Why Delayed Investigations May Kill Your Trade Secret Claims

A recent Federal Circuit decision demonstrates the dangers of a wait-and-see litigation strategy when a former employee with access to trade secrets joins a competitor developing a similar product.
• Prompt forensic investigation of electronic devices and download activity is essential because the three-year statute of limitations clock starts under the Defend Trade Secrets Act earlier than previously thought.
• Combining trade secret and patent claims risks Federal Circuit review of the entire case, and weaker, earlier-accruing trade secret claims can pull the limitations clock back far enough to doom stronger, later-discovered ones.

Companies that adopt a wait-and-see approach when former employees join competitors risk losing their right to sue for trade secret misappropriation, as a landmark ruling in Insulet v. EOFlow now strongly suggests that firms should file claims much earlier than many previously assumed — even before a competing product’s commercial viability is established. The decision’s application of the Defend Trade Secrets Act’s three-year statute of limitations carries significant strategic implications for companies suspecting potential misappropriation. The case also emphasizes the vigilance that companies must pay to departing employees and the need to conduct audits, when appropriate, of their files and electronic data to enforce trade secret protection.

How many times has this scenario played out: One or more key employees in your company’s product development team depart to join a company which, at the time, doesn’t directly compete with your company but is within your company’s industry sector. The departure is amicable, and there’s no reason to suspect any foul play is afoot. You’ve taken what you believe are appropriate steps via NDAs in your employee handbook to ensure that the former employee hasn’t taken any confidential, proprietary electronic files or data to his new employer. A couple of years pass, and although you hear reports of the former employee’s role in his new company’s stepped-up product development efforts abroad, nothing has happened domestically to threaten the market share of your company’s product.

Then, one morning, you see a press release from the former employee’s company announcing its launch of a new product that directly competes with your company’s existing product — a product on which your company has spent the last decade and substantial capital, both on the technical development and legal side by securing patent protection.

You don’t (and can’t) know exactly how the new product accomplishes the same functionality as your company’s existing product, since the software logic in the new product (like your company’s product) isn’t publicly accessible. Your company’s patent protection arguably doesn’t cover the key elements of your product’s software functionality, but you feel confident in your trade secret protection over these elements, so you decide to wait and see if this product launch gains traction. Then, you see another press release announcing that former employee’s company is being acquired by the undisputed market behemoth in your industry sector.

It’s now time to litigate with the double-barrel shotgun of trade secret misappropriation and patent infringement claims, right? Maybe. But it may now be too late, at least with respect to your strongest claims, which are based on trade secret misappropriation.

The Federal Circuit’s decision in Insulet v. EOFlow highlights the potential pitfalls of a wait-and-see litigation strategy. The court overturned Insulet’s $59M trade secret damages award, holding that the statute of limitations under the DTSA had expired by the time Insulet filed its lawsuit because Insulet knew or should have known the critical facts it needed to sufficiently plead a trade secret misappropriation claim more than three years earlier.

Insulet Corporation is a Massachusetts-based medical device manufacturer that makes an adhesive, wearable insulin patch pump called the Omnipod. Sometime around 2018, EOFlow, which at the time was an early-stage company based in South Korea, began developing a similar-looking wearable insulin patch pump, the EOPatch 2. That same year, former employees of Insulet, including the former director of mechanical engineering, began working for EOFlow. Although Insulet saw the EOPatch 2 at a US industry conference in June 2018, and learned about the director’s work for EOFlow by March 2019, Insulet didn’t file suit for trade secret misappropriation and patent infringement until August 3, 2023, a few months after Medtronic announced plans to acquire EOFlow.

At the district court, Insulet won a preliminary injunction, which was later overturned on appeal by the Federal Circuit. The case then proceeded to a jury trial on the DTSA claims, which ended in a verdict awarding $452 million in damages for EOFlow’s misappropriation of four trade secrets. In post-trial proceedings, the district court granted Insulet’s motion to dismiss its patent claims without prejudice, issued a global permanent injunction, and reduced the damages award to $59.4 million to avoid double-recovery. Given its earlier loss at the Federal Circuit, Insulet sought to avoid another appeal before that court by moving to transfer the appeal to the First Circuit, on the grounds that the Federal Circuit lacked jurisdiction after the patent claims were dismissed.

Federal Circuit’s double-whammy: jurisdiction retained over DTSA claims, which were time-barred. In a split decision, a panel majority (Judges Dyk and Reyna) held that it retained jurisdiction over the appeal and that Insulet’s trade secret claims were time-barred under the DTSA’s three-year statute of limitations. Judge Prost dissented on the holding as it related to the statute of limitations.

On the jurisdiction question, the court held that although Insulet had voluntarily dismissed its patent claims without prejudice, the dismissal was functionally with prejudice because claims for some alleged acts of infringement (importation for the June 2018 conference) were time-barred by the time of their dismissal in January 2025.

Next, the court addressed the question of when Insulet’s trade secret claims accrued for the purposes of applying the DTSA’s three-year statute of limitations. Under the DTSA , the statute of limitations runs three years from when those claims were “discovered or by the exercise of reasonable diligence should have been discovered.” Unlike patent claims, “a continuing misappropriation constitutes a single claim of misappropriation” and not a new event that triggers a new limitations period.

The parties argued different accrual triggers for the limitations period. EOFlow urged an “inquiry-notice” trigger, which is “when the first event occurs that would prompt a reasonable person to inquire into a possible injury,” while Insulet invoked the Merck discovery standard, which is when it “knew or should have known before the critical date the facts it needed to sufficiently plead a trade secret misappropriation claim.” The court declined to choose between the standards, reasoning that Insulet’s claims failed even under the stricter Merck standard.

