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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

Massachusetts Court Confirms That When It Comes To Trade Secrets, Confidentiality Is Key

Posted in Trade Secrets

A recent case in Massachusetts confirms that taking affirmative steps to protect the confidentiality of trade secrets is absolutely critical to litigating a claim for misappropriation. In C.R.T.R. v. Lao, Plymouth Superior Court Docket No. 2011-962 (Dec. 30, 2013), the plaintiff sued a former independent contractor for, among other things, misappropriation of the company’s trade secrets. The defendant moved for summary judgment on the grounds that the information allegedly misappropriated was not a trade secret, and that even if the information were a trade secret, the company had not taken adequate steps to protect the information. The court agreed with the company that there was a genuine dispute of fact over whether the information allegedly taken by the defendant constituted a trade secret, in light of the company’s identification of several trade secrets — including prices paid by the company and its customers, amounts sold and purchased, billing procedures, customer lists, business processes and work flow patterns, and processes for obtaining customers, among other things. The court also determined that the company had put forth sufficient evidence to suggest that the information provided the company with a competitive advantage, and that it was not generally known to those outside the business, both hallmarks of a trade secret.

But the court’s inquiry didn’t end there. Instead, the court determined that in order to support a misappropriation claim against the independent contractor, the company would have to demonstrate that it took adequate steps to protect its trade secrets. The court noted that the company had not required the defendant to sign a confidentiality agreement, and that the company did not even have a policy regarding the protection of confidential information. Additionally, the company’s customer lists were available on the company’s computer systems and certain contracts were advertised on the company’s website. In light of these facts, the court held that there was no evidence that the company had taken appropriate measures to protect its trade secrets, and accordingly granted summary judgment on the misappropriation claim.

This ruling should serve as a warning to employers — even if you are able to demonstrate that information obtained or accessed by a former employee, independent contractor, or other individual or entity is indeed a trade secret, a failure to “exercise eternal vigilance” in protecting those trade secrets will doom a misappropriation claim. Employers should not only implement and distribute policies regarding the protection of confidential information, but it should also require its employees, independent contractors, or other individuals who are granted access to such information to sign a confidentiality agreement. Failure to do so could be catastrophic to your business.