Key Takeaway

• A trade secret claim under federal law can be dismissed on motion if the trade secret owner fails to state in its Complaint the reasonable means that were taken to maintain secrecy.

The constantly evolving field of cryptocurrency and related software is ripe for trade secret disputes. This month, the federal court for the Northern District of Illinois (Chicago) reminded trade secret plaintiffs that to state a federal Defend Trade Secrets Act (“DTSA”) claim, they must set forth in their Complaints the steps they took to keep their trade secrets secret.

Plaintiffs Brandon Smietana, Skycoin Global Foundation Limited, and Symbolic Analytics filed a lawsuit asserting a RICO claim, various state law claims including fraud and conspiracy, and misappropriation of trade secrets in violation of the DTSA. The trade secrets related to a cryptocurrency called “Skycoin Token.” They comprised hardware wallets and wallet casings (to protect private cryptographic keys) that included designs for printed circuit boards, development kits, molds for the wallet cases, and a software process for custodial wallets. Plaintiffs also claimed rights in software for conducting coin sales, cyber security, and production of audit trails.

In their Third Amended Complaint, plaintiffs alleged that the defendants—hired to provide marketing services—instead engaged in a merciless campaign to extort the plaintiffs and steal plaintiffs’ trade secrets. Smietana, et al. v. Stephens, et al., No. 22-708, 2024 WL 965178 (N.D. Ill. Mar. 5, 2024). Plaintiffs made extraordinary allegations of theft, extortion, lying, bot attacks, connections to organized crime, and physical violence including torture.

The court, however, dismissed the trade secrets claim under the DTSA because plaintiffs did not sufficiently allege that “they took reasonable means to maintain secrecy over the hardware and software.” Plaintiffs alleged that the hardware designs were known only to Skycoin officers and that only a principal of plaintiff was privy to all of the trade secrets. The court said that although “these allegations show that the trade secrets were indeed secret,” plaintiffs did “not describe the efforts to maintain the confidentiality of the information [even] in general terms.” The court offered examples of some reasonable means to maintain secrecy, such as a non-disclosure agreement, physical measures, or “other cybersecurity measures,” but because no such measures were alleged, “Plaintiffs do not have a viable DTSA claim.”

If you have any questions regarding the information covered in this blog, please contact John Baranello, Valeria Castanaro, Michelle Cho, or your primary attorney at Moses Singer.