Al Minor & Associates, Inc. v. Martin, Slip Opinion No. 2008-Ohio-292.
The Supreme Court of Ohio ruled yesterday in a case in which it was asked to decide whether a former employee, having taken no confidential documents from the plaintiff employer but instead memorizing client lists, could be held liable for a statutory trade secret violation.
The plaintiff, Al Minor & Associates, Inc. (“AMA”), is an actuarial firm that serves approximately 500 clients. In 1998, AMA hired the defendant, Robert Martin, but did not require him to sign a non-compete agreement or an employment contract. While still employed with AMA, Martin took steps to form his own company which would provide essentially the same services as AMA. He resigned in 2003, and did not take any confidential documents with him. He later successfully solicited 15 AMA clients, using client information that he had memorized.
AMA filed suit, alleging that Martin had violated Ohio’s Uniform Trade Secrets Act (UTSA), and a magistrate found for AMA. The magistrate recommended that the trial court award AMA over $25,000 in fees that AMA would have earned from the clients which Martin solicited. The court of appeals affirmed, and Martin appealed to the Supreme Court of Ohio, contending that a client list memorized by a former employee cannot be the basis of a trade secret violation, and that the trial court’s decision unduly restricted his right to compete with AMA. AMA maintained that public policy favored the protection of trade secrets regardless of whether they were written or memorized.
The Court analyzed a 1902 case which defined trade secrets, as well as the UTSA, which was adopted in 1994. The Court noted that a 1997 Ohio case had established a six-factor test to determine the existence of a trade secret: 1) the extent to which the information is known outside the business; 2) the extent to which it is known to those in the business; 3) precautions taken to guard the secrecy of the trade secret; 4) the value of the secret to the holder; 5) the amount of money or effort expended in developing the information; and 6) the amount of time and expense needed for others to acquire and duplicate the information.
After looking at these sources, the Court determined that nothing in any of them indicated that the determination of whether or not a client list is a trade secret hinges on its form (e.g., written or memorized). The Court also noted that the legislature could have excluded memorized information from the definition of a trade secret in enacting the UTSA, but it failed to do so. The Court further mentioned that the majority position in the other states is that memorized information can be the basis of a trade secret violation. The Court also recognized the numerous treatises on the issue which supported this view (quoting one for the proposition that “the form of the information and the manner in which it is obtained are unimportant; the nature of the relationship and the defendant’s conduct should be the determinative factors”).
The Court noted that the protection of trade secrets requires a balancing of employers’ rights in their trade secrets and the former employee’s right to use his talents. However, the Court declared, by adopting the UTSA, the Ohio legislature clearly determined that Ohio public policy favors the protection of the employer’s trade secrets. The Court thus affirmed the judgment of the court of appeals.