AIPLA Mid-Winter Institute Tampa Marriott Waterside Hotel ... · PDF file2nd Edition 2011 1–1 AIPLA Mid-Winter Institute Tampa Marriott Waterside Hotel & Marina. Tampa, Florida

2nd Edition 2011 1–1

AIPLA Mid-Winter Institute Tampa Marriott Waterside Hotel & Marina

Tampa, Florida January 30, 2013

Sources of Trade Secret Law* Russell Beck Beck Reed Riden LLP 155 Federal Street Suite 1302 Boston MA 02110 Tel: (617) 500-8670 Fax: (617) 500-8665 [email protected] *Reprinted with permission of MCLE, Inc.

mailto:[email protected]

TRADE SECRET LAW

1–2 2nd Edition 2011

CHAPTER 1

Trade Secret Law

Russell Beck

§ 1.1 Introduction ............................................................................... 3

§ 1.2 Statutory and Common Law Bases ......................................... 3 § 1.2.1 State Law ................................................................... 4

(a) Statutory Basis .................................................. 5 (b) Restatement (First) of Torts .............................. 8 (c) Uniform Trade Secrets Act ............................. 12 (d) Restatement (Third) of Unfair Competition ... 15 (e) Common Law ................................................. 19 (f) Related State Law Claims ............................... 38

§ 1.2.2 Federal Law ............................................................. 38

§ 1.3 Establishing a Trade Secret Protection Program ................. 39 § 1.3.1 Trade Secret Audit ................................................... 39

(a) Catalog ............................................................ 39 (b) Review ............................................................ 39 (c) Analyze ........................................................... 39

§ 1.3.2 Trade Secret Protection Program ............................. 40


CHAPTER 1

Trade Secret Law

Russell Beck

Scope Note This chapter provides an introduction to the form of intellectual property known as trade secrets. Beginning with the statutory and common law bases for trade secrets, the chapter goes on to address considerations inherent in establishing a trade se-cret protection program, with a focus on Massachusetts law.

§ 1.1 INTRODUCTION

Trade secrets—generally considered the fourth type of intellectual property (fol-lowing patents, copyrights, and trademarks)—have grown in significance in recent years due in large part to the nature of technology. Consistent with their rise in prominence, their misappropriation has, in recent years, grown year over year, resulting in more than a doubling in reported trade secret and related non-compete cases over the past decade. Moreover, a recent report indicated that 85 percent of trade secret thefts are committed by either an employee or a party to a contract, i.e., someone known to the party whose trade secrets were stolen. Another recent report indicated that over half of employees admit to taking company information when they terminate their employment: which, of course, begs the question of how many more have taken company information but simp-ly refuse to admit it?

This chapter first provides an overview of trade secret law, focusing on Massa-chusetts law. The discussion is broken down by source of law, followed by a more detailed discussion of Massachusetts common law. In the final section, this chapter provides a description of the practical measures necessary to preserve and protect trade secrets.

§ 1.2 STATUTORY AND COMMON LAW BASES

Trade secret law exists both at the state and federal levels. At its core, however, trade secret law is a creature of state law.

TRADE SECRET LAW


§ 1.2.1 State Law

In Massachusetts, trade secrets law is both statutory- and common-law based.

The applicable statutes are G.L. c. 93, §§ 42 and 42A and G.L. c. 266, §§ 30 and 60A. Chapter 93 provides a civil cause of action, while Chapter 266 is the crim-inal analog.

The common law, while relying in part on Chapter 93, derives primarily from the Restatement of Torts § 757, and, to a lesser extent, the Restatement (Third) of Unfair Competition §§ 38–45. Unlike most other states, Massachusetts (along with only New Jersey, New York, and Texas) has not yet adopted the Uniform Trade Secrets Act (UTSA). While there has been a perennially pending bill be-fore the Massachusetts legislature to adopt the UTSA (which would be a positive development), given its history, the bill is unlikely to pass anytime soon.

Given the foregoing and the broad significance of the Restatements (historically, and still in Massachusetts) and the UTSA (nationally), each is discussed in turn below, followed by a separate discussion of Massachusetts common law.

Although the details are critical and must be reviewed and understood, trade secret law in Massachusetts can be summarized conceptually as follows:

trade secrets are confidential information in continuous use with commercial value;

confidential information not qualifying as a trade secret is equally protectable;

secrecy must be reasonably guarded;

misappropriation—which does not include reverse engineering—is unlawful;

the recipient of a stolen trade secret can be liable, depending on his or her knowledge; and

injunctive relief and damages, including multiple damages, are available.


(a) Statutory Basis

The statutory basis for trade secret protection in Massachusetts is G.L. c. 93, §§ 42 and 42A and G.L. c. 266, § 30. Chapter 93 provides civil remedies, while Chapter 266 is a criminal statute.

