Can you use a trade secret to manufacture a competing product in violation of a written agreement, so long as you don’t disclose it? Remarkably, in New York, the answer may be “yes.” The case that led to this holding is back in the news, as a May 13, 2011 opinion by the Southern District of New York has ordered the parties in that case to proceed to trial on claims that were not resolved in a Swedish arbitration. 
 
Two years ago, the U.S. Court of Appeals for the Second Circuit caused an imbroglio in the trade secret and IP community when it issued its holding in Faiveley Transport Malmo AB v. Wabtec Corporation, 559 F.3d 110 (2d Cir. 2009). In Faiveley, the Second Circuit took the remarkable step of reversing the district court’s preliminary injunction pending that Swedish arbitration and holding that the defendant could continue to use the trade secrets at issue in its manufacturing operations so long as it did not “disclose” the trade secrets to anyone else.
 
Faiveley arose in a situation involving an expired license for air brake technology. The defendant, Wabtec, had continued to use confidential information and trade secrets granted to it under that expired license to manufacture braking components for subway rail cars over the objection of the licensor, Faiveley. The Second Circuit reasoned that because Wabtec was benefiting from the confidential information in connection with its unlicensed use, it therefore had no incentive to “disclose” the information, and, consequently, the risk of improper disclosure was not present. Of course, in so ruling, the Second Circuit ignored the central goal underpinning confidentiality agreements and trade secret law – the ability to control, limit and/or exclude others from utilizing one’s property in the form of confidential information and trade secrets.   
 
As you might expect, this decision resulted in disbelief within the trade secret and IP legal community, with one leading commentator concluding that the decision amounted to a “license to steal”. Ironically, it appears that the plaintiff Faiveley ultimately was able to persuade the Swedish arbitration panel within the ICC to impose an injunction at a permanent injunction hearing. Unfortunately, those practicing in New York or using New York law still have to contend with the holding, which has been followed by both state and federal courts applying New York law.
 
The good news is that New York has not adopted the Uniform Trade Secrets Act, and, as a result, the damage inflicted by Faiveley  has been largely confined to the New York trade secret community. The bad news is that this case remains a dangerous precedent because many commercial agreements have New York choice of law provisions, which are frequently a default or compromise choice because of the perceived strength of the commercial federal and state court bench. Thus, lawyers and clients should be wary of agreeing to New York law in a NDA or trade secret context. If one is going to agree to New York law, it would be prudent to include language specifically forbidding any kind of use, such as manufacture or improvements, in addition to language forbidding disclosure. This would hopefully preserve a breach of contract claim and strengthen any trade secret claim in any future dispute.

If a company intends to enforce a non-competition agreement, it had better be prepared to convincingly show that it fully complied with the other terms of that agreement, at least in Pennsylvania. In Figueroa v. Precision Surgical, Inc., Case No.10-4449 (3rd Cir., April 12, 2011), the U.S. Court of Appeals for the Third Circuit refused to disturb the U.S. District Court of New Jersey’s decision not to enforce a non-compete because it held that there was a real issue as to whether the plaintiff, Precision Surgical, Inc., had failed to abide by the terms of the agreement it sought to enforce. (A special thanks to Paul Derrick of Cranfill, Sumner & Hartzog, LLP for bringing this case to my attention). More specifically, the court found that Precision had failed to clearly show that it had fully performed under the agreement because there were many facts that demonstrated it had improperly treated the defendant, Joseph Figueroa, as an employee rather than as an independent contractor, including allegedly failing to pay him all of the commissions to which he was due.   
 
The facts (and in particular, the terms of the controlling written agreement) are less than clear in the opinion, which makes it difficult to determine the severity of the alleged breaches. In 2003, Figueroa executed an Independent Contractor Agreement (“ICA“) with Precision that included a two year non-compete and non-solicitation provisions as well as a non-disclosure obligation. Figueroa chafed under the restrictions that were increasingly placed on his efforts by Precision. After the parties sparred over a deduction from his commissions, Precision told Figueroa that it was abandoning the independent contractor model and asked him to sign a new agreement as an employee.  When he refused, Precision terminated the ICA. Figueroa then commenced a preemptive action to challenge the non-compete.
 
