Posted by Sequel on March 24, 2014
Topic: Trade Secrets
Tags: Inevitable Disclosure
Protection of Trade Secrets Requires Pro-Active Effort, Less Reliance on “Inevitable Disclosure”

In a recent trade secrets case, a Massachusetts Superior Court judge issued a ruling that should serve as a stark reminder to all companies that rely on trade secrets to protect their vital business data and processes. In a related development, some recent cases in other jurisdictions have raised the question of whether it is safe to rely on the doctrine known as “inevitable disclosure” to respond to perceived trade secret theft threats.

Judge Cornelius J. Moriarty of the Massachusetts Superior Court granted summary judgment on a trade secret misappropriation claim because the plaintiff company apparently did nothing to protect its claimed trade secrets. (Read the ruling here.) In this case, C.R.T.R., Inc. vs. Jimmy Lao, Plaintiff C.R.T.R. was unable to prove that it either had a policy protecting trade secrets or a written agreement with the defendant that would have prohibited their disclosure.

Often, companies rely on the notion that if an employee with access to trade secrets leaves the company to go to work for a competitor, it is inevitable that the employee will reveal or make use of trade secrets in the new position. However, whether it is safe to rely on that concept may be at least in part a matter of how state law treats the idea of “threatened trade secret misappropriation.”

In one case heard in the Northern District of Illionis court (Lumenate Technologies, LP v. Integrated Data Storage, LLC (N.D. Ill. 11/11/13)), the court allowed the argument based on the state statute that explicitly bans “the threatened misappropriation of trade secrets”.

A few weeks later, in an Ohio case (Exal Corp. v. Roeslein & Associates, Inc. (N.D. Ohio 12/27/13)), the court ruled against an inevitable disclosure argument. The judge found that the state statute prohibiting threatened misappropriation couldn’t be triggered by a mere suspicion. There must, the court said, be a demonstrable risk of misappropriation.

The point of these cases — and there are many similar to it occurring around the country — is that if you want to count on trade secret protection to guard confidential data, you need to:

  1. Have in place a clear policy for how employees are to deal with such information; and,

  2. Ensure that all employees have signed employment and/or other agreements that spell out expectations and consequences with respect to handling confidential company information.

 

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