If you believe that a former employee may have taken your trade secrets on his way out the door and you are considering court action to rectify the situation, it is important to have compelling evidence of the misappropriation. But as we discuss in this post, even with compelling evidence of misappropriation, the plaintiff’s failure to have taken “reasonable efforts” to maintain the secrecy of trade secret information may defeat the misappropriation claim.
Let’s review the following set of facts as an example:
An employee has left your company to work for a direct competitor. At that direct competitor, he does the same job he did while working for you. At his new company, he is attempting to contact some of your customers. When he left your company, he did not return his company-issued laptop or iPad. A forensic examination of those devices reveals that after he received a letter from you demanding the return of them, he opened 20 files that you contend contain highly confidential and proprietary information. That same analysis demonstrates that he connected more than 20 flash drives to the laptop after his employment was terminated. Indeed, on the day he returned the computer to you he connected six flash drives to it. He also emailed to his new colleagues a high-level competitive analysis of your company.
Such facts can, quite understandably, lead to strong suspicions of trade-secret misappropriation. So, armed with these facts, your company files suit alleging that the former employee misappropriated the company’s trade secrets in violation of the Uniform Trade Secrets Act (UTSA). You feel so confident in your position, the facts at hand, and the need for immediate court intervention that you apply for a temporary restraining order (TRO).
With such facts, the court is surely going to grant the company’s request for a TRO, right? Wrong. Why? Because not even such a set of facts can overcome a common defect in a trade-secret claim — the company’s failure to take reasonable steps to maintain the secrecy of its trade secrets.
This scenario recently played out in a federal district court in the Southern District of Ohio. In PatientPoint Network Solutions, LLC v. Contexmedia, Inc., the court denied the plaintiff’s application for a TRO based in large part on the plaintiff’s failure to demonstrate that its “efforts to maintain the secrecy of its information were reasonable under the circumstances.” Because such efforts are required of a trade-secret plaintiff, the court held that the plaintiff was unlikely to succeed on the merits of its claim under Ohio’s version of the UTSA and, therefore, denied the application for a TRO.
The court had several reasons why it found the plaintiff had not taken reasonable security measures. The court first took issue with the fact that though the former employee had access to the plaintiff’s alleged trade secrets throughout his employment, the plaintiff never required him to enter into a non-compete or non-disclosure agreement until more than a year after his employment had begun. And the plaintiff failed to require such agreements of other employees who had access to the putative trade secrets.
The court also was nonplussed by the plaintiff’s failure to make a written demand of the former employee for the return of his company-issued laptop and iPad when his employment was terminated. In addition, the plaintiff failed to request that the former employee return other purportedly proprietary and trade secret information. The company instead waited six months after it discharged the former employee before it made a written demand for the return of these items and information.
The plaintiff countered that it had made an oral request for the return of the computer and iPad when the company discharged the former employee. Not good enough, the court held, because the plaintiff had waited too long before making a further demand for the return of the property.
Finally, the court was not impressed with the plaintiff’s ultimate acceptance of a separation agreement with the former employee that contained no non-compete or nondisclosure provisions. The plaintiff’s initial draft of the separation agreement contained such provisions, but the plaintiff ultimately accepted a revised draft that omitted them. The court held that the plaintiff’s “concession in this regard perhaps adds credence to Defendants’ suggestion that the information known by [the former employee] was not of such value that [plaintiff] believed that these provisions were necessary.”
The UTSA does not require that a company undertake all conceivable efforts to maintain the secrecy of trade secrets, but instead requires the holder of a trade secret to take efforts “that are reasonable under the circumstances to maintain” the secrecy of the information. Though the act does not require confidentiality or nondisclosure agreements, we are seeing more and more that courts find the lack of such agreements to be damaging to a company’s claim that it took reasonable measures to protect the secrecy of trade secrets. Companies accordingly should give serious consideration to requiring employees who have access to trade secrets to enter into confidentiality agreements.
The PatientPoint Network Solutions case also reiterates the need for exit interviews and written demands from companies that the exiting employee return all company property and information. Companies also should consider requiring departing employees to confirm, in writing, that they have returned all company information — especially any trade secret or proprietary information.
Such steps, though perhaps not enough in every situation, may go a long way in demonstrating to a court that the company has taken reasonable measures to protect the secrecy of the its trade secrets.