There are a number of facts that the district court and the Third Circuit found compelling in finding that Precision was possibly in breach. For example, Precision imposed “primary and secondary levels of reporting authority, as well as dress requirements, training obligations, and sales goals” upon Figueroa (Op. at 6). The Third Circuit also found it noteworthy that Figueroa wasn’t allowed to solicit clients without Precision’s involvement, that he was given an employment identification picture, a Precision business card and Precision headquarters telephone number, that he was required to devote 100% of his time to Precision, and that he was required to inform Precision of future marketing opportunities. These factors led the court to conclude that Figueroa was treated more like an employee than as an independent contractor in derogation of the ICA.
 
Perhaps of greater significance was Precision’s inability to refute Figueroa’s contention that it had failed to pay him his full commissions. Again, the record is less than clear but it appears, reading between the lines, that Precision required Figueroa to hire a subcontractor owned by Precision’s president, and then refused to reimburse him when Figueroa elected to hire another subcontractor instead.  
 
Although not emphasized in the opinion, an important fact appears to have been that Precision terminated the ICA because Figueroa refused to convert to the new agreement formally making him an employee. This act reinforced the theme of the fundamental breach of the agreement, as well as the unfairness of enforcing the covenant not to compete when it appeared that Precision was trying to change the rules.
 
Figueroa should serve as a good wake-up call for companies looking to enforce a non-compete or non-solicitation agreement. If a business is looking to enforce a non-compete or non-solicitation agreement, it should make sure that it has fully complied with its own contract. If a company owes travel expenses, severance, a commission or some other payment, it should ensure those payments have been made at the termination or exit interview stage if it is contemplating enforcing a non-compete or non-solicitation agreement. Likewise, it would be wise to take a step back and look critically at the contract and/or relationship that will be scrutinized to ensure that any potential claims of breach or other defenses can be defused.
 
On the flip side, if you are an employee, independent contractor, or other party who might be subject to a non-compete upon the termination of a relationship, Figueroa makes clear the importance of documenting what you believe to be material breaches of your agreement. As courts are increasingly tough on these agreements, the argument that the plaintiff failed to comply with its own agreement is a powerful club to wield. 

The Wall Street Journal, The New York Times and numerous other media reported yesterday that Wal-Mart is pursuing contempt charges against a former employee, Bruce Gabbard, whom it contends recently posted Wal-Mart’s confidential documents and trade secrets on his website in violation of a 2007 permanent injunction order. In response, Gabbard has filed a lawsuit in Oklahoma contending that Wal-Mart is harassing him and improperly trying to force him to return to Arkansas.
 
There is quite a history here. Gabbard, a former member of Wal-Mart’s Threat Research and Analysis team, was terminated by Wal-Mart in 2007 for allegeldy monitoring phone conversations between a New York Times reporter and Wal-Mart employees and intercepting pager communications. Gabber later told The Wall Street Journal how Wal-Mart snooped on workers, critics and stockholders and that he was essentially scapegoated by Wal-Mart.

Several months later, Wal-Mart secured a temporary restraining order against Gabbard that prevented him from further disclosing trade secrets and confidential company information. Gabbard also was ordered to turn over two computer hard drives that Wal-Mart believed contained its documents to a local prosecutor. Wal-Mart ultimately secured a permanent injunction that required Gabbard to return any other trade-secrets or confidential information.

This dispute resurfaced recently when Gabbard apparently posted what Wal-Mart believed to be confidential documents on a website in violation of the permanent injunction. Gabbard has denied that he violated any order and that the documents were provided to him after the orders were entered. His lawsuit contends that Wal-Mart is trying to compel him to sign a non-disclosure agreement and chill his First Amendment rights.

Contempt proceedings are pretty serious matters and one can only presume that Wal-Mart is pretty confident that the order was violated. I will see if I can track down the pleadings and the website that is alleged to have contained the confidential documents to evaluate whether the costs of this litigation outweigh the substantial national publicity it seems to be generating. In the meantime, this case could turn out to be a good example of what has come to be known as the “Barbara Striesand effect” — a phrase that was coined after the famous diva loudly protested Google Earth’s efforts to photograph her home, leading of course to even more unwanted internet traffic and interest. 

An increasingly common defense in trade secret cases concerning an invention or technology is that the plaintiff’s previously publicly available patent or patent application discloses and thus waives any related trade secrets. A recent case from the United States Court of Appeals for the Fifth Circuit, Tewari De-Ox Systems, Inc. v. Mountain States/Rosen, L.L.C., Case No. 10-50137, (5th Cir., April 5, 2011), joins a number of other cases refusing to adopt a broad rule in this situation and requires a district court to examine the fact of each trade secret case. (A fine post commenting upon this case can be found in the pre-emenint blog, Patently-O).

