Should confidential information shared with a customer lose its trade secret status if it is not accompanied by a confidentiality agreement? Courts are split on this tricky issue, but in State Ex Rel. Lukens v. Corporation for Findlay Market of Cincinnati, the Ohio Supreme Court ruled last week that, in the context of a commercial lease, information shared with tenants (i.e., customers) does not require a confidentiality agreement. (A PDF copy of the opinion can be found below).
Background: The lawsuit was filed by Kevin Luken, an attorney and brother of Mike Luken, proprietor of Luken’s Poultry, Fish & Seafood, a longtime vendor at the Findlay Market in Cincinnati, a popular public market in Cincinnati. According a local media report, Luken sought the records for the sake of “accountability” because he “wanted to see if he was being charged the same rent as his competitors in the historic market.”
Luken requested copies of those leases through a public records request with the City of Cincinnati, but the rental amounts were redacted in the city’s response. The market facility is owned by the City of Cincinnati and managed by the nonprofit Corporation for Findlay Market (the Findlay Market).
Luken filed a writ of mandamus to compel production of the redacted rental information but the First Appellate District located in Cincinnati denied that public records request, reasoning it was protected from disclosure under Ohio’s public records laws because it qualified as a trade secret.
On appeal, the Ohio Supreme Court affirmed that the rental information was a trade secret, focusing on two issues. First, the Supreme Court agreed with the Findlay Market that the rental information was potentially valuable to competitors. The Findlay Market presented expert testimony that the term and rental rate for subleases in the commercial context are secrets closely guarded by property managers and that knowledge of these items about competitors would be “invaluable” to competitors.
The Supreme Court appeared to accept a policy argument — that public disclosure of this information would impair the landlord’s ability to get and keep tenants and “create a poisonous environment” among the tenants, who would inevitably compare notes. Disclosure of the information, therefore, would put the Findlay Market at a competitive disadvantage.
The second point, was in the Court’s view, a “close call” — namely, whether the Findlay Market had taken sufficient precautions to safeguard its trade secrets. Luken presented evidence that the Findlay Market failed to get acknowledgements or agreements from tenants that the terms of the leases were confidential, as well as evidence that some tenants shared the rental terms with vendors.
Nevertheless, the Supreme Court found that the Findlay Market’s actions were adequate to safeguard the trade secrets under industry standards. The Findlay Market kept the only unredacted copies of the leases in a locked fling cabinet and limited access to employees on a need-to-know basis. Significantly, Findlay Market’s expert provided unrefuted testimony that the precautions used by Findlay Market were standard for commercial property managers. The expert further testified that customers were unlikely to share the information because they realized it was to their benefit not to disclose. On this record, the Supreme Court found that Findlay Market had met its burden.
The Takeaways? First, in essence, sharing information with a customer or client does not waive trade secret status; this common sense notion seemed to predominate the Supreme Court’s analysis. Businesses should not be expected to get non-disclosure agreements from their customers over pricing. Given the inherent sensitivities of customer relationships, it should not surprise anyone that a business might not demand confidentiality as a condition of doing business.
Second, given the relatively weak safeguards undertaken by the Findlay Market, expert testimony proved to be critical in this dispute. That testimony assuaged the Supreme Court’s concerns about those efforts as it was heavily rooted on what was standard for the industry. In some respects, this makes sense, as determining what is reasonable may frequently require examining what others in an industry do in similar circumstances. However, it begs the question that if no one treats the information as a trade secret, is it entitled to protection?
State ex rel. Luken v. Corp. for Findlay Market of Cincinnati Slip Opinion No. 2013-Ohio-1532.txt (18.81 kb)