matter of law for the judge, not a jury question.
The original jury verdict stands, meaning Elmagin cannot recover damages for misappropriation, and Chen is not liable for using the strategies. The decision clarifies that while trading strategies can be trade secrets, proving misappropriation requires more than just similarity when the defendant has independent knowledge. Additionally, the ruling confirms that attorney's fees determinations in trade secret cases remain within the judge's discretion and do not trigger a right to a jury trial.
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