The plantiff in Tewari had designed a “zero ppm oxygen meat-packaging method” for packing fresh meat for shipment and display in retail stores. Essentially, the system removed air from packets used to preserve that meat. Tewari had shared this process with the defendant, MTSR, pursuant to a non-disclosure agreement and later concluded that MTSR misappropriated its trade secrets.

Applying Texas law, the district court found that trade secrets in question had been destroyed by publication in a patent application or had already been disclosed and known in the industry, and the court granted summary judgment. On appeal, the Fifth Circuit reversed, holding that a genuine issue of material fact existed on the issue of whether a trade secret existed. The Fifth Circuit cited previous authority that “the question of whether certain information constitutes a trade secret ordinarily is best ‘resolved by a fact finder after full presentation of evidence from each side'” (Tewari at p. 12). The Fifth Circuit recognized that to the extent that the information was fully disclosed in an earlier patent application, it would not be entitled to trade secret protection, a holding reflecting settled law that a trade secret that is publicly disclosed can no longer be considered a secret.

However, to the extent that the trade secret in question was a combination of information found not only within the patent application but from other sources, the Fifth Circuit applied the doctrine that a trade secret can be composed of many different elements, each of which may be found within a public source, so long as the combination is not publicly disclosed. For this reason, the Fifth Circuit found that a genuine issue of material fact remained and remanded the case to the district court.

The takeaway from Tewari? If you are filing a trade secret case that might involve an invention that is the subject of a publicly available patent application, be certain that the trade secrets that you are seeking to protect have not been fully disclosed within that patent or patent application. This will obviously require a careful examination of the patent application or patent prior to filing the complaint. To the extent tha the trade secrets do include some of the information found in a patent application, be prepared, as the plaintiff did successfully on appeal, to argue that the information (if any) found in a patent application is part of a larger combination of other information giving rise to the trade secret.

Sears’ Lands’ End unit is sparring with Limited Brands’ Bath & Body Works over the hire of senior executive Nicholas P.M. Coe as Bath & Body Works’ new CEO last week. The dispute is shaping up to be a fairly contentious one, as Coe has filed a preemptive lawsuit challenging the enforceability of his non-competition agreement in Wisconsin, while Sears has now filed a lawsuit in Cook County, Illinois seeking to enforce that same agreement and claiming that Limited Brands and Bath & Body Works have intentionally interfered with that agreement.
 
According to Coe’s lawsuit in Iowa County, Wisconsin, Bath & Body Works is not a competitor of Sears or Lands’ End because (1) neither of his former employers sells personal care products, and (2) Bath & Body Works does not sell apparel, appliances, electronics or automotive services, unlike Sears and Lands’ End. In contrast, Sears claims in its lawsuit that Limited Brands is a direct competitor and that Limited Brands is one of the companies specifically listed in Coe’s non-compete agreement as a company for whom Coe is prohibited from working.

 

The proverbial “race to the courthouse” is particularly common in trade secret cases, especially in high profile disputes over senior executives because the choice of forum and law may prove critical in the context of a temporary restraining order. In these cases, the party that can get the first ruling tends to prevail. For example, in the dispute between former executive David Donatelli and EMC two years ago, the parties each filed lawsuits within hours of the other in an effort to seize the more advantageous forum. EMC ultimately prevailed upon a Massachusetts court to limit Donatelli from performing any work for his new employer’s storage device unit, although he was allowed to continue working for his new employer, HP. By the time Donatelli was able to get his case considered by the California court, however, it was too late; as that court elected to defer to the ruling by the Massachusetts court under principles of comity.
 
It will be interesting to see who can get a court to rule first, as that may prove to be the decisive ruling in both cases. 

Read almost any article or post about protecting trade secrets in a large organization and it will emphasize the importance of securing written agreements, having thorough policies on confidentiality and ownership, limiting access to sensitive information through passwords, encryption and other means, and numerous other safeguards to secure a company’s trade secrets. However, one important element that is sometimes mentioned but rarely emphasized for the protection of trade secrets for a large company is the need for annual or, better yet, semi-annual audits of those agreements and policies.
 