Although the court didn’t formally decide whether Merck or inquiry-notice governs accrual, it applied the Uniform Trade Secret Act’s “access-plus-similarity” framework to assess whether a DTSA claim is adequately pled and, by extension, to guide the analysis of when Insulet knew or should have known enough to satisfy the Merck standard. Under that framework, misappropriation may be properly pled through allegations demonstrating defendant’s access to the trade secret (“access”) and its similarity to the defendant’s design (“similarity”).

The court found that Insulet’s awareness that one of its key employees (the director of mechanical engineering) went to work for EOFlow satisfied the “access” prong. A defendant’s “access” to the trade secret, the court explained, can be pled by relying on circumstantial evidence. The court determined that Insulet knew sufficient facts to plead “access” by March 2019 because its internal emails from around that time revealed that Insulet’s CEO and VP knew that “the people running EOFLOW,” and their designer were “past Insulet folks.”

Next, the court found that Insulet could have plead (and met) the “similarities” prong based on the visual similarities of the EOFlow product that was on display at the industry trade conferences it attended in 2018 and 2019. Even though the public-facing features of the EOFlow product may not have constituted trade secrets themselves, the court reasoned that Insulet’s own trade secret allegations focused on these visible features, and thus, these claims accrued in 2018 (or at the latest, 2019), more than 3 years before Insulet filed its lawsuit.

Finally, the court disposed of Insulet’s fourth trade secret — based on its occlusion-detection algorithm — on the grounds that since the limitations period began to run on some of its trade secret claims in 2018, it therefore ran on all related trade secret claims asserted against the same defendants. The majority defended its approach as necessary to ensure that the limitations period runs even “for trade secrets that do not outwardly manifest in a misappropriator’s product,” because absent direct proof, “the statute of limitations would never expire for a trade secret that could not be discovered based on publicly available information or other information known to the plaintiff.”

Insulet’s majority and dissenting opinions offer guidance that practitioners would do well to heed:

Perils of asserting patent infringement claims with trade secret claims in the same case. As patent litigators know, the Federal Circuit has demonstrated a willingness to reverse trial court decisions that other circuits haven’t adopted, or at least not to the degree that the Federal Circuit has. Although it applied First Circuit law to Insulet’s DTSA claims (and is binding precedent only in the First Circuit), the Federal Circuit’s Insulet decision underscores the court’s higher-than-average scrutiny of the trial record and the jury’s factual findings. Indeed, in her dissent, Judge Prost argued the majority impermissibly reweighed the evidence rather than reviewing it in the light most favorable to Insulet. According to Judge Prost, genuine factual disputes remained as to what Insulet knew and when, and that those disputes were properly resolved by the jury.

The upshot of this dynamic is that plaintiffs facing limitations risk on trade secret claims may want to bring those claims separately from patent claims (or not bring the patent claims at all), and do so (if possible) in jurisdictions which strictly adhere to the Merck discovery standard. Doing so cabins the risk of Federal Circuit appellate review to only the patent claims, which may be weaker than the asserted trade secret claims (as was the case for Insulet). Additionally, cases asserting both patent and trade secret claims inevitably turn on whether the asserted trade secrets are truly different from the technology disclosed in the asserted patents, and parsing this issue can be the source of juror (and court) confusion.

Finally, term and accrual for patents and trade secrets are diametrically different. Patents offer a limited term but have a forgiving, six-year, act-by-act accrual framework. These considerations, combined with the PTAB’s current approach to discretionary denials and settled expectation, make the wait-and-see approach a viable one for patent infringement enforcement actions. On the other end of the spectrum, trade secrets can last indefinitely but have a shorter limitations period with front-loaded accrual regime, where the earliest discoverable misappropriation can control the fate of all related trade secret claims.

Promptly investigate the circumstances of key employee departures. Once a company learns that a former employee with access to trade secrets has gone to a competitor, and that company then develops a product with features/functionality similar to aspects of its own proprietary technology, the three-year limitations period begins. Accordingly, even if the competitor’s product is new and its commercial viability hasn’t been established, companies that wait to investigate potential misappropriation risk losing the ability to pursue trade secret claims, even for those misappropriations that wouldn’t show up until formal discovery. Imaging company-issued phones and laptops, and analyzing the former employee’s electronic device usage and download activity, should be standard practice.

When in doubt, file (but do so judiciously). Given the uncertainty over whether courts will frame accrual as inquiry-notice or discovery, and Insulet’s seeming collapse of the two frameworks, plaintiffs should assume that the limitations period starts early and err towards earlier filing. However, plaintiffs should also take care to avoid asserting broad allegations of similarity. Given Insulet’s reasoning tying accrual to what could’ve been alleged earlier, broad allegations that could’ve been supported by earlier, publicly available information can backfire by pulling the limitations clock backward, thus dooming the entire trade secret claim. Finally, plaintiffs would be wise to assess the relative strength/importance of the individual trade secrets potentially at issue, and the accrual considerations for each trade secret, when preparing a trade secret lawsuit. Weaker but more discoverable trade secret claims will set the accrual date for stronger, later-discovered ones.

This article does not necessarily reflect the opinion of Bloomberg Industry Group Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Lee F. Johnston is a partner in Haynes Boone’s Denver office, where he focuses on complex business and intellectual property litigation, including patent, trademark, copyright and trade secret disputes.

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