The U.S. Court of Appeals for the Federal Circuit, in reinstating trade misappropriation claims regarding infrared imaging technology, concluded that, in granting summary judgment and dismissing the trade secret misappropriation claims as time-barred, the district court erred by improperly resolving issues of material fact and drawing inferences in favor of the moving party. Raytheon v. Indigo Sys., Case Nos. 11-1245; -1246 (Fed. Cir., Aug. 1, 2012) (Linn, J.).

Indigo Systems, an infrared imaging technology company founded in 1996 by three prior Raytheon employees, had a consulting services agreement with defense contractor Raytheon that terminated in 2000. In 1997, Raytheon became concerned that Indigo was poaching Raytheon personnel in order to gain access to Raytheon trade secrets. In order to address this concern, the companies entered into an agreement whereby Indigo agreed to prohibit future employees from using any intellectual property obtained from former employers.

In March 2004 Raytheon acquired an Indigo infrared camera which it disassembled in August 2004 and found possible evidence of patent infringement and trade secret misappropriation. In February 2007, Raytheon found a correlation between the areas of expertise of its former employees now working at Indigo and Indigo’s intervening technological advancements. In March 2007, Raytheon sued Indigo in federal district court in Texas alleging that Indigo was able to win contracts over Raytheon and other competitors based on stolen trade secrets and Raytheon’s patented technology.

Indigo filed for summary judgment asserting that Raytheon’s trade secret misappropriation claims were outside the three-year statute of limitations under both Texas and California law. Raytheon responded the statute of limitations was tolled either through fraudulent concealment or, under the discovery rule, until Raytheon either knew or should have known of the misappropriation. The district court agreed with Indigo and granted summary judgment finding that “Raytheon ha[d] developed an acute suspicion before March 2004 that Indigo was infringing its intellectual property rights.” The parties subsequently settled the patent infringement claim, and Raytheon appealed the dismissal of its trade secret misappropriation claim.

On appeal, the Federal Circuit, applying the law of the Fifth Circuit, reviewed the trade secret misappropriation claims de novo. It first determined that there was no meaningful difference between Texas and California law with respect to the length of the statute of limitations or the tolling of that statute. It also recognized that whether or not the discovery rule applies is a question of fact in both states. The Court then noted that the only way that Raytheon could have discovered the misappropriation was by disassembling Indigo’s camera. Therefore, the district court would have needed to find that Raytheon should have acquired and disassembled the camera prior to March 2004. However, the district court could not reach that conclusion without resolving factual questions against the non-moving party Raytheon at summary judgment.

Raytheon asserted that they bought the Indigo camera as part of their routine practice of examining competitive products, not out of any suspicion, and supported that position with testimony. The Federal Circuit concluded that this evidence, along with the fact that the camera was not disassembled until August, led to a reasonable inference in Raytheon’s favor. In both California and Texas, on motion for summary judgment, the burden is on the defendant to negate the discovery rule by proving as a matter of law that no issue of material fact exists concerning when the plaintiff discovered or should have discovered its cause of action.

The district court also stated that, as a matter of law, Raytheon was on permanent inquiry notice since 2000 and had a constant duty to investigate all acts of competition by Indigo given its prior suspicions and the migration of former employees. The Federal Circuit disagreed and concluded that this determination was improper in the face of competent summary judgment evidence to the contrary.

Since the issue of whether the discovery rule applies is a question of fact, the Federal Circuit stated that it was for the jury to decide when Raytheon should have discovered the facts supporting its trade secret misappropriation claim.