A trade secret audit is nothing more than thoroughly double-checking your files in an organized fashion to make sure that your paperwork, agreements and policies are in order. Audits are important in three respects for a large company. First, they ensure that management, legal and human resources administrators detect any problems with agreements that may have slipped through the cracks. There are too many cases that have arisen in which a company has failed to get a signed agreement, or found an agreement that is with an affiliate or subsidiary rather than the parent company as the actual employer, or uncovered some other deficiency or enforceability issue that leads to added cost, unnecessary defenses or, in the worst case, the inability to enforce the agreement. For example, a recent case in New York, IBM v. Johnson, 629 F. Supp. 2d 321 (S.D.N.Y. 2009), reinforces the importance of following through and ensuring that agreements are signed appropriately by an employee. In that case, the failure to get an executive to sign the non-compete on the correct line (he deliberately signed on the wrong signature line to avoid committing to the non-compete) led to the district court’s refusal to enforce that agreement. Likewise, if a vendor, supplier or contractor has not returned a signed copy of a non-disclosure agreement, the audit should identify that mistake. In short, an audit allows a large organization to preempt or reduce problems.
 
Secondly, the process of auditing not only leads to the detection or preemption of problems or mistakes in a large company but it should lead to improved internal procedures or methods for securing sensitive information and better coordination between departments. In the best cases, it leads to a new dialogue internally between a company’s departments or divisions, or with outside counsel, about additional measures that can be done to streamline or better those processes. It may lead to new procedures in “exit interviews” to ensure that all confidential information is retrieved at the close of the relationship. It may cause the client to forward its agreement to their outside counsel to see if it can be improved or upgraded. It may lead to policies or procedures to better monitor “troubled” employees who most frequently turn up in trade secret disputes. As David Almeling’s groundbreaking article has noted, 93% of all trade secret disputes arise out of relationships in which the parties know one another. Audits enable you to identify and minimize the peril that arise out of those relationships. 
 
Finally, should litigation ultimately result, audits enable a client to “build a case” about the reasonableness of the safeguards that it has undertaken. Courts have taken an increasingly tougher and skeptical view of trade secret claims and a challenge to the reasonableness of the plaintiff’s safeguards remains the easiest and cleanest mode of attack.  In CMBB LLC v. Lockwood Manufacturing, 628 F. Supp.2d 881 (N.D. Ill. 2009), the district court dismissed a trade secrets case because of what it perceived to be the company’s lackadaisical approach to managing its trade secrets — i.e., no written agreements, policies that failed to safeguard information, failure to retrieve laptops or confidential upon termination, etc.  In contrast, an audit shows that the client is proactive and vigilant and better enables that client to defect any criticisms of the actions or safeguards that it has taken. 
 
Sun Tzu cautioned, “if you are ignorant both of your enemy and yourself, you are certain to be in peril.”  If you are part of a large company with multiple departments or divisions, audits allow you to better understand your organization and identify your problem employees and partners, and therefore reduce and hopefully eliminate that peril.

Does the First Amendment provide complete protection to a whistleblower like WikiLeaks that attempts to post trade secrets on the Internet?  That may be the key question in any whistleblower trade secrets case.
 
Following up on my recent post on the Julius Baer v. WikiLeaks case, and my presentation at the AIPLA’s Spring Meeting later today, one of the issues — if not the issue — that presented the greatest concern to the district court in that case was that its order might qualify as a “prior restraint” in violation of the First Amendment.  
 
Federal courts are very attuned to constitutional issues, and, I would respectfully submit, especially amenable to a claim that their order might present a prior restraint in violation of the First Amendment. See Procter & Gamble Co. v. Bankers Trust Co., 78 F.3d 219, 225 (6th Cir. 1996); Ford Motor Co. v. Lane, 67 F. Supp. 2d 745 (E.D. Mich. 1999).  State courts, on the other hand, may be more sensitive to the policies underlying trade secret law, as decisions by the California Supreme Court and the Ohio Supreme Court have shown.  In those cases, those courts have rejected broad prior restraint arguments and recognized that policies underlying the protection of trade secrets must be balanced as well.  American Motors Corp. v. Huffstutler, 61 Ohio St. 3d 343, 575 N.E.2d 116 (Ohio 1991);  DVD Copy Control Assoc., Inc. v. Bunner, 31 Cal. 4 864, 4 Cal. Rptr. 3d 69 (2003).
 
