In Insulet Corp. v. Eoflow, Co, Ltd., [2024-1137] (June 17, 2024), the Federal Circuit reversed a preliminary injunction against manufacturing, marketing, or selling any
product that was designed, developed, or manufactured, in whole or in part, using or relying on alleged trade secrets of Insulet.

Insulet and EOFlow are medical device manufacturers that make insulin pump patches. Insulet began developing the wearable insulin pump OmniPod® in the early 2000s. The FDA approved the first OmniPod product in 2005, and a next-generation product, the OPI-2, came onto the market soon thereafter in 2007. Insulet then began work on its next-generation Eros product, which obtained FDA approval in 2012 and commercially launched in 2013.

EOFlow began developing its own flagship product, an insulin pump patch called the EOPatch®, soon after the company’s founding in 2011. The EOPatch received regulatory approval in South Korea in 2017, after which EOFlow began developing its next-generation
EOPatch 2. Around that time, four former Insulet employees joined EOFlow. In 2019 and 2022, respectively, the EOFlow 2 received regulatory approval in South Korea and
Europe, after which it began commercial distribution in those select geographic markets.

After reports surfaced that Medtronic had started a diligence process to acquire EOFlow. Insulet sued EOFlow for violations of the Defend Trade Secrets Act. (“DTSA”), seeking to enjoin all technical communications between EOFlow and Medtronic in view of its trade secrets claims. The district court temporarily restrained EOFlow from “disclosing products or manufacturing technical information related to the EOPatch or Omni[P]od products,” and then granted Insulet’s request for a preliminary injunction.

The Federal Circuit began by noting that trade secrets are an important form of intellectual property that both Congress and the states have deemed worthy of protection. The Founders also recognized the value, as well as the volatility, of an idea kept as a secret. However in evaluating Insulet’s likelihood of confusion, the Federal Circuit noted that the court did not assess the statute of limitations in the context of evaluating Insulet’s likelihood
of success on the merits, the court thus ignored a material factor deserving significant weight, which constitutes an abuse of discretion. If the three-year statute of limitations for filing a DTSA claim had expired, Insulet’s claims would be timebarred and therefore would have no chance of success.

Further, even if the district court had adequately dealt with the statute of limitations issue, that would have been insufficient to support the October 24, 2023 order. As EOFlow further contends, the district court also abused its discretion in its consideration of what constitutes a trade secret. The Federal Circuit quoted the definition of trade secret in the DTSA, and noted that the definition used in the district court’s order was severely overbroad, including “any and all Confidential Information of Insulet” and “any information that contains, derives from, or incorporates such Confidential Information.”

The Federal Circuit also disagreed with the district court’s assessment that “it would be unfair to require at this stage perfection as to the precise number and contours of the trade secrets at issue.”

In order to secure a preliminary injunction, Insulet had to establish the likelihood of its success on the merits for at least one, specifically defined, trade secret. It did not do so. Rather, it advanced a hazy grouping of information that the court did not probe with particularity to determine what, if anything, was deserving of trade secret protection.

Finding that Insulet took measures to protect some unidentified “set of information” is not the same as finding that Insulet took reasonable measures to protect specific information alleged to be a trade secret, such as particular “design drawings and specifications for each physical component and subassembly,” as the DTSA requires.

The Federal Circuit found that because the district court failed to identify any trade secret with sufficient particularity, its analysis of misappropriation necessarily also fails as well.

The Federal Circuit concluded that in view of the failure to address the statute of limitations,
the lack of a tailored analysis as to what specific information actually constituted a trade secret, as well as the finding that it was “hard to tell” what subset of that information
was likely to have been misappropriated by EOFlow, we find that the district court abused its discretion in granting the preliminary injunction.

The Federal Circuit also agreed with EOFlow that the district court’s analysis of irreparable harm and public interest were flawed. The Federal Circuit made a point of stating that it was not deciding that Insulet has failed to adequately allege misappropriation of trade secrets or that it cannot succeed on the merits of its claims, only that Insulet has not proven it was entitled to a preliminary injunction.

