A recent decision by the United States Court of Appeals for the Second Circuit is a not so subtle reminder that a company must adequately protect its confidential client information at all levels of the company in order to receive trade secret protection under the law. In Nationwide Mutual Insurance Company v. Mortensen, Nationwide insurance agents left Nationwide to work for a competitor.  In doing so, the agents took with them confidential information about Nationwide policyholders. The confidential information included personal client information and data about the client’s needs and purchasing history. The agents received this information while working for Nationwide and the information was kept in two places, Nationwide’s protected computer system and the agent’s personal policyholder file.

The agents shared the confidential client information with Nationwide competitors while looking for alternative employment. Not surprisingly, the agents also used the confidential client information to compete with Nationwide once they joined a competitor. Nationwide filed suit against the agents alleging, among other things, that the agents violated the Connecticut Uniform Trade Secrets Act (CUTSA) when they improperly retained the confidential client information and shared the information with Nationwide competitors. 

Unfortunately for Nationwide, the trial court found, and the Appellate Court affirmed, that Nationwide could not seek protection under the CUTSA. The basis for the Courts’ decision was the lack of adequate protective safeguards that would prevent the disclosure of the confidential client information found in the agent’s personal policyholder files. The fact that the confidential client information was properly protected in a secure computer system was irrelevant because confidential information has to be “adequately protected” at all company levels in order to be protected by the CUTSA. Since Nationwide did not adequately protect the confidential information contained in the agent’s policyholder files, Nationwide could not use the measures found in the CUTSA (injunctive relief, punitive damages, attorneys fees, etc.) to thwart the agent’s removal and subsequent use of Nationwide’s confidential client information.

A trade secrets audit may have enabled Nationwide to receive trade secret protection under the CUTSA. A trade secrets audit identifies the location(s) of confidential information, individuals who possess or need to possess the confidential information, and steps a company can take in order to keep the information confidential and, if necessary, seek protection under the Uniform Trade Secrets Act.