Given the ubiquity of thumb-drives and use of personal devices for work, it should come as no surprise that former employees frequently download and even retain their former employer’s sensitive information on their personal devices. A Symantec study in 2013 found that ½ of the employees surveyed admitted to keeping confidential corporate data from their previous employer and 40% planned to use it in their new jobs. However, is the fact that an employee downloaded confidential information, standing alone, enough to trigger a lawsuit and possibly an injunction? A recent case out of the U.S. District Court for the Southern District of New York, AUA Private Equity Partners, LLC v. Soto, Case No. 1:17-cv-8035 (April 5, 2018), held downloading and refusing to return confidential information was enough to give rise to a claim under the Defend Trade Secrets Act (DTSA) (for more on that case, see William Brian London’s post for Fisher & Phillips’ Non-Compete and Trade Secrets Blog). As for the other question — whether a court will be willing to enter an injunction based on downloading — the answer is less clear.
As the AUA Private Equity Partners case illustrates, a party has a potential claim under the DTSA if an employee downloads and retains trade secret information. Like the UTSA, the DTSA defines misappropriation to include “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means.” The employee in that case did herself no favors not only by downloading the information on the eve of her termination, but by refusing to return it. Given the favorable legal standards that benefit a plaintiff in the motion to dismiss context, Judge Gregory Woods found that there was at least a cognizable claim for misappropriation under the DTSA. At the end of the day, the correct ruling at that very early stage of a litigation.
But what about cases involving a request for an injunction, which is after all the key remedy for a trade secret owner? To get an injunction, the trade secret owner has to meet a significantly higher burden — it has to make the case that, among other things, it is likely to succeed on the merits and that it will be irreparably harmed if an injunction is not issued to protect the trade secrets at issue. In recent years, the U.S. Supreme Court has further tightened the standard, holding that a claimant must show a probability of irreparable injury, not just a possibility. (See the Supreme Court’s opinion in Winter v. Natural Resources Defense Council). In some jurisdictions (such as in Ohio), the party seeking the injunction has to make this showing by clear and convincing evidence, a standard higher than the typical preponderance of the evidence standard required in most civil disputes. To complicate matters further, trial courts have considerable discretion whether to grant an injunction.
For these reasons, if a judge concludes that there is not a real risk of use or disclosure in a trade secret dispute, he or she may not grant the injunction. In other words, downloading may not be enough, especially in cases where the defendant has taken steps to ensure that the trade secrets are no longer available (whether by forensic removal or return of the information by the defendant).
The holding in Free Country v. Drennen, 2016 WL 7635516 (S.D.N.Y. Dec. 30, 2016) is a good example. In that case, the former employees and their lawyers took steps to prevent any use or sharing of the information that had previously been downloaded; these steps, in turn, served to eliminate the threat of any future use or disclosure.
The Free Country case involved pretty damning forensic evidence. One of the employees emailed copies of Free Country’s master contact list, four product designs from the 90s, and pricing information to his personal email address; the other employee transferred nearly 50,000 files to his personal Dropbox account. The 50,000 files were later removed as part of a court-ordered forensics process.
Although he conceded that some of these files might be proprietary, Judge Jed Rakoff of the U.S. District Court for the Southern District of New York was dismissive of the argument that the employee might still use the information because the files contained a “tremendous” amount of information which the employee only possessed for 9 days. As a result, the judge “was not persuaded that [the employee] could have memorized gigabytes of data concerning Free Country’s past, present, and future business in such a short period of time.” Lacking evidence that this information had or was likely to be misused, Judge Rakoff concluded that Free County was not likely to succeed in its misappropriation claim and could not show the irreparable harm necessary for an injunction restricting the employees’ ability to solicit Free Country’s customers, which appeared to be the primary relief Free Country had sought in its injunction.
Last year, District Court Judge Edward Davila of the U.S. District Court for the Northern District of California reached a similar result in UCAR Tech. (USA) Inc. v. Li, 2017 U.S. Dist. LEXIS 59965 (April 19, 2017). In that case, Judge Davila relied on the defendants’ assurances that any information they retained was inadvertent and that they had no intent to use their former employer UCAR’s information at their new employer. (Curiously, Judge Davilla did not give great weight to the fact that one of the former employees logged on to UCAR’s servers after resigning, a suspicious fact that could have tilted the balance toward an injunction). For these reasons, he found there was no “imminent threat of use or disclosure” of the confidential information.
And saying you’re sorry may help too. In American Airlines v. Imhoff, 620 F. Supp.2d 574 (S.D.N.Y. 2009), a mid-level manager of American Airlines took significant amount of information with him before he departed to work for Delta. However, Imhoff never shared it with Delta, he later acknowledged emailing and downloading the information were “errors,” and his lawyers took affirmative steps to segregate the information. District Court Judge Lewis Kaplan of the Southern District of New York denied the injunction as a result.
Takeaway: Proof of downloading may be sufficient to withstand a motion to dismiss but given the higher burdens of proof on an employer, it probably will not be enough for an injunction, at least by itself. Of course, other facts can come into play and change the court’s analysis. For example, did the employee violate any written restrictive covenants and contact customers? Was there deceit or subterfuge that would show an intention to use the information? How valuable is the information and how relevant is it to the trade secret owner’s remedy? And perhaps most importantly, has the employee and his/her new employer taken any steps to remediate or minimize the risk of use or disclosure of the information?
Remember that in any request for an injunction, the critical question revolves around whether the court can trust the defendant. If there is deceit or multiple violations of other agreements, the court may be see the downloading as more nefarious and worthy of an injunction. However, where it appears the download was inadvertent, the former employee is remorseful, or the former employee has taken affirmative steps to eliminate the risk of use or sharing, a trade secret owner may be hard pressed to show the need for an injunction.