Protect trade secrets, avoid the burn

Original story posted by Roy Maurer on Society for Human Resources Management website. 

An appellate court recently struck down a company’s trade secrets misappropriation claims because the company failed to protect its intellectual property (IP) as confidential or proprietary.

The Massachusetts Appeals Court ruled in Head Over Heels Gymnastics Inc. v. Ware that defendant Harriet Ware did not steal her former employer’s trade secrets because the information at issue was never identified as such.

Ware was hired as an at-will employee in 2006 to work with gymnasts at Head Over Heels gymnastics academy in Norwell, Mass. When she accepted the position, Ware acknowledged that she had received and understood the employee handbook, which failed to include a noncompetition covenant or any mention of trade secrets.

Head Over Heels maintained a list of the people who trained at the school, including their names, addresses, telephone numbers and e-mail addresses. The information was available to all employees and was never identified as confidential or proprietary.

When Ware was terminated in 2012, she opened an academy of her own, taking approximately 30 Head Over Heels gymnasts with her.

The company sued, alleging that Ware misappropriated its trade secrets, violated her duty of loyalty by contacting its customers and unfairly competed with it.

The court held that because Ware was an at-will employee, she owed Head Over Heels no particular duty of loyalty and was free to “plan to go into competition with … her employer and take active steps to do so even while still employed.” Further, absent a noncompetition agreement, Ware’s ability to compete with Head Over Heels was not constrained. Lastly, the court determined that Ware did not misappropriate her employer’s trade secrets because the school’s customer list was not legally considered a trade secret.

The court said that in determining whether information is proprietary to a business, “we look to the conduct of the parties and the nature of the information.” A determination about confidentiality is based on several factors, “including the extent to which the information is known outside of the business, the extent of measures taken by the employer to guard the secrecy of the information and the ease or difficulty with which the information could be properly acquired.”

Head Over Heels argued that everyone at the company understood that its customer list was intended solely for the purpose of the business and was neither publicly known nor available.

Nevertheless, the court ruled that, “as a matter of law, the [customer lists] are not trade secrets or confidential proprietary information. It is undisputed that the [customer lists] were available to all staff and employees and were distributed to Head Over Heels’ gymnasts and their families. The broad dissemination and availability of the [customer lists] indicates that Head Over Heels was not trying to guard the secrecy of the information. Importantly, much of the information found in the [customer lists] was readily available in the public domain and could have been easily obtained.”

The court therefore deemed Head Over Heels’ trade secret claims “unrealistic.”

Employer Takeaways

What can employers do to protect against confidential information being used by a former employee? “For starters, if you have confidential information, let everyone with access to it know that it is confidential, either through a designation in the company handbook, when they are given access to the information for the first time or any other obvious way,” said Shepard Davidson, a partner at Burns & Levinson LLP based in Boston.

Limiting access to the information and keeping it secure are additional ways to preserve confidentiality, he said. Training and reminding departing employees about their confidentiality obligations during exit interviews are also good ideas.

“The good news is that a company’s efforts in this regard are measured by a standard of reasonableness, not perfection. So if you have information that you believe is important, confidential or propriety, take some time to set up reasonable systems to protect that information,” Davidson said.

Follow Roy Maurer on Twitter at @SHRMRoy

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