Elmagin Capital, LLC sued Chao Chen, Karl Petty, and their new firms, Entergrid, LLC and Entergrid Fund I, LLC, alleging misappropriation of trade secrets. Chen, a former Elmagin employee, had signed a non-disclosure and non-competition agreement prohibiting him from using Elmagin's confidential information, including its trading strategies. After leaving Elmagin, Chen formed Entergrid and developed new trading strategies called Hydra and Gryphon. Elmagin claimed these new strategies copied its proprietary Breck and Faber strategies in violation of the agreement, the Defend Trade Secrets Act (DTSA), and Pennsylvania's Uniform Trade Secrets Act (PUTSA). 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 Hydra and Gryphon. 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 sued in bad faith, but the court denied this request as well.
The Third Circuit applied a plenary standard of review to the denial of the motion for 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. The court noted that trade secret law does not protect general knowledge or special knowledge of skilled persons, and that misappropriation often relies on circumstantial evidence of access and similarity. However, when public information and the defendant's own knowledge confine the scope of the secret, more than mere similarity is required to prove misappropriation. 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 different was supported by sufficient evidence, meaning the district court correctly denied Elmagin's motions. Regarding the attorney's fees claim, the court addressed Chen's argument that the Seventh Amendment entitled him to a jury decision on whether Elmagin acted in bad faith. The court held that attorneys' fees claims were historically decided by judges in English courts in the 1700s and remain equitable matters decided by the judge, not the jury. The district court's finding that Elmagin had some evidence for its claims, and thus did not act in bad faith, was not clearly erroneous.
The original jury verdict stands, meaning Elmagin cannot recover damages for misappropriation, but the strategies remain legally recognized as trade secrets. The decision clarifies that in trade secret cases where the defendant's knowledge and public information limit the scope of the secret, plaintiffs must provide evidence beyond simple similarity to prove misappropriation. Additionally, the ruling confirms that claims for attorney's fees based on bad faith litigation are decided by the judge, not a jury, even under modern statutes like the DTSA.
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