Civil Statute

General Laws c. 93, §§ 42 and 42A work together to identify the unlawful con-duct, damages remedies, and entitlement to injunctive relief. They are summa-rized below. However, as the statute and Massachusetts common law are for most purposes essentially identical, the full treatment of the law in Massachu-setts is discussed in § 4.2.1(e), Common Law, below.

General Laws c. 93, § 42 provides as follows:

Whoever embezzles, steals or unlawfully takes, car-ries away, conceals, or copies, or by fraud or by de-ception obtains, from any person or corporation, with intent to convert to his own use, any trade secret, re-gardless of value, shall be liable in tort to such person or corporation for all damages resulting therefrom. Whether or not the case is tried by a jury, the court, in its discretion, may increase the damages up to double the amount found. The term “trade secret” as used in this section shall have the same meaning as is set forth in section thirty of chapter two hundred and six-ty-six.

General Laws c. 93, § 42A provides as follows:

Any aggrieved person may file a petition in equity in the supreme judicial court or in the superior court for the county in which either the petitioner or the re-spondent resides or transacts business, or in Suffolk county, to obtain appropriate injunctive relief includ-ing orders or decrees restraining and enjoining the re-spondent from taking, receiving, concealing, assign-ing, transferring, leasing, pledging, copying or oth-erwise using or disposing of a trade secret, regardless of value. The term “trade secret” as used in this sec-tion shall have the same meaning as set forth in sec-tion thirty of chapter two hundred and sixty-six.

TRADE SECRET LAW


In an action by an employer against a former em-ployee under the provisions of this section for the conversion of a trade secret and where such conver-sion is in violation of the terms of a written employ-ment agreement between said employer and employ-ee, said employer shall, upon petition, be granted a preliminary injunction if it is shown that said em-ployee is working in a directly competitive capacity with his former employer in violation of the terms of such agreement and that in violation of the terms of such agreement said employee has used such trade secret in such competition.

Most notable about these sections are the following characteristics:

Both rely on G.L. c. 266, § 30 (the criminal statute) to define “trade secret.” That definition is as follows: “anything tangible or intangible or electronically kept or stored, which constitutes, rep-resents, evidences or records a secret scientific, technical, mer-chandising, production or management information, design, pro-cess, procedure, formula, invention or improvement.”

The proscribed conduct in Section 42 is comparatively narrow, focusing on the acquisition, as opposed to use, of a trade secret. In contrast, Section 42A, which addresses relief only and does not affirmatively establish the requisite elements of the tort, focuses on both acquisition and use.

Section 42 permits the award of double damages. Section 42A provides injunctive relief only.

Although the Section 42A statute speaks in terms of state courts, such actions may be brought in federal court as well. See Casual Male Retail Group, Inc. v. Yarbrough, 527 F. Supp. 2d 172, 178–79 (D. Mass. 2007).

In the context of an employment relationship, Section 42A in-structs that injunctive relief must be granted where there is a non-competition agreement, the employee is violating the agreement by working for a direct competitor, and the employee has used trade secrets to further his or her competitive activities. Although that statute mandates (not merely allows) injunctive relief, the standard (as articulated in the statute, at least) is significantly


higher than that required by the common law to enforce a non-competition agreement.

The issue of whether the first paragraph of Section 42A can be read to permit the issuance of an injunction against an employee absent the noncompete required by the second paragraph of Sec-tion 42A has been directly addressed and analyzed in only Supe-rior Court cases. See Lantor Inc. v. Ellis, 98-01064, 1998 WL 726502, *12 (Mass. Super. Oct. 2, 1998) (Gants, J.). In that case, following a lengthy analysis, Judge Gants concluded that the re-quirements of Section 42A must be met in order to issue an in-junction against a former employee under Chapter 93. But see At-las Box & Crating Co. v. Valerus, 2005 WL 3721353 (Mass. Su-per. Ct. Dec. 2, 2005) (Fecteau, J.) (issuing injunction under Sec-tion 42A despite absence of noncompete, but without any express analysis, presumably because the defendant did not raise the is-sue).

Criminal Statute

General Laws c. 266, § 30 deals generally with the crime of larceny. Paragraph 4 deals in particular with trade secrets, and provides as follows:

Whoever steals, or with intent to defraud obtains by a false pretense, or whoever unlawfully, and with intent to steal or embezzle, converts, secretes, unlawfully takes, carries away, conceals or copies with intent to convert any trade secret of another, regardless of val-ue, whether such trade secret is or is not in his pos-session at the time of such conversion or secreting, shall be guilty of larceny, and shall be punished by imprisonment in the state prison for not more than five years, or by a fine of not more than twenty-five thousand dollars and imprisonment in jail for not more than two years. The term “trade secret” as used in this paragraph means and includes anything tangi-ble or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scientific, technical, merchandising, production or management information, design, process, proce-dure, formula, invention or improvement.

G.L. c. 266, § 30(4).

