A federal court recently entered a TRO to prevent disclosure of trade secrets justifiably shared, in confidence, with business associates. When two of those associates made plans, clandestinely, to form a competing company, they were enjoined from disclosing the trade secrets even though they had not signed a confidentiality agreement. Exl Labs., LLC v. Egolf, 2010 U.S. Dist. LEXIS 131105 (E.D. Pa., Dec. 7, 2010). 

Plaintiff Exl manufactures dairy hygiene products. Non-party Lancaster is the exclusive dealer for Exl products in Pennsylvania. Non-party Beers is VP and GM of Exl and also is a member of the Board of Directors of Lancaster. On several occasions, Beers discussed Exl’s confidential information at Lancaster’s Board meetings, but Beers cautioned the directors not to disclose any of it to third parties. 

Defendants Egolf and Dry, members of the Board and employees of Lancaster, used some of the confidential information in the course of making plans to compete with Lancaster. They also provided some of the information to a business consultant who was assisting them in their illicit venture. When Exl learned what Egolf and Dry were up to, Exl sued them in a Pennsylvania federal court, alleging trade secret misappropriation and requesting a TRO. 

Arguing that Exl’s disclosure of the trade secrets at Lancaster Board meetings defeated Exl’s lawsuit and request for a TRO, the defendants moved to dismiss. The court disagreed, holding that Exl had endeavored to achieve "substantial secrecy" which, rather than "absolute secrecy," is all that is required. The court also decided, apparently, that the limited disclosure had a business justification. The defendants maintained that Exl’s lawsuit failed because of the absence of any written confidentiality agreement between Exl on the one hand, and Lancaster or the defendants on the other. The court ruled that Exl had taken sufficient steps to maintain confidentiality and that, under these circumstances, a written agreement was not essential.

The defendants claimed that Lancaster was an indispensable party in federal court (its addition would destroy diversity jurisdiction). The court rejected the claim because Exl was suing solely for misappropriation of its own trade secrets.