In the Julius Baer case (see my earlier post), the intervention of the media and the arguments that they presented in that case influenced the court’s decision to dissolve the injunction.  While they properly noted that some First Amendment protections that would be implicated (i.e., the impact that a shutdown of WikiLeaks website would have on news-gathering efforts), their arguments of course overlooked the important governmental and private interests in protecting confidential information (in that case, the privacy rights of the bank’s clients).
 
It is important to remember that the First Amendment issues — and there were plenty — were briefed extensively over an incredibly short period of time and on issues that were the “bread and butter” of the intervening media and public interest parties.  This ultimately provided them with what proved to be an overwhelming procedural advantage.  
 
In Julius Baer, the California First Amendment Coalition (“CFAC”), a non-profit public interest organization composed of large daily newspapers in California, and the ACLU both sought to intervene on February 26, 2008.  On that day, both submitted extensive briefs not only extolling the importance of WikiLeaks to its members’ news-gathering efforts, but vigorously arguing that the First Amendment protects the right to gather and receive information and that the injunction in question had prevented the public’s access to the information previously contained on that website.  The CFAC then filed yet another brief, challenging the jurisdictional basis of the case and arguing that diversity of jurisdiction was lacking because Julius Baer and WikiLeaks were both foreign citizens.  Three days after the appearance of the CFAC and the ACLU (February 29, 2008), the district court issued its order dissolving the injunction, based on those arguments.
 
The reality is that many trade secret and commercial litigators may not be conversant in the wide-ranging law concerning the First Amendment.  Given the speed of an injunctive proceeding, and the fact that counsel for the plaintiff is expected to be prepared to respond to whatever obstacle is thrown in his/her path, the intervention by the media in this kind of case can be devastating. 
 
Arguing that the requested injunction is “content neutral” is probably the best argument that can be made in these circumstances because it triggers lesser scrutiny from the court.  It is worth noting that this argument appears to not have been made in Julius Baer, either because of the lightning speed of the briefing on this issue or because the substantive basis for the injunction was rooted in constitutional and statutory privacy interests (as opposed to trade secrets).  The DVD Copy Control case, cited above, provides a superb template for understanding and ultimately making this argument; in that opinion, the California Supreme Court very methodically reasoned that a narrow trade secret injunction would qualify as a content neutral injunction.  The California Supreme Court further held that such an injunction was supported by a number of equally important policy considerations — preserving incentives to innovate, protecting investment in research and development, and the promotion of commercial and business ethics, among others.
 
In short, if you are faced with a sophisticated whistleblower with access to the Internet, First Amendment issues will be front and center in any litigation that tries to restrain him.  Allaying a court’s concerns that you are protecting an important private property right, and not seeking to muzzle an important issue of public safety or concern, will be critical.

For those of you who are attending the American Intellectual Property Law Association’s Spring Meeting in San Francisco this week from May 12 through May 15, I wanted to let you know that I’ll be co-chairing a panel discussion with Janet Craycroft, Intel Corporation’s Director for Legal Counseling and Legal & Corporate Affairs, and Malcolm Harkin, Intel Corporation’s Chief Information Security Officer, entitled “Re-Thinking Protection of Corporate Secrets in the Wikileaks Era.”
 
The presentation is from 3:30 to 5:30 p.m. on Friday, May 13, in the Rose Ballroom, Lobby Level of the San Francisco Palace Hotel. My portion, “Current Legal Landscape: Litigation Strategies for Victims of Wikileaks or Self-Styled Whistleblowers,” will focus on the volatile litigation issues arising from the WikiLeaks threat. Malcolm’s presentation, “Wikileaks Basics:  Technology, Ideology and What is Known About How Leakers Provide Material,” will focus on the technical aspects of confronting the WikiLeaks phenonmena. Finally, Janet’s presentation, “Advising the Corporate Client About Wikileaks:  Emerging Best Practices to Prevent Data Leaks,” will focus on best practices for detecting and avoiding data breaches and trade secret theft.
 
I hope to see many of you at what should be a dynamite presentation. But either way, don’t hesitate to email or tweet me (@TSLitigator) if you would like to compare notes, swap stories or grab a cup of coffee.