TRADE SECRET LAW


In addition, G.L. c. 266, § 60A makes various other conduct relative to trade secrets illegal. The statute provides in full as follows:

Whoever buys, receives, conceals, stores, barters, sells or disposes of any trade secret, or pledges or ac-cepts as security for a loan any trade secret, regard-less of value, knowing the same to have been stolen, unlawfully converted, or taken, shall be punished by imprisonment for not more than five years or by a fi-ne of not more than five hundred dollars and impris-onment in jail for not more than two years. The term “trade secret” as used in this section shall have the same meaning as is set forth in section thirty.

(b) Restatement (First) of Torts

As noted above, Massachusetts trade secrets law draws most heavily from the Restatement (First) of Torts § 757, which was Adopted by the American Law Institute in 1939. Section 757 provides as follows:

One who discloses or uses another’s trade secret, without a privilege to do so, is liable to the other if

(a) he discovered the secret by improper means, or

(b) his disclosure or use constitutes a breach of confi-dence reposed in him by the other in disclosing the secret to him, or

(c) he learned the secret from a third person with no-tice of the facts that it was a secret and that the third person discovered it by improper means or that the third person’s disclosure of it was otherwise a breach of his fiduciary duty to the other, or

(d) he learned the secret with notice of the facts that it was secret and that its disclosure was made to him by mistake.

Trade Secret Defined

Although not defined in the text of the section itself, the term “trade secret” is defined by the Restatement in comment b. Specifically, expressly noting that


“[a]n exact definition of a trade secret is not possible,” comment b provides as follows:

A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. It differs from other secret infor-mation in a business (see § 759) in that it is not simp-ly information as to single or ephemeral events in the conduct of the business, as, for example, the amount of other terms of a secret bid for a contract or the sal-ary of certain employees, or the security investments made or contemplated, or the date fixed for the an-nouncement of a new policy or for bringing out a new model or the like. A trade secret is a process or device for continuous use in the operation of busi-ness. Generally it relates to the production of goods, as, for example, a machine or formula for the produc-tion of an article. It may, however, relate to the sale of goods or to other operations in business, such as a code for determining discounts, rebates or other con-cessions in a price list or catalogue, or a list of spe-cialized customers, or a method of bookkeeping or other office management.

Restatement (First) of Torts § 757 cmt. b. The definition can be summed up as information used in business, which is not generally known to others, and pro-vides a competitive advantage. The distinguishing element of this formulation in comparison to certain others, most notably the UTSA (see below) and the Re-statement (Third) of Unfair Competition (see below), is that it limits trade se-crets to information that is currently in use. Accordingly, so-called negative in-formation—or information about what not to do—does not qualify as a trade secret under this formulation, nor does information concerning a single, ephem-eral event. Such information is addressed separately in Restatement (First) of Torts § 759, which, for all intents and purposes, has the same effect as Sec-tion 757. See Restatement (First) of Torts § 759 cmt. c; Restatement (Third) of Unfair Competition § 39 cmt. d.

Regardless of what type of information may qualify, the sin qua non of a trade secret is secrecy. While the Restatement does not address the secrecy require-

TRADE SECRET LAW


ment in the text of the section, that requirement is instead addressed in comment b as follows:

The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret. Matters which are completely disclosed by the goods which one markets cannot be his secret. Sub-stantially, a trade secret is known only in the particu-lar business in which it is used. It is not requisite that only the proprietor of the business know it. He may, without losing his protection, communicate it to em-ployees involved in its use. He may likewise com-municate it to others pledged to secrecy. Others may also know of it independently, as, for example, when they have discovered the process of formula by inde-pendent invention and are keeping it secret. Never-theless, a substantial element of secrecy must exist, so that, except for the use of improper means, there would be difficulty in acquiring the information.

Restatement (First) of Torts § 757 cmt. b.

The Restatement also makes clear that, while there is overlap between what can be patented and what can be protected by trade secret law, there is not a unity of identity. As may be evident from the secrecy requirement, any potentially pa-tentable invention that necessarily reveals its secret (the wheel, for example) cannot be protected through trade secrets if it is to be sold in commerce or oth-erwise publicly revealed. If, on the other hand, its use is for internal purposes only, perhaps in the manufacture of other products, then it may potentially be protectable as a trade secret.

Filling this out further, “[a] trade secret may be a device or process which is patentable; but it need not be that.” Restatement (First) of Torts § 757 cmt. b. In contrast to patents, “[n]ovelty and invention are not requisite for a trade secret as they are for patentability.” Restatement (First) of Torts § 757 cmt. b.

In the end, comment b provides the following guidance.

Some factors to be considered in determining wheth-er given information is one’s trade secret are: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3)


the extent of measures taken by him to guard the se-crecy of the information; (4) the value of the infor-mation to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or dupli-cated by others.

Restatement (First) of Torts § 757 cmt. b. It is this portion of Section 757, inclu-sive of the comments, that serves as the core analysis in trade secret cases fol-lowing the Restatement.

