Trade Secrets – Courts Won’t Protect You If You Don’t Protect Yourself!
A decision from the Northern District of Illinois is the latest to reiterate a stern warning we have long highlighted for employers: when insufficient steps are taken by an employer to protect its own proprietary information, courts will not provide trade secret protection when such information is misappropriated.
In Abrasic 90 Inc. v. Weldcote Metals, Inc., No. 18-cv-05376 (N.D. Ill. March 4, 2019), the plaintiff-company Abrasic 90 Inc. (“Abrasic”), a manufacturer of abrasives products, sued several of its former employees (including its former president) and a competing company they formed, Weldcote Metals, Inc. (“Weldcote”), for misappropriation of its trade secrets in violation of the federal Defend Trade Secrets Act of 2016 and the Illinois Trade Secret Act. Abrasic alleged its former president retained a flash drive from his employment with Abrasic that contained “a comprehensive summary of [Abrasic’s] transactional information, including sales data, prices, and costs for its products and the identities of its suppliers and distributors.” Abrasic also claimed that the other individual defendants possessed similar information to be used in their subsequent employment with the competing company. In addition to demanding monetary damages, Abrasic sought to enjoin Weldcote and the individual defendants from using the information at issue in the competing enterprise, as well as from doing business with Abrasic’s suppliers and distributors.
The Court denied Abrasic’s motion for a preliminary injunction, however, finding that Abrasic could not show that its information warranted trade secret protection. The Court chose this matter to reiterate a valuable—albeit sometimes painful—lesson for employers: if you don’t protect your trade secrets, neither will the courts.
The Court recounted the well-known rule that for information to be considered a trade secret, it must have been “sufficiently secret to impart economic value because of its relative secrecy,” and “reasonable efforts to maintain the secrecy of the information” must have been taken. The Court found the first factor was satisfied for purposes of the motion, because the information purportedly misappropriated consisted of business and financial information, and was compiled in such a manner that it would “require substantial time, effort, and expense to recreate the compilation.” But the Court held that Abrasic failed to establish the second factor because it “took almost no measures to safeguard the information that it now maintains was invaluable to its competitors.” The Court gave a litany of suggested steps that employers can and should take to protect their proprietary information sufficient to cloak such information with trade secret protection, including:
Requiring those with access to trade secrets to enter into non-disclosure and confidentiality agreements;
Establishing and implementing policies concerning the confidentiality of the company’s business information, including specifying the categories of information deemed by the company to be confidential;
Training company employees about their obligation to keep such categories of information confidential;
Ensuring all confidential information is returned to the company upon the cessation of employment of any employee with access to such information;
Ensuring that company employees with responsibility for maintaining sensitive company data and information are trained on data security, and that the company maintains and implements comprehensive data security policies and practices;
Restricting access to sensitive company information to employees on a need-to-know basis, such as giving employees a one-time-only password to access the information; and
Differentiating access to sensitive company information from access to non-sensitive company information.
While an employer does not necessarily need to take all of these example measures to confer trade secret protection, Abrasic allegedly failed to establish that it effectively implemented any such measures. About the only protective measure Abrasic took, according to the Court, was to require some employees with access to the alleged proprietary information to agree to maintain its secrecy. However, even that measure was ineffective, because Abrasic provided the same access to other employees and independent contractors without imposing similar conditions of non-disclosure. Therefore, the Court held that the company could not show that its claims had a likelihood of success—dooming its preliminary injunction motion.
As this decision confirms, employers cannot rely on the courts to protect their valuable trade secrets, unless they have done their job to minimize the potential for misappropriation.