TOP TIP: Some Thoughts On Protecting and Bringing Claims for the Theft of Trade Secrets Under the Defend Trade Secrets Act
Several recent cases offer employers some tips on trade secret issues – both in terms of protecting those trade secrets and, if necessary, in filing suit for breach of those trade secrets under the federal Defend Trade Secrets Act (DTSA).
Protecting Trade Secrets. As the U.S. Court of Appeals for the Second Circuit noted in Mason v. Amtrust Financial Services, Inc., in order to sustain a DTSA claim, a plaintiff must take “reasonable measures” to keep the proprietary information secret. In this case, the plaintiff-employee developed a comprehensive “Pricing Model” prior to becoming employed at the defendant-employer, and contended that there was an unwritten agreement that the employer’s use of the Pricing Model was conditioned on his employment. His employment was subsequently termination, and he demanded the employer stop using his pricing model. He sued under the DTSA when it did not do so.
The employee took some actions to protect the Pricing Model, such as referring to the Pricing Model as his personal and proprietary property, insisting that the Pricing Model should not be stored on the employer’s central corporate operating system; and denying access to internal auditors and external third-party vendors. However, the Second Circuit nonetheless found that the employee failed to take reasonable measures to protect his Pricing Model. In particular:
- The employee failed to have the agreement regarding the Pricing Model put into writing – either incorporated into his Employment Agreement or set forth in a separate licensing agreement.
- The employee did not have the employer sign a non-disclosure agreement to prevent sharing with internal auditors or external vendors.
- The employee emailed the Pricing Model to his supervisor without designating it as either proprietary or confidential.
Stating a Claim. As for asserting a claim for the theft of trade secrets under the federal Defend Trade Secrets Act, the Maryland federal court noted in Tech USA, Inc. v. Milligan that “the plaintiff must allege: (1) it owns a trade secret which was subject to reasonable measures of secrecy; (2) the trade secret was misappropriated by improper means; and (3) the trade secret implicates interstate or foreign commerce.” In this case, the plaintiff-employer alleged in its complaint that the defendant-employee disclosed to her prospective employer the identity of certain customers and other information that the plaintiff-employer summarily characterized as “Confidential Information and/or Trade Secrets.” The court found this to be insufficient to state a claim under the DTSA for the following reasons:
- The plaintiff did not allege that its customers’ identities, alone, were protectable as trade secrets. According to the court, the plaintiff should have alleged which customer identities were disclosed, and that those particular identities and/or contact information were unavailable to the public.
- The plaintiff should have alleged that it took measures to maintain the confidentiality of the customer identities and/or contact information.
- The plaintiff failed to identify the “other” specific proprietary information that the defendant misappropriated (e.g. customers’ buying habits, manufacturing information, national product supply funnel information, business and strategic plans, marketing, account strategies, pricing, orders and sales, and pending/potential sales to specific customers), as well as why such information should be protected.
- The plaintiff also failed to allege what specific actions the defendant took with regard to taking the trade secrets (e.g. copying, printing, downloading, post-termination access).
These cases remind employers (and others) to take specific, documented steps to protect information that it deems to be confidential or proprietary – including the execution of agreements and appropriately labeling the information. And if bringing a DTSA lawsuit, they should be careful to provide specifics about the trade secrets in question (including what they are and why they should be considered trade secrets), how it sought to protect the trade secrets, how such trade secrets were taken.