Proscribed Conduct

The Restatement (First) of Torts § 757, by its express terms, proscribes the use and disclosure of trade secrets under certain specified circumstances. It does not, however, proscribe the mere appropriation of a trade secret. Restatement (Third) of Unfair Competition § 40 cmt. b (“Improper acquisition of a trade secret was not independently actionable” under the Restatement (First) of Torts.). Neverthe-less, courts have avoided this limitation by focusing on the subsequent violation of the terms of restrictions imposed on the appropriator of the trade secret by the owner of the trade secret. See, e.g., Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 176–77 (D. Mass. 2001) (“wrongful acquisition by employee may arise where employee properly obtains trade secret but then uses or disclos-es it ‘in breach or abuse of confidence’” (quoting L.H. Reece III, “Trade Secret Misappropriation: A Review and Analysis of Massachusetts Law,” 71 Mass. L. Rev. 171, 176 (1986))). Even in advance of an actual use or disclosure, the fact that the trade secret has been improperly acquired can give rise to an inference that the appropriator of the trade secret is likely to use or disclose the trade se-cret. See Restatement (Third) of Unfair Competition § 40 cmt. b (“A defendant’s willingness to resort to improper means in order to acquire a trade secret is itself evidence of a substantial risk of subsequent use or disclosure.”).

As a separate matter, nothing in the Restatement focuses on the actor’s purpose. To the contrary, liability “is not based on the actor’s purpose to discover anoth-er’s trade secret but on the nature of the conduct by which the discovery is made.” Restatement (First) of Torts § 757 cmts. g, o. Thus, reverse engineering a trade secret is entirely permissible. In contrast, receiving a trade secret with knowledge (or reason to know) that the trade secret was acquired or disclosed in breach of a duty subjects the recipient of the trade secret to liability. Restatement (First) of Torts § 757(c), (d) cmts. l–o. The reason for liability under such cir-cumstances is not that the recipient had the purpose to obtain the trade secret, but rather, that the conduct by which it was acquired in the first place was im-

TRADE SECRET LAW


proper and taints all that flows from it. Consistent with this dichotomy, liability would not exist for the recipient’s use or disclosure of the trade secret prior to the time the recipient knew or had reason to know of the wrongful conduct; it does exist, however, from that moment forward, “unless prior thereto he has in good faith paid value for the secret or has so changed his position that to subject him to liability would be inequitable.” See Restatement (First) of Torts § 758; see also Restatement (First) of Torts § 757(c), (d) cmts. l–o.

As to the nature of the conduct to discover a trade secret, the Restatement pro-vides, “[a] complete catalogue of improper means is not possible. In general they are means which fall below the generally accepted standards of commercial morality and reasonable conduct.” Restatement (First) of Torts § 757 cmt. g. The comment provides the following nonexhaustive list of examples: taking by phys-ical force, “fraudulent misrepresentations to induce disclosure, tapping of tele-phone wires, eavesdropping or other espionage.” Restatement (First) of Torts § 757 cmt. g.

Harm

Both disclosure and use constitute harm under the Restatement. Restatement (First) of Torts § 757 cmt. c. With regard to disclosure, the comment explains, “A mere disclosure enhances the possibilities of adverse use.” Restatement (First) of Torts § 757 cmt. c. While use is focused on competitive uses, it is not limited to use of the trade secret in the exact form in which it was received. Re-statement (First) of Torts § 757 cmt. c. Rather, use includes use of even a sub-stantially modified trade secret.

(c) Uniform Trade Secrets Act

In 1979, the National Conference of Commissions on Uniform Laws issued the Uniform Trade Secrets Act (UTSA). The UTSA was later revised in 1985 to its current form today.

The UTSA’s two major improvements over the Restatement (First) of Torts were to expand the definition of trade secrets and organize the topic into a straight-forward outline. As such, albeit frequently with revisions, the UTSA has been adopted in nearly all the states, the District of Columbia, and the U.S. Virgin Islands. The only states not to have adopted the UTSA in one form or another are Massachusetts, New Jersey, New York, and Texas. As noted above, however, efforts have been made, and continue to be made, before the Massachusetts leg-islature to adopt the UTSA.

The UTSA’s structure is described below.


Section 1—Definitions of Improper Means, Misappropriation, Person, and Trade Secret

“Improper means” is defined only as “include[ing] theft, bribery, misrepresenta-tion, breach or inducement of a breach of a duty to maintain secrecy, or espio-nage through electronic or other means.” Recognizing, as the Restatement be-fore it did, that “[a] complete catalogue of improper means is not possible,” the definition is intentionally not exhaustive. It does, however, provide the other end of the spectrum by identifying a nonexhaustive list of “proper means.” Specifi-cally, the comments provide as follows:

Proper means include: 1. Discovery by independent invention; 2. Discovery by ‘reverse engineering’, that is, by starting with the known product and working backward to find the method by which it was devel-oped. The acquisition of the known product must, of course, also be by a fair and honest means, such as purchase of the item on the open market for reverse engineering to be lawful; 3. Discovery under a li-cense from the owner of the trade secret; 4. Observa-tion of the item in public use or on public display; 5. Obtaining the trade secret from published literature.

