The plaintiff, P, is a corporation that manufactures paint. P is located in State X. The defendant, D, is the former vice president of sales for P. D resigned from P to work for one of P’s competitors.
P sues D in the U.S. District Court for the District of State X, alleging that D stole P’s secret process for manufacturing a special type of paint used in saltwater environments. P sues under the Defend Trade Secrets Act (the Act), a federal statute. As the Act permits, P seeks an injunction, compensatory and punitive damages, and attorney’s fees. P’s attorney has signed the complaint. The court has both personal and subject-matter jurisdiction, and venue is proper.
The Act applies to any trade secret related to “a product used in, or intended for use in, interstate commerce.” When P files its complaint, the paint is manufactured and sold only within the borders of State X. The district court where P filed the suit has previously ruled, in a reported case, as follows: if a product was never sold across state lines before the suit was filed, then the product is not used in, or intended for use in, interstate commerce, so it is not protected under the Act.
The district court falls under the United States Court of Appeals for the Twelfth Circuit, which has not ruled on this issue. The First and Second Circuits have ruled the same as the district court on this issue, but the Fourth, Seventh, and Ninth Circuits have ruled that even if the product has never been sold across state lines, the Act still applies if the product’s manufacturer intends to sell it across state lines within a reasonable time after the suit is filed.
D answers the complaint, and then immediately files and serves a motion for judgment on the pleadings under Fed. R. Civ. P. (Rule) 12(c). D argues that P has never sold the paint across state lines, which means that the Act does not apply, and judgment should therefore enter for D. In support, D attaches D’s own affidavit, attesting to these facts based on D’s personal knowledge.
To oppose the motion, P attaches an affidavit from its current president, attesting that P is “exploring all options” to sell the paint across state lines, and that it “might well do so soon.” The court accepts both affidavits, and the parties present no other evidence.
That same day, D also files a motion for sanctions against P’s attorney, under Rule 11, and serves the motion on P’s attorney. D argues that the existing case law in the District holds that P’s trade secret is not covered by the Act, which means that P brought the lawsuit without a sufficient legal basis. As a sanction, D asks the court to hold P’s attorneys jointly and severally liable for D’s own attorney fees in the case.
- How should the court rule on D’s motion for sanctions under Rule 11? Explain.
- Assuming the court follows its own precedent in interpreting the Act, how should the court rule on D’s motion for judgment on the pleadings? Explain.