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.

Agreements requiring the arbitration of disputes are generally perceived as being “pro-business,” but do they really help companies in trade secret disputes? The United States Supreme Court’s recent holding in Rent-A-Center West, Inc. v. Jackson, a decision enforcing an arbitration provision in a consumer contract, has rekindled the debate about the pros and cons of arbitration, as well as its compatibility with trade secret disputes. 
 
While arbitration may make sense for some disputes, it is a forum that is ill-suited for a business seeking to immediately protect its trade secrets.  The main reason is speed.  Trade secret cases, by their nature, require rapid action, generally in the form of a motion for a temporary restraining order to prevent any improper use or disclosure of the trade secrets in question.  If you or your client have trade secrets at risk, this means you need to be able to move quickly or they will be gone, used, disclosed or posted on the Internet. This means that once you have put together your pleadings and supporting documents, you need to be able find a decision-maker who can promptly here your request and enter an appropriate order to stop the bleeding.  State and federal courts are ideal for this kind of relief, and it is the rare case where you do not have a conference or hearing scheduled for your TRO within 24 to 48 hours of filing your request.
 
Arbitration, on the other hand, by its nature does not lend itself to these types of nimble emergency proceedings. Arbitration moves slowly, very slowly.  Arbitration is rooted in agreement and consent, and that agreement and consent is required at various critical junctures in the arbitration process.  If one of the parties to an arbitration wants to slow things down (because he doesn’t want to be stopped or wants to cover his tracks), it is significantly easier to frustrate the arbitration process by delay in making decisions or not agreeing at all. While some arbitration associations may provide for the appointment of an interim or emergency arbitrator, that process can still take many days if not weeks. Likewise, as there are no formal rules regarding expedited discovery, the ability to conduct discovery can be slowed — if not completely frustrated — by an obstinate defendant who renegs or refuses to agree to any expedited discovery.  If you have secured your TRO in a court and then moved to an arbitration proceeding, there may be a period where you are effectively in limbo, as the court is now reluctant to do anything affirmative because an arbitrator is in the process of being selected; this uncertainty can again present opportunity for mischief, as well as resistance to discovery. Finally, an arbitrator cannot enforce his or her order, which means disputes over compliance and enforcement may end up back in the nearest court and lead to a potential “back and forth” between the arbitrator and court as to what was ordered and what can be enforced.  All of these lead to greater expense, especially when you throw in the hourly fees of the arbitrator.   
 
Given the potential for delay, mischief and added expense, companies — especially small companies — should avoid clauses that seek to use arbitration for the resolution of intellectual property, trade secret or injunctive relief disputes. If your client feels strongly about keeping an arbitration provision for the resolution of other issues or potential damages claims, you should insist, at minimum, that injunctive relief proceedings regarding IP rights or trade secrets be specifically carved out from the arbitration process.  If you don’t take these steps, you are exposing your client to a potentially frustrating, expensive and ultimately unsuccessful experience.

Welcome to The Trade Secret Litigator.

Last year, a lawyer attending a seminar that I was presenting asked me what websites she could follow to stay current on developments in the area of trade secrets and non-compete law. It occurred to me that while there has been a tremendous growth in the number of blogs by lawyers, there had not been a corresponding growth in the number of blogs dedicated to the commercial, practical and legal issues arising out of trade secret law and the law of non-competes. That is not to say there are not excellent blogs that are out there that cover trade secrets issues, but I believe that this area remains under-represented, particularly given the dramatic growth of trade secret law.

About 10 years ago, my practice began to increasingly consist of TROs, injunctions, and other forms of emergency litigation. As I did more of this work, trade secret and covenant not to compete cases came to dominate my practice. Since the beginning of the economic downturn in late 2007, I sensed that companies were filing more trade secret cases and that coverage of them by the mainstream media such as The Wall Street Journal, Forbes and others had increased significantly. The infamous Mattel/Bratz dispute, the Starwood/Hilton case, the EMC/Donatelli dispute and the Hewlett Packard/Hurd case have all received significant media attention and have reinforced that there is indeed something going on here.

David Almeling’s two outstanding empirical analyses on the growth of trade secrets litigation published in 2009 and 2010 in the Gonzaga Law Journal clinched it for me. For anyone seriously practicing law in this space, these two articles are required reading.  The growth in my practice and the increasing interest and growth in this area of the law were confirmed by these groundbreaking articles by David and his colleagues. 

This growth has coinceded with certain economic realities. First, a brutal economy has served to further fray the relationship between employer and employee.  Desperate people do desperate things.  As 93% of the disputes analyzed by one of the Almeling article arose out of relationships where the parties knew each other, the deterioration of this relationship presents kindling for trade secret disputes.  Second, the increasing mobility of employees has created more flashpoints for disputes over non-competes and similar agreements.  Third, the ongoing developments in mobile device technology that allow for the compressing and movement of tremendous amounts of information present greater opportunities for unscrupulous actor.  Finally, as companies scale back and attempt to be more efficient in their intellectual property budgets, many are reacquainting themselves with the benefits of using trade secret law, rather than its more expensive relation, patent law, to protect their intellectual property (more to follow on this possible trend).  For these and other reasons, I believe that this area of the law is experiencing a true renaissance.

So why I am writing this blog? The simple answer is I enjoy what I do and I enjoy sharing my experiences with others. Of course, I also hope this blog becomes a resource for and kindles a dialogue among others truly interested in this area of the law. As a result, in addition to posts about recent and noteworthy legal decisions, this blog will also speak to practical litigation issues that frequently accompany trade secret litigation, consider larger societal and technological trends that affect this area, and, finally and perhaps most importantly, speak to administrative and human resources issues that also arise in this context and that need to be considered to protect trade secrets.

Having been on both sides of the aisle, representing plaintiffs as well as defendants, I will attempt to cover both sides of the debate on issues as they arise in this area; however, I’ll admit in advance that since my bias is toward the side of the plaintiff, my posts will likely ultimately reflect that perspective. 

Again, welcome aboard!