The WikiLeaks scandal has generated widespread concern about how to manage a crisis where a disgruntled employee seeks to post confidential information or trade secrets on the Internet. This scandal arose when PFC Bradley Manning allegedly stole hundreds of thousands of classified diplomatic files and documents and delivered them to the Internet organization, WikiLeaks. WikiLeaks holds itself out as a tool for helping individuals “safely get out the truth” about government and other institutions, and it posted those classified documents on its website for the world to see.

WikiLeaks has not confined its efforts to government information and has also posted confidential information taken from large banks and other private companies that it deemed newsworthy. For example, WikiLeaks has published internal information from Bank of America documenting its internal dialogue on confronting the unique threats posed by WikiLeaks. 

An unsuccessful attempt by the Swiss bank, Julius Baer, to restrain WikiLeaks from posting information on its website in 2008 has now received renewed attention because of the recent scandal [See Bank Julius Baer & Co. Ltd., et al. v. WikiLeaks, et al., Case No. 3:08-cv-0824-JSW, U.S.D.C., N.D. Calif]. Side Note: For those who are interested, I will be speaking on this issue at the American Intellectual Property Law Association’s Spring Meeting on Friday, May 13, 2011. 

The Julius Baer case is worth re-examining in several respects because of the renewed interest in the harm that WikiLeaks or a similar self-styled whistleblower can cause by attempting to post information on the Internet. According to Julius Baer’s complaint, a disgruntled former employee, Rudolf Elmer, took client records and data in violation of a confidentiality agreement he signed with Julius Baer. After Elmer’s termination, Julius Baer discovered that Elmer had begun posting hundreds of those records on WikiLeaks’ website. The district court was initially receptive to Julius Baer’s claims and granted Julius Baer’s request for a TRO, enjoining WikiLeaks from further posting or displaying that information and directing WikiLeaks to remove all copies or images from the websites under its control. 

While Julius Baer did not join Elmer as a defendant, it did join the WikiLeaks domain administrator, Dynadot, LLC,  to ensure that the party responsible for the WikiLeaks’ domain name and/or website would comply with any potential order. Julius Baer and Dynadot reached a stipulated permanent injunction order that Dynadot would, among other things, immediately “lock the wikileaks.org domain name to prevent transfer of the domain name” and “disable the wikileaks.org domain name and account to prevent access to and any changes from being made to the domain name and account information.” 

In the meantime, the district court’s entry of the TRO did not prevent WikiLeaks’ posting of the customer information. While it appears Julius Baer was successful in locking down and disabling the WikiLeaks’ domain name registered through Dynadot, the order did not prevent the posting of that customer information on other “mirror” websites.    

In addition, media and public interest groups immediately moved to intervene in the case, arguing that the stipulated permanent injunction improperly interfered with their news-gathering efforts and amounted to a violation of the First Amendment. The district court, in the face of these concerns and the frustration of the order due to the mirror websites, subsequently dissolved that permanent injunction.

The trade secret implications of this case could fill a law review article and warrant further posts on the First Amendment issues, the use of “mirror” websites, among other important points. However, an increasingly common issue is to what degree a trade secret loses protection if it is posted on a website. 

Milgrim, the key commentator in trade secret law, has noted that at least one court has “cautioned under the basic principles of equity, recognized in the trade secret context, a wrongdoer cannot rely on his own postings to avoid the imposition of an injunction by arguing the works posted have lost their secrecy” [4 Milgrim on Trade Secrets, §17.03 at 17-12 (citing Religious Tech. Ctr. V. Netcom On-Line Commun. Servs., 923 F. Supp. 1231, 1256 (N.D. Cal. 1995), trade secret holding revised (N.D. Cal. Jan. 6, 1997)].  Another court has found that the information is now effectively in the “public domain” and refused to issue an injunction [See American Hearing Aid Assocs., Inc. v. GN ReSound N. Am., 309 F. Supp. 2d 694, 705-706 (E.D. Pa. 2004) (conversion claim rejected because customer lists posted on plaintiff’s website could not qualify as trade secrets)]. 