In Ecofactor, Inc. v. Google LLC, [2023-1101] (June 3, 2023), the Federal Circuit affirmed the the denial of Google’s motion for summary judgment that claim 5 of U.S. Patent No. 8,738,327 was invalid under 35 U.S.C. § 101; the denial of Google’s motion for judgment
as a matter of law of non-infringement of the ’327 patent; and the denial of Google’s motion for a new trial on damages.

The ‘327 patent relates to the operation of smart thermostats in computer networked
heating and cooling systems to reduce strain on the electricity grid during a period of expected high demand through adjustments to the user’s thermostat settings. The district court denied Google’s motion for summary judgment on Section 101, and submitted step two of the Alice inquiry to the jury, which found Google failed to meet its burden. Google filed a post-trial JMOL motion repeating its § 101 arguments, which the district court denied.

Google appealed the order denying summary judgment but not the jury verdict of ineligibility. The Federal Circuit said that the denial of Google’s motion for Summary Judgment was not appealable, disposing of the eligibility issue.

On the issue of infringement, the claims required a thermostat “that receives temperature
measurements from inside the structure.” Google argues that because metal, plastic, and/or glass housings, they cannot directly measure the surrounding ambient temperature “inside the structure” like other thermostats. Google argues that its thermostats can only derive an estimate of the ambient temperature by measuring only the temperature within the thermostat housing itself, which is not “inside the structure.” As a result, Google argues that the jury’s verdict of infringement is unsupported by substantial evidence.

EcoFactor’s infringement expert testified that the accused thermostat products meet
the claimed limitation because the thermostats measured temperature of the structure and not just the temperature within the thermostat housing. 26:20–327:6). EcoFactor’s expert supported his conclusion with several forms of evidence. EcoFactor’s expert relied on website guides maintained Google for the benefit of software engineers who develop applications for use with Nest thermostats. One website page states that the Nest thermostats measure the “[a]mbient temperature,” defined as the “temperature measured near the thermostat”—not just within the thermostat. Another website page explains that the temperature sensors of certain Nest products measure ambient room temperature.

The Federal Circuit concluded that the jury’s infringement verdict that the accused Nest thermostat products satisfy the claim language of “receives temperature measurements from inside the structure” is supported by substantial evidence.

On the issue of damages, Google argued for a new trial because EcocFactor’s damages expert should have been excluded. Among other things, Google asserted that his proposed royalty rate was “plucked . . .out of no where.” However the Federal Circuit said that far from plucking the $X royalty rate from nowhere, Mr. Kennedy based this rate on the following admissible evidence: three license agreements and the testimony of
EcoFactor’s CEO, Mr. Habib. Ultimately, the Federal Circuit noted, the jury returned a verdict of $20,019,300, which represents significantly less than Mr. Kennedy’s proposed damages amount of $Y that would have resulted from applying the $X royalty rate to Google’s past sales.

Google also attacked the lack of apportionment, since the licenses relied upon were for EcoFactor’s entire patent portfolio. The Federal Circuit explained that damages owed to the patentee must reflect the value of only the patented improvement—called apportionment. If a sufficiently comparable license is used for determining the appropriate reasonable royalty rate, further apportionment may not be required because the comparable license has built-in apportionment. Built-in apportionment effectively assumes that the negotiators of a comparable license settled on a royalty rate and royalty base combination embodying the value of the asserted patent.” Id. (citation omitted). For built-in apportionment to apply, the license must be sufficiently comparable in that principles of apportionment were effectively
baked into the purportedly comparable license. The Federal Circuit found that Mr. Kennedy sufficiently showed, for purposes of admissibility, that the three license agreements were economically comparable to the hypothetically negotiated agreement.

Judge Prost dissented from the damages portion of the opinion, stating that Google argues that (1) Mr. Kennedy, EcoFactor’s damages expert, calculated an $X royalty rate2 from the Schneider, Daikin, and Johnson lump-sum licenses in an unreliable way; and (2) the $X rate in any event did not reflect the value of the ’327 patent (as distinct from that of other patents covered by those licenses). Google is right on both counts. The district court therefore, in my view, abused its discretion by not granting a new damages trial given Mr. Kennedy’s flawed testimony.