IP Law Update: How Long Can You Delay Before Filing a Trade Secrets Lawsuit? The Supreme Court Has an Opinion

Chicago, Illinois
An ex-employee of yours has gone to work for a competitor and revealed some of your trade secrets, even though she signed a non-disclosure agreement when she came to work for you.  The genie is out of the bottle, and now you should be able to sue her and your competitor, who knew those were secrets and should not have used them, but is doing it.  
Question: When should you file your lawsuit?  
If you do it immediately, your competitor may not have earned much yet in the way of profits, so you might not recover much.  If you wait, you might be able to recover more as profits roll in to your competitor from use of the secrets.  There is a statute of limitations on the filing of your lawsuit, let’s say three years for purposes of this argument.  Must you file within three years of learning of the ex-employee’s transgression?  Or can you wait 20 years or so to file, even though you might only recover profits from the last three years?  
The Supreme Court has just issued an opinion that says you can wait, as long as (a) you haven’t purposely taken some action to mislead your competitor into thinking you’d never sue, and (b) your competitor continues to violate your rights.  There apparently is nothing wrong with waiting to see whether your competitor is making enough money to justify the cost of a lawsuit, and then filing after the profits have piled up.
The case, Petrella v. MGM, decided by the U.S. Supreme Court on May 19, 2014, involves copyright infringement and the movie “Raging Bull,” which won Robert DeNiro an Academy Award, but the Court’s reasoning applies to more situations than are covered by copyright law.  The facts are these: the late Frank Petrella wrote the screenplay for the movie, which MGM made in 1980, and after he died his daughter Paula Petrella was able to reclaim the copyright in the screenplay in 1990.  She notified MGM in 1991 that they were infringing on her rights by continuing to release and otherwise exploit the movie, but MGM thought otherwise and did nothing about the claim.  Petrella did nothing more either.  But 18 years later, in 2009, Petrella filed her lawsuit against MGM; understanding that there is a three-year Statute of Limitations on copyright actions, however, she sought profits only for the three years prior to the filing.
MGM defended by saying that Petrella waited too long.  She could have filed her suit 18 years earlier, and the delay meant that MGM could claim the defense of laches (laches is a defense that says simply that unreasonable delay in filing a lawsuit can defeat an otherwise meritorious claim.)  It was, said MGM, unreasonable delay for Petrella to wait for 18 years, until MGM’s continuing release and exploitation of the movie earned them a lot more money than had been earned before MGM began making a concerted effort to exploit the movie again on its 25th anniversary.   The trial court, the U.S. District Court for the Central District of California, agreed with MGM and dismissed the case, ruling that laches applied and the delay was unreasonable.  The Ninth Circuit upheld the dismissal, and the case was accepted by the U.S. Supreme Court.
Writing for the six-justice majority, Justice Ginsburg said there “is nothing untoward about waiting to see if an infringer is making money , so that litigation is worth the candle.”  She noted that the lawsuit only demanded profits for infringements committed during the three years prior to filing, because of the Statute of Limitations, but every action by MGM during that three year period that constituted an offense under copyright law, such as public distribution of the movie, was a new infringing action.  
Also, not going back beyond the three year period meant that MGM had ample profits for the years prior to the filing of the lawsuit.  The delay was not unreasonable because Petrella never took any affirmative action or said anything that would have misled MGM into believing that she would never sue.  Further, MGM had an opportunity after Petrella first notified them of her claim to go to court for a Declaratory Judgment, a ruling on whether she had a case.  Justice Ginsburg was joined in the opinion by Justices Scalia, Thomas, Alito, Sotomayor and Kagan.
The dissent by Justice Breyer, joined by Chief Justice Roberts and Justice Kennedy, pointed out that because Petrella waited 18 years after her first notification to MGM before filing her lawsuit, that gave her an unreasonable advantage in proving her copyright claim because, among other reasons,  the delay allowed time for potential witnesses to die, documents to be destroyed, memories to fade and the defendant to be placed in a much tougher position to defend itself.
There was an extended discussion concerning whether the defense of laches should even apply in cases where there is a statute of limitations, as well as whether laches is available in equitable as well as legal actions, but the bottom line of this opinion is that where there is a continuing offense that extends beyond a limitations statute, an aggrieved party may wait as long as it wishes before filing suit.  This is applicable to many other areas of the law besides copyright, and seems to make limitless the time for a company to worry, and worry, and worry, over whether someone will eventually sue for an activity that may or may not violate that person’s rights.
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E. Leonard Rubin is Counsel with the law firm of Querrey & Harrow, Ltd., a firm that represents individuals and business clients worldwide.  Mr. Rubin, who concentrates his practice in intellectual property, and specifically copyright, trademark, defamation, trade secret and entertainment law, resigned his position a number of years ago as Vice President, General Counsel and Corporate Secretary for Playboy Enterprises, Inc., where he had been for 13 years, to return to private practice.  He has extensive experience handling negotiations, legal problems, internet implications and litigation in the copyright, communications, publishing, computer, music, television, theatrical and motion picture areas, among others.  He also is a Certified Mediator.
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