“Misappropriation” is defined as follows:

(i) acquisition of a trade secret of another by a per-son who knows or has reason to know that the trade secret was acquired by improper means; or

(ii) disclosure or use of a trade secret of another without express or implied consent by a person who

(A) used improper means to acquire knowledge of the trade secret; or

(B) at the time of disclosure or use, knew or had reason to know that his knowledge of the trade secret was

(I) derived from or through a person who had utilized improper means to acquire it;

TRADE SECRET LAW


(II) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(III) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(C) before a material change of his [or her] posi-tion, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

The definition of “trade secret” is

information, including a formula, pattern, compila-tion, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to main-tain its secrecy.

This definition was intended to expand the definition in the Restatement. Specif-ically, the definition

extends protection to a plaintiff who has not yet had an opportunity or acquired the means to put a trade secret to use. The definition includes information that has commercial value from a negative viewpoint, for example the results of lengthy and expensive research which proves that a certain process will not work could be of great value to a competitor.

UTSA § 1 cmt. Further, use of the terms “method” and “technique” were intend-ed to capture the concept of “know-how.” UTSA § 1 cmt. ___.

Section 2—Injunctive Relief

Under Section 2, injunctive relief may be used to prevent an “[a]ctual or threat-ened misappropriation.”


Section 3—Damages

Under Section 3, damages include exemplary damages up to two times the actu-al damages. As such, treble damages are recoverable under the UTSA, although only for misappropriations that are “willful and malicious.” No damages are available, however, where the recipient of the trade secret “material[ly] and prejudicial[ly] changed its position prior to acquiring knowledge or reason to know of a misappropriation” such that an award of damages would be inequita-ble.

Section 4—Attorney Fees

Under Section 4, attorney fees must be paid to the prevailing party where the other party acted in bad faith or where the misappropriation was willful and ma-licious.

The balance of the UTSA addresses preservation of secrecy during an action (Section 5), three-year statute of limitations (Section 6), preemption of “conflict-ing” laws (Section 7), uniformity of application and construction (Section 8), and other miscellaneous matters.

(d) Restatement (Third) of Unfair Competition

In 1995, the American Law Institute issued the Restatement (Third) of Unfair Competition, which now houses the Restatement’s treatment of the law of trade secrets under the appellation, “Appropriation of Trade Values.” (The Restate-ment (Second) of Torts, issued in 1978, did not cover trade secret law.) Section 1 of the Restatement states as follows:

One who causes harm to the commercial relations of another by engaging in a business or trade is not sub-ject to liability to the other for such harm un-less: . . . (a) the harm results from acts or practices of the actor actionable by the other under the rules of this Restatement relating to: . . . (3) appropriation of intangible trade values including trade secrets . . . or (b) the acts or practices of the actor are actionable by the other under federal or state statutes, international agreements, or general principles of common law apart from those considered in this Restatement.

TRADE SECRET LAW


Intangible trade values include not only the four various forms of intellectual property, but also the right of publicity. With regard to trade secrets, the Re-statement establishes liability as

[o]ne who causes harm to the commercial relations of another by appropriating the other’s intangible trade values is subject to liability to the other for such harm only if: (a) the actor is subject to liability for appro-priation of the other’s trade secret under the rules stated in §§ 39–45.

Restatement (Third) of Unfair Competition § 38.

Trade Secret Defined

The first of these sections, Section 39, provides a new formulation for the defini-tion of “trade secret” from that used in the Restatement (First) of Torts § 757. Specifically, Section 39 provides, “A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.” Accordingly, the new definition is considerably more simple and, most importantly, no longer adheres to the requirement of the Restatement (First) of Torts that the information must be in continuous use in business, which excludes so-called negative information and ephemeral information. This change reflects a harmonization of the Restatement with the Uniform Trade Secrets Act. Re-statement (Third) of Unfair Competition § 39 cmt. b.

As described in comment d to Section 39,

A trade secret can consist of a formula, pattern, com-pilation of data, computer program, device, method, technique, process, or other form or embodiment of economically valuable information. A trade secret can relate to technical matters such as the composition or design of a product, a method of manufacture, or the know-how necessary to perform a particular opera-tion or service. A trade secret can also relate to other aspects of business operations such as pricing and marketing techniques or the identity and require-ments of customers (see § 42 comment f). Although rights in trade secrets are normally asserted by busi-nesses and other commercial enterprises, nonprofit entities such as charitable, educational, governmen-tal, fraternal, and religious organizations can also


claim trade secret protection for economically valua-ble information such as lists of prospective members or donors.

Restatement (Third) of Unfair Competition § 39 cmt. d.