The law is far from settled and the facts of each case may prove critical. As Milgrim notes, publication on the Internet may not necessarily terminate trade secret status, as the facts and circumstances surrounding each disclosure may differ; for example, if prompt and effective action resulted in the postings being taken down, it can be argued that any disclosure was fleeting in nature and did not become known to the relevant audience, i.e., competitors [4 Milgrim, §17.03 at 17-16]. In addition, to the extent that the wrongdoer participated in the posting, he or she should be equitably estopped from making that argument [Id.; see also id, §15.01[1][a][ii] and authorities cited therein; see Silicon Image, Inc. v. Analogix Semiconductor, Inc., 2007 U.S. Dist. LEXIS 96073 at ** 44-46 (N.D. Calif., Dec. 20, 2007) (finding that source code published on Internet did not destroy the secrecy of information at issue)]. However, in the case of third parties (such as media who intervene and rely upon or cite to the postings), that equitable basis may not apply. Finally, it should be noted that the factual circumstances may vary from case to case and the kind of remedy sought in the case (injunction or damages) may further shape the impact of a defense rooted in this issue. 

In short, the answer is “it depends” on many facts, including the length of time that the information was posted on the Internet, when it was posted, and who may have viewed it while it was there. As a result, if a company moves promptly to take the information down, it should be in a strong position to protect any trade secrets that were improperly posted.

The phenomena of social media and its near exponential growth has generated tremendous dialogue within the IP community about its impact. Facebook now has more than 640 million members, Twitter now has over 175 million users, and LinkedIn has more than 101 million users. Given these staggering numbers, and the inevitability that some users will eventually misuse or attempt to display confidential information or trade secrets of their employers, it makes sense to review the recent cases addressing trade secrets, as well as the steps a client can take to minimize that risk.

One of the first noteworthy cases comes from the Eastern District of New York and it illustrates the challenges that an employer may face when trying to protect a customer list in this new era.  In Sasqua Group, Inc. v. Courtney, 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. Aug. 2, 2010), affirmed, Sept. 7, 2010, the plaintiff, Sasqua, was a recruiting and search firm that built its niche in the area of executives for the financial services industry.  According to Sasqua, its founder, Christopher Tors, had worked for over 20 years as a precious metals and foreign currency trader for Goldman Sachs, AIG and UBS, and had used that experience to form Sasqua and compile a substantial client database. That client database included, among other things, client contact information, individual profiles, contact hiring preferences, employment backgrounds, descriptions of previous interactions with clients, and resumes. Tors claimed that he hired and trained his niece, Lori Courtney, as a recruiter for Sasqua. After Courtney left Sasqua to form a competing firm, Sasqua and Tors concluded that Courtney was using the contents of their client database, which they believed contained highly confidential information. 

Because Sasqua did not have a written non-competition or non-solicitation agreement with Courtney, they commenced an injunctive action for misappropriation of trade secrets. However, in a withering opinion rejecting that effort, the U.S. District Court Magistrate who presided over the injunction proceeding found that their customer database and the information contained within that database were not trade secrets. 

In particular, the Magistrate found it significant that Courtney was able to demonstrate in court how the information in Sasqua’s database could be found through internet searches of websites such as FX Week, Google, Bloomberg.com, and LinkedIn. The Magistrate was impressed with Courtney’s testimony about “how such a search could be conducted on Linkedin, which [Courtney] described as being ‘like Facebook but for business’ and as being more searchable than Bloomberg ‘because people put their whole profile on LinkedIn.'” (Sasqua Group, at p. 24). 

The Magistrate was not troubled by the fact that Courtney admitted she did not use the internet to get the information at issue and all but conceded that she had taken it from Sasqua. In holding that the information was not confidential information or a trade secret, the Magistrate noted how the internet had changed the business landscape:
 
“The information in Sasqua’s database concerning the needs of its clients, their preferences, hiring practices, and business strategies, as well as Sasqua’s acquaintance with those decision-makers may well have been a protectable trade secret in the early years of Sasqua’s existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here. However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information in 2010 is a very different story” (Sasqua Group, at p. 39). 

Three lessons can be drawn from the Sasqua Group decision. First, it is critical to have written non-competition, non-solicitation or confidentiality agreements with employees, contractors and vendors with whom confidential customer information may be shared.  Second, an employer needs to have agreements and policies that make clear that sensitive customer information gathered while an employee is the property of the employer and is to be protected. Such an acknowledgement would have necessarily bolstered Sasqua’s claim of proprietary information at the TRO and preliminary injunction stage. Third, an employer has to ensure that its confidential customer information does not find its way into social media websites. This means that that the employer must monitor its employees’ social media profiles, descriptions and blogs to ensure that they are complying with the employer’s policies and agreements.