Federal Court Trade Secret Case Dismissed a Month Before Trial & the Court Rules the Entire System Belongs to the Defendants

March 2006

Burnham Brown attorneys Robert M. Bodzin and Rohit Sabnis were the local counsel who won a significant victory in this intellectual property case. 21st Services is a corporation that was formed in 1998 and is based on Minneapolis, Minnesota. 21st Services is in the business of providing life expectancy estimates of people who are insured under life insurance policies to companies interested in buying those policies. The life expectancy predictions are used in determining the value of the policy as an investment. 21st calculates life expectancies using a computer system called "MedDiag."

When MedDiag was first created, 21st Services entered into contracts with several independent contractors, all of whom provided consulting services that assisted with the creation of the system. One of the consultants was California-based VFD Consulting, Inc., which provided underwriting experience and research. VFD had been required to sign a Confidentiality and Nondisclosure Agreement, a Consulting Agreement and a third agreement, each of which was designed to protect 21st Services's rights in the MedDiag system.

After the contract expired, VFD Consulting, Inc. filed two lawsuits in California State Court, which alleged that MedDiag was in fact VFD's "trade secret"; the first suit sought an immediate injunction enjoining 21st Services from using MedDiag; the second sought millions of dollars in damages arising out of the alleged theft of the "trade secret". VFD Consulting, Inc. also sought punitive damages arising out of its claims of fraud and conversion.

After 21st Services removed the suits to federal court in the Northern District of California, VFD Consulting, Inc. abandoned its request for preliminary injunctive relief. During deposition, VFD's president refused to identify the specific "trade secret" that it allegedly created. In addition, VFD's president testified that it took no measures to ensure that any of VFD's "trade secrets" were kept confidential and on the contrary, confirmed that it was only VFD who had agreed in writing to keep 21st Services' secrets and processes confidential. VFD instead claimed that because it worked in a collaborative process, its alleged "secrets" were protected even without any Confidentiality Agreement. It also claimed that an oral contract superseded the original contracts between the parties.

21st Services sought a summary judgment on the grounds that it owned the MedDiag system, that VFD contributed no "trade secrets" and that no oral contract superseded the three written agreements. 21st Services' motion for summary judgment was fully submitted by early December 2005 and trial was set for April 24, 2006. Three weeks before the parties' pre-trial motions were to be argued, Judge Saundra Brown Armstrong issued a 23-page decision which granted 21st Services' motion for summary judgment and ruled as a matter of law that MedDiag was the property of 21st Services and further ruled that no oral contract formed. The decision can be read by clicking the attached link below and has been reported as VFD Consulting, Inc. v. 21st Services, et. al. 2006 U.S. Dist. LEXIS 10511 (N.D. Cal 2006)

21st Services is represented nationally by the law firm of Meagher & Geer, which has offices in Minneapolis, Minnesota and Phoenix, Arizona. Meagher & Geer attorneys Jeffrey M. Thompson and Jenny Sautter handled this case out of their Minneapolis office.

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