The secrecy requirement is described in part in the comments as follows:

The secrecy . . . need not be absolute. The rule stated in this Section requires only secrecy sufficient to con-fer an actual or potential economic advantage on one who possesses the information. Thus, the requirement of secrecy is satisfied if it would be difficult or costly for others who could exploit the information to ac-quire it without resort to the wrongful conduct pro-scribed under § 40.

Restatement (Third) of Unfair Competition § 39 cmt. f.

Proscribed Conduct

The basic concepts of what constitutes unlawful conduct set forth in the Re-statement (First) Torts concerning improper use and disclosure are carried over to the Restatement (Third) of Unfair Competition. However, the Restatement (Third) of Unfair Competition adds improper acquisition of the trade secret to the scope of proscribed conduct. Restatement (Third) of Unfair Competition § 40 cmt. b. Accordingly, the scope of what constitutes unlawful misappropria-tion is in line with that proscribed by the UTSA. Restatement (Third) of Unfair Competition § 40, reporter’s note, cmt. a.

The Restatement (Third) of Unfair Competition does, however, flesh out the duties of confidence owed by a person to whom a trade secret is disclosed in Section 41. Specifically, Section 41 provides as follows:

A person to whom a trade secret has been disclosed owes a duty of confidence to the owner of the trade secret. . . if:

(a) the person made an express promise of confiden-tiality prior to the disclosure of the trade secret; or

(b) the trade secret was disclosed to the person under circumstances in which the relationship between the parties to the disclosure or the other facts surrounding

TRADE SECRET LAW


the disclosure justify the conclusions that, at the time of the disclosure,

(1) the person knew or had reason to know that the disclosure was intended to be in confidence, and

(2) the other party to the disclosure was reasonable in inferring that the person consented to an obligation of confidentiality.

Section 41 is supplemented in the employment context by Section 42, which provides, “An employee or former employee who uses or discloses a trade secret owned by the employer or former employer in breach of a duty of confidence is subject to liability for appropriation of the trade secret under the rule stated in § 40.” Restatement (Third) of Unfair Competition § 42.

The Restatement also describes—both in a specific and general way—what con-stitutes improper means of acquisition. Specifically, it recognizes that “[i]t is not possible to formulate a comprehensive list of the conduct that constitutes ‘im-proper’ means of acquiring a trade secret.” Restatement (Third) of Unfair Com-petition § 43 cmt. c. The Restatement states as follows: “‘Improper’ means . . . include theft, fraud, unauthorized interception of communications, inducement of or knowing participation in a breach of confidence, and other means either wrongful in themselves or wrongful under the circumstances of the case.” Restatement (Third) of Unfair Competition § 43. As before, “Independent discovery and analysis of publicly available products or information are not im-proper means of acquisition.” Restatement (Third) of Unfair Competition § 43. Thus, as under the Restatement (First) of Torts, reverse engineering is entirely proper, subject to the notion that

[t]he acquisition of a trade secret can be improper even if the means of acquisition are not independent-ly wrongful. The propriety of the acquisition must be evaluated in light of all the circumstances of the case, including whether the means of acquisition are incon-sistent with accepted principles of public policy and the extent to which the acquisition was facilitated by the trade secret owner’s failure to take reasonable precautions against discovery of the secret by the means in question.

Restatement (Third) of Unfair Competition § 43 cmt. c. In this regard, “[a]mong the factors relevant to the reasonableness of the trade secret owner’s precautions are the foreseeability of the conduct through which the secret was acquired and


the availability and cost of effective precautions against such an acquisition, evaluated in light of the economic value of the trade secret.” Restatement (Third) of Unfair Competition § 43.

Harm

With the addition of recognizing that misappropriation in and of itself consti-tutes harm, the Restatement (Third) of Unfair Competition takes substantially the same view on harm as that taken by the Restatement (First) of Torts.

(e) Common Law

As noted above, Massachusetts has both a statutory and common law founda-tion. They are, for all intents and purposes, the same in most respects. Incase Inc. v. Timex Corp., 488 F.3d 46, 52 n.10 (1st Cir. 2007) (“The statutory and common-law claims may be essentially equivalent.”) (citing Burten v. Milton Bradley Co., 592 F. Supp. 1021, 1028 (D.R.I. 1984), rev’d on other grounds, 763 F.2d 461, 467 (1st Cir. 1985)); Chomerics, Inc. v. Ehrreich, 12 Mass. App. Ct. 1, 10 n.17 (1981); Affinity Partners, Inc. v. Drees, 1996 WL 1352635, *4 (Mass. Super. Ct. 1996) (Cowin, J.) (“[t]here is no meaningful distinction be-tween ‘trade secrets’ and ‘confidential information’”).

It bears mention, however, that trade secrets may also be protectable under G.L. c. 93A, depending on the circumstances. (Protections afforded under G.L. c. 93A are beyond the scope of this chapter. For a general discussion, see Russell Beck, Negotiating, Drafting & Enforcing Noncompetition Agreements & Related Restrictive Covenants § 31 (MCLE, Inc. 4th ed. 2010).)

