As a special feature of our blog—guest postings by experts, clients, and other professionals—please enjoy this blog entry from Donal O’Connell, Managing Director of Chawton Innovation Services Ltd., and David Cohen. 

Trade Secret’s New Found Prominence:

As we both have written previously, the changing nature of technology, product development and sales, and the patent enforcement landscape, have given trade secrets a new-found prominence.

Trade secrets are now becoming a much more significant part of a company’s value. As a result, trade secret asset management is becoming (and if not, it should become) a regular part of company board discussions and review.  Continue Reading Fiduciary Duty with Respect to Trade Secret Asset Management

By Rebecca Woods

In the most recent ruling in long-running litigation styled AMG National Trust Bank v. Ries, NO. 06-CV4337, 09-cv-3061 (E.D. Pa.) (decided Dec. 29, 2011), the Eastern District of Pennsylvania partially granted the defendant Stephen Ries’s motion for summary judgment, jettisoning the plaintiff’s breach of fiduciary duty claims and plaintiff’s request for liquidated damages, but permitting the case to proceed for alleged breach of a restrictive covenant in his employment agreement.

Ries sought to have the court declare that the liquidated damages clause in the AMG non-compete agreement was unenforceable. The liquidated damages clause provided for payment of ten times the most recent annual gross fee income of the AMG client with whom defendant violated the non-compete. The court held that, as a matter of law, ten years worth of projected client fees per violation was an "unreasonably large and incredibly disproportionate estimate of the presumed actual damages caused by breaching a two-year restrictive covenant." The court noted in a footnote that other courts had held that even limiting the liquidated damages multiplier to the number of restricted years constituted an unreasonable penalty. The court also held, however, that notwithstanding the unenforceable liquidated damages clause, AMG had provided sufficient evidence that it had suffered actual damage such that summary judgment on the claim was not warranted.

The court also granted the summary judgment motion as to AMG’s breach of fiduciary duty claim. Declining to resolve a choice of law issue because there was no conflict, the court concluded that the fiduciary duty claim was a mere duplicate of the breach of contract claim and thus was barred by either Colorado’s economic loss rule or Pennsylvania’s "gist of the action" rule. AMG had failed to identify any duty owed by defendant that was not grounded in his contractual obligations.

Finally, the court rejected summary judgment as to AMG’s customer lists claim. Conceding that customer lists are "at the very periphery of the law of unfair competition" (quotation omitted), the court ruled in AMG’s favor, invoking prior Pennsylvania case law noting that customer data may qualify as a trade secret if it is not basic, widely available information, albeit collected as a result of the employee’s efforts. Instead, the employer seeking to protect such information must demonstrate that the data was collected by the employee only by virtue of the employee’s position, with the help of the employer (time, expense, and efforts), while the employee was subject to a confidentiality agreement. A factor in the court’s conclusion also appeared to be that AMG limited its claim to customers with whom Ries did not allege a close relationship. Ries’s use of customer list data for customers with whom he had not worked at AMG appeared to make it easier for the court to conclude that this was information the jury could hold was properly subject to protection.