It is not uncommon for employers to discover that a departing employee has downloaded information before walking out the door. But the mere fact that an employee downloaded information does not necessarily mean the employee—or his or her new employer—is liable for trade secret misappropriation. A new case—Double Eagle Alloys, Inc. v. Hooper et al—from the 10th Circuit Court of Appeals makes that clear.
Double Eagle Trade Secret Case Explained
In Double Eagle, a departing employee downloaded files containing product specifications, product pricing, and customer requirements before taking a job with a competitor. This is a common occurrence, and one that all employers should monitor closely. The employer sued the ex-employee and his new employer for misappropriation of trade secrets and confidential business information. On its face, the case appeared to be a cut and dried example of theft and misappropriation of trade secrets. However, the trial court dismissed the employer’s claims on summary judgment and the United States Court of Appeals for the Tenth Circuit affirmed that dismissal.
The Tenth Circuit’s Decision
The trial court decided that the employer failed to identify its alleged trade secrets with particularity and failed to show that the information obtained was particularly secret. The court noted that a trade secrets plaintiff must identify the exact trade secrets claimed with enough particularity to distinguish them from matters of general knowledge in that industry. The plaintiff also must show that the information obtained by the former employee is not readily ascertainable through proper means and is truly “secret.” Furthermore, the plaintiff must prove that the information obtained by the former employee conferred some distinct competitive advantage because of its secrecy.
The Employer’s Refusal to Identify Trade Secrets
In the Double Eagle case, the employer refused to distinguish between trade secrets and general knowledge and instead claimed that most of the purloined information constituted trade secrets, even though much of it was readily obtainable or derived from other sources. Although the employer had employee handbooks and other policies and practices in place that required employees to acknowledge and protect confidential information, the employer failed to show how the particular information obtained by the ex-employee truly was confidential and valuable.
Examples of Information That Is Not Secret
The following list includes examples of types of information that may not qualify as trade secrets.
- If customer lists are simply the same lists an employee could obtain by going through the phone book or doing industry trade group member searches, then the customer lists are not truly “secret.”
- If product specifications are publicly accessible on the company’s own website, or provided upon request to prospective customers—without using a Nondisclosure Agreement (“NDA”)— these product specifications may not truly be confidential.
- If product pricing is available on the company’s website, such price lists are not trade secrets.
Best Practices for Employers to Protect Trade Secrets
Employers who have information that is truly valuable and therefore should and must be kept “secret” must take steps beyond just confidentiality agreements and employee handbooks to impress on employees the value and secrecy of that information. For example, maintaining password protections to the information, limiting which employees can access the confidential and secret information, marking documents and product specifications as “confidential,” and requiring NDAs before product information is shared. Customer lists or prospective customer lists that are derived from a Google search for potential customers are not likely to be considered a true secret. Product specifications and pricing that are available on a website also will not likely be considered a secret. Employers who wait until after the employee leaves to declare information secret and valuable may find that it is too late.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