“[T]he rationale behind state trade secret law is to encourage invention, and to provide innovators with protection for the fruits of their labors. . . [and] to main-tain and promote standards of commercial ethics and fair dealing.” CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985). Accordingly, the protections afforded by the Massachusetts trade secret act and under common law apply not only to established relationships, but more broadly, to any person who may ob-tain a company’s trade secrets.

Trade Secrets Defined

Massachusetts has defined trade secrets largely in accordance with the Restate-ment (First) of Torts § 757. Accordingly, confidential information is technically different from, and therefore not confined by, the definition of “trade secret.” As discussed below, however, the distinction is without a difference; Massachusetts treats both virtually identically.

TRADE SECRET LAW


Essential Elements of a Trade Secret

General Laws c. 266, § 30 both defines trade secrets and establishes the theft of trade secrets as a crime. The definition is as follows: “The term ‘trade se-cret’, . . means and includes anything tangible or intangible or electronically kept or stored, which constitutes, represents, evidences or records a secret scien-tific, technical, merchandising, production or management information, design, process, procedure, formula, invention or improvement.”

Although the Supreme Judicial Court has observed that “no general and invaria-ble rule can be laid down” as to what will qualify as a trade secret or confiden-tial information, Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 389 (1939), it has adopted the following definition of a trade secret:

A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers. . . . A trade secret is a process or device for continuous use in the operation of the business. Generally it relates to the production of goods, as, for example, a machine or formula for the production of an article. . . . The subject matter of a trade secret must be secret. Matters of public knowledge or of general knowledge in an industry cannot be appropriated by one as his secret.

J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. 728, 736 (1970) (quot-ing Restatement of Torts § 757 cmt. b); CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850 (1st Cir. 1985); see also Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840; E. Marble Prods. Corp. v. Roman Marble, Inc., 372 Mass. 835, 838 (1977); Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 390 (driver’s customer list and route were not confidential where they were “discoverable by observation” and no steps had been taken to protect them); Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *2 (Mass. Super. Ct. May 19, 2005) (Lowy, J.) (information that was created as by-product of work product for customer was part of work product and therefore not proprietary to, or as a consequence protectable by, employer); Chiswick v. Constas, 2004 WL 1895044, at *3 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (“[I]nformation is not confidential if competitors could ob-tain the same information from a third party, or the information is obtainable


from publicly available sources.”); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *4 (Mass. Super. Ct. 2002) (Burnes, J.) (“[c]onfidential infor-mation consists of a compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it”—even if “other companies can obtain [the] infor-mation independently” (citations omitted)); Mitchell John Coiffures, Inc. v. Jor-dan & Co., 2000-01272; Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (D. Mass. Feb. 6, 2009); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 27–28 (D. Mass. 2004) (Gorton, J.) (“the es-sence of a trade secret is market advantage”); Oxford Global Res., Inc. v. Guer-riero, 2003 WL 23112398, at *8 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (“[I]nformation obtainable from publicly available sources is not confidential.”).

In general, whether information will qualify as a trade secret or confidential in-formation is determined by an analysis of the following six factors:

(1) the extent to which the information is known out-side of plaintiff’s business; (2) the extent to which it is known by employees and others involved in the business; (3) the extent of measures taken by the em-ployer to guard the secrecy of the information; (4) the value of the information to the employer and to his competitors; (5) the amount of effort or money ex-pended by the employer in developing the infor-mation; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Banner Indus. v. Bilodeau, C.A. No. 3-236-C (refusing to protect “client lists, which detail customer identities, buying needs, and contracts” (for various fact-specific reasons) and “lists of manufacturers, which include quality, price, and other information” (which contained nothing confidential)); Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *5–6 (“information available for public view cannot be protected as a trade secret”); Touchpoint Solutions, Inc. v. East-man Kodak Co., 345 F. Supp. 2d at 27–28; see also Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840; Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272.

Significantly, “[t]he employer’s interest in the secret must be crystal clear to justify the restraint of the employee, for whom it may have become part of his general knowledge and experience.” Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 268 (1980) (internal quotations and citations omit-ted); Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *6–7 (Mass. Super. Ct. 2007) (Macdonald, J.). Thus, “an employer ‘is not entitled to

TRADE SECRET LAW


protection of [a process or practice] created by its unique capability. Uniqueness without more is not commensurate with possession of a trade secret.’” Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *7 (quoting Dy-namics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 274–75 (“finding no trade secret in coordinated approach of skilled engineers and scien-tists to a particular problem”)); CVD, Inc. v. Raytheon Co., 769 F.2d at 852 (“the fact that a product is unique tends to prove that a trade secret exists, ‘[u]niqueness without more is not commensurate with possession of a trade se-cret.’” (quoting Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 274–75)); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 29 (“A trade secret need not have the novelty that is requisite for a patent, it must only confer a competitive advantage on its possessor.”).

