Trade Secrets

Reminder from SDNY - Trade Secrets Need To Be Kept Secret

A recent opinion from an SDNY federal district court reminded me of a client I represented many years ago. The company insisted that the core functionalities and user interface of its software program were trade secrets. A competitor had copied these, and the client asked my firm to commence a lawsuit for misappropriation of trade secrets.

An investigation showed that the client’s software was disclosed to prospective clients in one-on-one meetings and at trade shows without any requirement that a confidentiality or nondisclosure agreement be signed. Once a customer licensed the software an NDA was part of the sale, but before then it was not.

A secondary concern was that the software was used by hundreds of employees (via a site license), but these employees were not told that the software contained trade secrets – only the manager that signed the license agreement agreed to this. Was this sufficient to protect the trade secrets in the software?… Read the full article

This case, decided by the Massachusetts Supreme Judicial Court on July 28, 2014, shows how difficult it can be to recover damages in a trade secret case. The facts (boiled down) are straightforward. Lightlab manufactures optical coherence tomography systems (OCT). Lightlab had a joint development/non-disclosure agreement with Axsun. Axsun disclosed Lightlab secrets to Volcano, a competitor to Lightlab and would-be acquiror of Axsun. Lightlab obtained a preliminary injunction enjoining the use of its trade secrets by Axsun and Volcano, and also enjoining Volcano’s acquisition of Axsun until after the Lightlab/Axsun agreement expired in 2014, more than five years later.

At trial Lightlab was able to obtain a verdict for trade secret misappropriation (and related claims) from a Massachusetts Superior Court jury.

However, the trial was bifurcated, and before presenting its damages case to the jury Lightlab first needed to run the gauntlet of expert disqualification thrown down by the defendants (Axsun and Volcano).… Read the full article

We’ve been telling clients for decades that if you think you have trade secrets or confidential information, you need to protect them. Far and away the best way to ensure you’ve done that is to require anyone who receives access to the information to sign a non-disclosure agreement, an “NDA.”

In a Massachusetts state case reported on the front page of this week’s Massachusetts Lawyer Weekly, the plaintiff didn’t do that. In fact, it appears that the plaintiff, CRTR, Inc., did next to nothing to protect its allegedly confidential information from an independent contractor to whom it provided access, and then later sued for trade secret misappropriation.

To quote from the court decision:

[The first CRTR employee] states that she knew the customer lists were confidential, though no one had ever told her so, and [a second CRTR employee] states that on one occasion, she was told not to bring work out of the office.

Read the full article

I’ve written about the “inevitable disclosure doctrine” many times over the years, most recently in a blog post focusing on Massachusetts case law.  This line of cases arises when an employee does not have a noncompete agreement, but does have a non-disclosure/trade secret agreements.  The employer then argues, based on the NDA/trade secret agreement, that the employee will  ”inevitably” disclose the former employer’s trade secrets or confidential information in the course of working for a competitor, and therefore should be enjoined from working for the competitor. Disclosure of the employer’s trade secrets is, the employer argues, “inevitable” without an injunction.

Lawyers have been bringing cases under this theory for years, with lottery-like success. As I stated in a July 2012 post, “cases where the courts have accepted this theory without evidence of actual misappropriation are almost as rare as hens teeth.” Nevertheless, lawyers are a persistent bunch, and they Just.… Read the full article