Commercial: Company’s trade secret claims against former business partner are dismissed

Where a company sued its former business partner under federal and state trade secret laws, but its “trade secret” definition was implausible, and it did not plead facts plausibly showing misappropriation, its trade secret claims were properly dismissed.

Background

Sysco Machinery Corporation is a Taiwanese company that manufactures rotary die cutting machines. DCS USA Corporation is a North Carolina company that distributes them. From 2017 to 2021, the companies worked together to sell machines to American customers.

Sysco’s fortunes began to sour in April 2021, when a group of Taiwanese employees left the company and launched a competitor named Cymtek Solutions Inc. After the establishment of Cymtek, DCS arranged at least three transactions in which it sold Cymtek-made machines to customers who had previously purchased, or had initially expressed interest in, Sysco-made machines.

According to Sysco, a Taiwanese court ruled in its favor and issued a preliminary injunction against Cymtek. Although DCS was not a party to the Taiwanese action, Sysco sent DCS letters in October 2021 and April 2022 informing it of the Taiwanese action and advising that it “avoid placing orders” from Cymtek. Seeking further protection, Sysco registered at least 23 technical drawings related to its rotary die cutting machines with the U.S. Copyright Office in July 2022.

Sysco then commenced a journey through the courts of the United States that has involved three different stops. In the third stop, the district court dismissed all of Sysco’s claims under Rule 12(b)(6) for failure to state a claim and denied its motion to alter or amend the judgment and for leave to amend its complaint.

Trade secret

The federal Defend Trade Secrets Act, or DTSA, and North Carolina’s Trade Secrets Protection Act, or TSPA, define a trade secret as information that is subject to “reasonable measures to keep such information secret” and which “derives independent economic value” from its secrecy.

Sysco’s complaint defined its trade secrets twice, first as “Sysco’s compilation of machinery, software, and confidential information” and then as “Sysco’s proprietary and confidential information, including the Copyrighted Works, and technical, financial,  operations, strategic planning, product, pricing vendor, and customer information.” At oral argument, Sysco pointed to yet a third part of its complaint that described “the technical documents, test videos, statistical data, client contracts, and other confidential information used by Sysco to develop and manufacture” rotary die cutting machines.

Considered together, these three definitions suggest that nearly Sysco’s entire business is a trade secret. That is the type of claim so “sweeping and conclusory” that it is impossible for DCS to know what it has been accused of misappropriating or for the court to assess whether Sysco has met the reasonable secrecy and independent economic value requirements. The claim is also unlikely to be true in practice, which means that it falls short of “plausible on its face.”

Sysco’s trade secret definition runs into another problem: it includes information that is incapable of being a trade secret. The Copyright Act requires the Copyright Office to make deposited documents open to public inspection unless an exception applies. Yet one of the trade secret definitions Sysco used in its complaint includes “the Copyrighted Works,” a defined term that encompasses at least 23 apparently unredacted technical drawings deposited with the Copyright Office. Sysco has not argued that it took any steps to preserve the confidentiality of those drawings or that there is a reason the Copyright Office did not make them open to public inspection.

After demonstrating the existence of a valid trade secret, “a plaintiff must show that the defendant has misappropriated it.” Sysco argued that, after the establishment of Cymtek, DCS began to fulfill customer orders with Cymtek machines rather than Sysco machines. But it did not explain the manner in which fulfilling customer orders involved disclosing or using Sysco’s trade secrets.

As the district court noted, “Sysco [did] not even allege that DCS [was] in possession of any of Sysco’s ‘trade secrets.’” It is difficult to see how DCS could have acquired, disclosed or used something it did not possess. Nor did Sysco make clear why DCS’s actions were “improper.”

Remaining claims

The district court dismissed Sysco’s other claims for copyright infringement, unfair and deceptive trade practices and tortious interference with prospective economic advantage. Although Sysco nominally appeals the dismissal of all its claims, it has not developed its argument sufficiently with respect to these three claims to allow this court to pass on them.

Amendment

The district court found that Sysco had engaged in bad faith, or something close

to it, by filing three civil actions concerning the same underlying conduct and featuring substantially the same defendants and legal claims. The court also found that granting Sysco leave to amend would prejudice DCS because it had already “been required to appear and defend in some fashion in two cases . . . [with] strikingly similar claims.” Considered together, these findings plainly supported the appropriate exercise of the trial court’s discretion.

Affirmed.

Sysco Machinery Corporation v. DCS USA Corporation, Case No. 24-1675, July 9, 2025. 4th Cir. (Wilkinson), from EDNC at Raleigh (Boyle). Ariana Deskins Pellegrino for Appellant. Luke Andrew Dalton for Appellee. VLW 025-2-254. 14 pp.