Trade Secret Disputes
In a competitive marketplace, it can be difficult for a company to convince customers that it deserves their business. To do so, companies invest in ways to make their product superior to others. Once they find something that sets them apart, they may want to keep their methods secret so they can profit from their investment, rather than let competitors exploit it. Still, secrets have a way of getting out, and often this results in litigation.
Why should you read this post about trade secret disputes?
You are writing a competing blog and want to steal my post ideas.
You’re hoping this post was about bartering one secret dispute for another and you have a really interesting argument that you can’t tell anyone else about.
It’s a nice escape from the news.
Image credit: https://en.wikipedia.org/wiki/Coca-Cola#/media/File:Commercial._At_the_Coca_Cola_Plant_BAnQ_P48S1P06539.jpg
Sealing Motions
One problem in trade secret cases is that plaintiffs want to keep trade secrets a secret, but court filings are public documents. And so plaintiffs have to weigh the publicity from a lawsuit against the need to enforce their trade secret protections.
Courts are often sensitive to these concerns, and may grant sealing motions that permit plaintiffs to redact portions of their publicly filed papers to avoid sharing sensitive details. And they may enter protective orders that limit discovery or require parties to seek sealing orders before filing any confidential materials. Litigants still need to share the unredacted versions with opposing counsel and the court, though.
Even with a sealing order, litigation brings risks of disclosure. Litigation involves a lot of documents and groups of people, and so there is always the possibility of an inadvertent disclosure buried in documents, or a rogue employee or vendor that keeps confidential information for herself. And courts may disagree about what is confidential and order the disclosure of something a plaintiff considers to be secret.
Different Laws Apply
There are different legal theories plaintiffs can use to explain why a court should address a defendant’s theft of their trade secret.
Often, trade secret disputes often arise in an employment context or after the entry of a non-disclosure agreement. This is because the people who steal trade secrets are often people that the plaintiff had entrusted with the secret. Before sharing the secret, the plaintiff may have required the defendant to sign an agreement, promising not to disclose the confidential information. The plaintiff may sue, claiming breach of the agreement.
Next, a federal law entitles plaintiffs to sue in federal court to address the theft of a trade secret. That law, the Defend Trade Secrets Act, requires that the trade secret involve interstate commerce. And while it does not allow plaintiffs to recover their attorney’s fees, it does provide them access to a federal court.
Additionally, most states have passed a version of the Uniform Trade Secrets Act. This law operates very similarly to the federal Defend Trade Secrets Act, but it allows plaintiffs to recover attorney’s fees and it does not require that the trade secret involve interstate commerce.
Some states have common law principles that are not codified by statute that let plaintiffs sue for trade secret theft. For example, in New York, a plaintiff can sue for misappropriation of a trade secret or for unfair competition. Like the federal law, these doctrines do not entitle a plaintiff to recover attorney’s fees, but they provide a mechanism for a lawsuit in the absence of a written agreement or if the plaintiff did not want to invoke the federal statute.
Injunctive Relief and Establishing Damages
A challenge in trade secret dispute cases is determining what the plaintiff’s financial loss is. It may be impossible to know how many sales she lost because the world is now aware of her secret. For this reason, many agreements have a provision that “liquidates” damages, agreeing on a dollar amount in the event it is difficult to precisely determine one.
Additionally, plaintiffs may run to court if they anticipate a defendant will disclose a trade secret, and seek an injunction preventing the damage. This often arises in the context of a former employee who knows the secret starting work for a competitor. The plaintiff may argue that the injunction is necessary to prevent an “irreparable injury” that may rise because, once the secret is public, the damage cannot be undone. Still, courts may deny the motion and decide that the damage could be addressed with an award of money damages.
Ultimately, a jury may decide what the value of the trade secret was. Lawyers may present evidence like expert testimony about the secret and the relevant industry, as well as sales figures from the plaintiff and from others who benefited from the secret.
Customer Lists
Many courts have held that a company’s customer list is a trade secret. And so they may have employees sign non-disclosure agreements to prevent employees from sharing customer lists with competitors. But suing over a customer list can be tricky because no company wants to involve their customers in a lawsuit.