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Merely Possessing Trade Secrets Does Not Create Liability For Misappropriation



A company’s trade secrets (i.e., information not known outside the company that could be valuable to competitors) can be some of its most important intellectual property. While companies with a strong trade secrets portfolio usually require employees and contractors to sign non-disclosure agreements to protect those trade secrets, inevitably employees leave and contractors take on new clients. So does an employer have a strong trade secrets misappropriation claim based on the mere fact that a former employee, with trade secret knowledge, moves on to work for a competitor? Not necessarily. 

In order to be actionable, there must be a credible threat that the trade secrets will be unlawfully disclosed. A case of first impression out of a federal court in New York correctly demonstrates this principle. In Zurich American Life Insurance Co. v. Nagel (S.D.N.Y. May 11, 2021), Zurich alleged that Nagel forwarded confidential company materials to his personal email account. Zurich contended that after Nagel was terminated, he took these emails with him and refused to permit inspection of his personal electronic devices or to certify that he no longer had Zurich’s confidential information. Nagel had signed an NDA agreeing not to disclose such confidential information to others. Zurich sued Nagel for (among other things) violation of the Defend Trade Secrets Act.

The trial court assumed the existence of a trade secret in the emails. Nonetheless, the district court dismissed the trade secret claim because there were no allegations of actual or threatened misappropriation. Actionable misappropriation requires either (1) acquiring a trade secret by improper means or (2) disclosing or using the trade secret without consent. Nagel was authorized to acquire the information, so he did not acquire it by improper means. Although he tried to use his possession of the emails as leverage in negotiations, he never threatened to disclose their contents to others, so there were no plausible allegations of disclosure or use. In a case of first impression, the district court found that merely threatening to keep trade secrets, without threatening to use or disclose them, does not give rise to a Defend Trade Secrets Act claim.

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