PleasrDAO is a decentralised autonomous organisation (an organisation run by a community using rules encoded as a computer program on a blockchain) that acquires culturally significant digital art and artifacts. One such work is Once Upon a Time in Shaolin, a one-of-a-kind album by Wu-Tang Clan. Pleasr acquired this work after the US courts took it from convicted former pharmaceutical executive Martin Shkreli. However, Shkreli retained copies and threatened to distribute the work, which led to Pleasr filing a suit (PleasrDAO v Martin Shkreli, No 24-CV-4126, EDNY 26 March 2024). The district court ordered Shkreli not to distribute, stating that doing so would be trade secret misappropriation – but the key legal question now is whether this work is truly a trade secret.
Recognising the novelty of Pleasr’s claim, the court noted in its order denying Shkreli’s motion to dismiss that this case involves an unusual application of trade secret doctrine because it “does not fit squarely within a category of business information or data traditionally protected as trade secrets”.
Case background
Between 2007 and 2013, Wu-Tang Clan secretly produced the album intending to create a historic musical artifact. Thus, instead of releasing it to the public, the album’s producer burned the tracks onto a single two-disc set, and, to emphasis its exclusivity and rarity, presented them in ceremonial packaging.
In 2015, the album’s producers sold it to Shkreli for US$2 million, earning a spot in the Guinness World Records as the most expensive musical work ever created. Although Shkreli received 50% of the copyrights, the purchase agreement imposed several restrictions on how he can use it. For the first 88 years after the sale’s closing, he could make copies for his private use and play the album in his home, museums, galleries, restaurants, bars or similar spaces that are not big concert venues. Shkreli also received the right to advertise those showings. However, he could not sell, stream, license or otherwise use the album for commercial purposes, and if he made any profits from the permitted uses, he must share a portion of those profits with the album’s producers.
Around 2017, Shkreli was convicted of securities fraud, and to satisfy a US$7-million criminal judgment, the court ordered him to forfeit certain assets, which included the album, and barred him from taking actions that would diminish their value (United States v Shkreli, No 15-CR-637, EDNY 26 March 2018). The US Marshals eventually sold the forfeited album to an unidentified buyer, and in 2021, Pleasr acquired it for US$4.8 million.
After his release from prison in 2022, Shkreli attempted to stream tracks from the album during live sessions on Discord and YouTube. Shkreli claimed that he still had copies of the album and threatened to widely distribute it.
The legal dispute over secrecy
On 10 June 2024, Pleasr filed a lawsuit at the Eastern District of New York and sought a temporary restraining order and preliminary injunction to prevent Shkreli from possessing, using or disseminating the album or otherwise causing further harm to Pleasr’s interest in it. Pleasr argued that Shkreli’s actions would cause irreparable harm because the album is an original work of art, and its uniqueness was a material condition of Pleasr’s purchase. Thus, it claimed that Shkreli’s retention of copies would diminish the album’s value, while any public distribution would further erode its exclusivity.
To establish its likelihood of success under the Defend Trade Secrets Act (DTSA), Pleasr asserted that the album’s data and files qualify as trade secrets under the DTSA’s broad definition, describing them as a “compilation of data and files comprising Wu-Tang’s proprietary musical recordings, compositions, lyrics, and sound engineering”. In its application for a temporary restraining order, Pleasr noted that the album’s classification as a trade secret “is supported by the Department of Justice’s treatment of the Album under the Freedom of Information Act”. Additionally, Pleasr also emphasised that it had taken extensive measures to maintain the secrecy of the album’s data and files.
Shkreli unsuccessfully argued at the preliminary relief stage and later in his motion to dismiss that the album was not a secret and that Pleasr did not acquire a protectable trade secret because, under the original purchase agreement, he could make copies of the album and was under no obligation to keep the album confidential, and had shared it on his Discord channel years before Pleasr obtained ownership. He further argued that the contract through which Pleasr acquired the album only transferred whatever rights the government held after the forfeiture and did not address copies Shkreli had previously made. In addition, Pleasr purchased the album “as is”, with no guarantees about its condition or uniqueness. In other words, Pleasr had no contractual basis to claim secrecy.
Because the court did not issue a detailed opinion when granting the preliminary injunction, its reasoning for rejecting Shkreli’s arguments remains unclear. However, in denying Shkreli’s motion to dismiss Pleasr’s DTSA claim, the court noted that a trade secret can include many types of information “so long as the criteria of ‘reasonable measures’ to maintain secrecy and ‘independent economic value’ derived from that secrecy are met”. This raises an important question: whose efforts to maintain secrecy matter for this analysis?
At the motion-to-dismiss stage, the court was required to accept Pleasr’s allegations as true, so it credited Pleasr’s claim that it took steps to keep the album’s data and files confidential. But is that enough? Did Pleasr actually acquire a protectable trade secret? That question will ultimately be resolved at trial because whether the album qualifies as a trade secret is a factual issue. However, the court did note that Shkreli’s claims of widespread sharing were “grossly exaggerated”, as he had identified only nine individuals who received the album. Still, based on the parties’ briefs, none of those nine individuals appeared to be under any confidentiality obligation.
Broader implications
Similar cases may provide a clue as to how the court will rule. In Insulet v EOFlow, the Federal Circuit reversed a preliminary injunction because a lower court’s assessment of trade secrets was too broad (104 F4th 873, 879–84, 2024). It should not have encompassed “any and all Confidential Information” of Insulet, without determining whether that information met the statutory criteria of “secrecy”. The Federal Circuit emphasised that trade secret protection depends, among other things, on whether the information is not generally known or readily ascertainable through proper means, such as reverse engineering or patent disclosures. Evidence showed that Insulet’s OmniPod product could be reverse engineered, yet the district court dismissed those factors as irrelevant. By failing to evaluate whether the alleged secrets were truly secret and by relying on an expansive and vague definition, the court erred in granting sweeping injunctive relief. Like Insulet, this case raises the same core issue: whether the alleged trade secret was truly secret, and whether reasonable measures were taken to protect it prior to Pleasr’s acquisition.
If the reasoning in Insulet is applied, Pleasr may not ultimately prevail. Depending on the jury’s view in this case, Shkreli’s previous sharing of the music could very well destroy the “secrecy” in the alleged information, taking it outside of trade secret protection. Perhaps other contract theories or implied confidentiality theories will be argued, but parties acquiring trade secrets should consider whether previous owners have taken meaningful steps to maintain the secrecy of the information. Due diligence should include reviewing documented inventories of trade secrets, confirming the existence of confidentiality agreements with employees and third parties, and assessing physical and digital security measures such as restricted access, encryption and confidentiality markings. It should also include confirming that no unauthorised disclosures or conflicting licences exist.
