Pinkerton Tobacco v. Kretek Int’l: Defendant’s Statute of Limitations Argument Goes Up in Smoke

A Central District of California court recently denied a defendant’s motion for summary judgment where the defendant argued that the plaintiff’s claims for trade secret misappropriation were barred by the applicable statute of limitations. The court determined that the statute of limitations did not bar the plaintiff’s claim because a reasonable jury could find that the plaintiff did not have reason to believe that all of the elements of its trade secret misappropriation claim were met prior to the bar date. In particular, the court concluded that a reasonable jury could find that the plaintiff did not have reason to believe that the defendant possessed the required knowledge of the trade secrets himself, despite having knowledge that the product was manufactured using the trade secrets.

The plaintiff, Pinkerton Tobacco, manufactures nicotine pouch products in the US, selling them under the trade name ZYN. The plaintiff purchased a company NYZ AB along with its various trade secrets from Thomas Ericsson and another Swedish company.

Pinkerton learned in August 2016 that Thomas Ericsson was involved in the manufacture in Sweden of a competing product called DRYFT, violating his contractual agreement under which he sold the trade secrets. The defendant, Kretek International and Dryft Sciences (Kretek), began importing and selling the DRYFT product in the US in 2016, and later began manufacturing it in the US in 2019. Pinkerton filed suit against Kretek alleging trade secret misappropriation on February 12, 2020 Kretek argued at summary judgment that because the plaintiff knew that Kretek was importing and selling the DRYFT product in August 2016, the plaintiff’s claim was barred by the applicable three year statute of limitations.

The court denied Kretek’s motion on the grounds that there were questions of fact whether the plaintiff’s misappropriation claim had been accrued prior to February 2017, namely whether the plaintiff had reason to believe that Kretek had met the required knowledge element of its claim. Pinkerton’s misappropriation claim under Cal. Civ. Code § 3426.2(b)(2)(B)(ii) required that the defendant “knew or had reason to know that his or her knowledge of the trade secret was [a]acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.” The court noted that this requires a defendant to (1) know the information that constitutes the trade secret, and (2) know or have reason to know that the information was wrongfully acquired.

Kretek produced evidence that plaintiff knew in 2016 that Kretek was importing and selling the DRYFT device, knew that Ericsson was involved in the manufacture of the DRYFT, and suspected that Ericsson was using the trade secrets to manufacture the DRYFT that he had sold to the plaintiff . Accordingly, Kretek argued that the plaintiff’s claim was barred by the three-year statute of limitations because the plaintiff knew that the DRYFT product was manufactured using its trade secrets.

The court distinguished between knowledge that the product was manufactured using misappropriated trade secrets, and knowledge of the trade secrets themselves. In other words, while Pinkerton had reason to know prior to 2017 that the DRYFT product Kretek was importing and selling included misappropriated trade secrets, Pinkerton did not have reason to believe that Kretek knew the trade secrets themselves, and thus, its misappropriation claim had not yet accrued.

The court also dismissed Kretek’s argument to apply to the plaintiff’s knowledge that Ericsson both knew of the trade secrets and was using them to apply to Kretek as the importer and seller. The court noted that it was unwilling to apply the discovery rule to a third party which was uninvolved in the original misappropriation, even if it was later obtained and used the trade secrets, in this case, when Kretek began manufacturing the DRYFT product in the US in 2019.

This case presented an interesting and difficult question for the court, one that future defendants (and plaintiffs) should be aware of in their motions for summary judgment. To succeed on a statute of limitations claim at summary judgment, defendants must be sure to keep in mind the specific elements underlying the legal claim. Unless the defendant can establish that the plaintiff has reason to believe that all of the elements were met, then the claim has not yet been accrued and the claim will not be barred under the applicable statute of limitations. Here, the plaintiff had sufficient knowledge that its trade secrets were being used, but against this particular defendant, the court found it was unclear whether the plaintiff had sufficient reason to believe that the defendant knew the actual trade secrets, which is a required element of misappropriation .

The case is Pinkerton Tobacco Co. v. Kretek Int’l, No. 2:20-CV-08729-SB-MRW. The opinion may be found here.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top