Confidential Information Distinguished

Although there is substantial overlap between trade secrets and confidential in-formation, they are in fact different things. See, e.g., Warner-Lambert Co. v. Ex-ecuquest Corp., 427 Mass. 46, 48–49 (1998) (confidential information is pro-tectable even when it does not qualify as a trade secret); Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 839–40 (1972) (“confidential information is not lim-ited to technical trade secrets”); Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 273 n.23 (1980); Kroeger v. Stop & Shop Cos., 13 Mass. App. Ct. 310, 316 (1982) (even in the absence of trade secrets, restriction was necessary to protect confidential information); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (“Massachusetts law also protects an employer’s confidential and proprietary business information even if such information does not enjoy the status of a trade secret.”). Specifically, trade secrets are a subset of confidential information. See generally Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 839–40; Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 273 n.23 (“Not every commercial secret . . . qualifies as a trade se-cret. It is well known that in business most matters are considered as confiden-tial; however, only secrets affording a demonstrable competitive advantage may be properly considered as trade secrets.” (citations omitted)); Hurwitz Group, Inc. v. Ptak, 2002 WL 32717868, at *2 (Mass. Super. Ct. June 27, 2002) (Billings, J.) (referencing trade secrets and “other confidential information” (emphasis added)).

Nevertheless, “[t]here is no meaningful distinction between ‘trade secrets’ and ‘confidential information.’” IME, Inc. v. Quaranto, 1991 WL 11007754, at *8 (Mass. Super. Ct. Feb. 7, 1991) (Barrett, J.) (citing Chomerics, Inc. v. Ehrreich, 12 Mass. App. Ct. 1, 10 n.17 (1981), Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 165 (1979)); see also Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *8 (D. Mass. Feb. 6, 2009) (Woodlock, J.) (“Massachusetts case


law does not always define clearly whether trade secrets are synonymous with confidential information or proprietary information. Nevertheless, the case law does suggest that trade secrets and confidential information are essentially iden-tical concepts.” (citations and internal quotations omitted)).

Confidentiality Is Key

Regardless of whether such information purports to be “confidential infor-mation” or a “trade secret,” the sine qua non of each is that it is “highly confi-dential or secret.” Slade Gorton & Co. v. O’Neil, 355 Mass. 4, 9–10 (1968); see also Augat v. Aegis, 409 Mass. 165, 168–70 (1991) (company failed to “consist-ently and diligently treat” the information as confidential, thereby losing pro-tectability); Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 273 n.23 (1980) (“The subject matter of a trade secret must be secret.” (quoting 12 Business Organizations, Milgrim, Trade Secrets § 2.03 (1978))); CVD, Inc. v. Raytheon Co., 769 F.2d 842, 850, 851 (1st Cir. 1985) (“The corner-stone of a trade secret . . . is secrecy.”); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (“[I]nformation about a third party is not confidential if competitors could obtain the same information directly from the third party.”); Hit Dog Training Ctr., Inc. v. Rappoli, C.A. No. 04-3176-BLS, at *5 (Mass. Super. Ct. July 23, 2004) (van Gestel, J.) (“The hallmark of confidential information, like trade secrets, is se-crecy.” (citing J.T. Healy & Sons v. James A. Murphy & Son, 357 Mass. 728, 736 (1970), Jillian’s Billiard Club of Am., Inc. v. Beloff Billiards, Inc., 35 Mass. App. Ct. 372, 375–76 (1993))); Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *1 (Mass. Super. Ct. June 28, 2004) (Graham, J.) (protection afford-ed to trade secrets where plaintiff “attempts to preserve [their] confidentiality”); Chiswick v. Constas, 2004 WL 1895044, at *3 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (“[I]nformation is not confidential if competitors could obtain the same information from a third party, or the information is obtainable from pub-licly available sources.”); IONA Techs., Inc. v. Walmsley, 2002 WL 1290217, at *3–4 (Mass. Super. Ct. Apr. 29, 2002) (purported trade secrets were not entitled to protection as the plaintiff “made no effort to keep any information it now might call trade secrets or proprietary information during the two weeks [that the former employee] remained at [the plaintiff company] after announcing that he was going to [a competitor]”). Thus, “[o]ne who possesses a trade secret and wishes to protect it must act to preserve its secrecy.” USM Corp. v. Marson Fas-tener Corp., 379 Mass. 90, 97 (1979) (citations omitted).

As the Supreme Judicial Court explained, “whether the information sought to be protected is, in fact and in law, confidential . . . depends on the conduct of the parties and the nature of the information.” Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); see also Dynamics Research Corp. v. Analytic Scis.

TRADE SECRET LAW


Corp., 9 Mass. App. Ct. at 275–76; Chiswick v. Constas, 2004 WL 1895044, at *3 (“The case law makes clear that where the employer openly shares infor-mation among its employees, that information will not be deemed confiden-tial.”). In this regard, a party must have taken reasonable measures to preserve the confidentiality of any information that it claims constitutes a trade secret or confidential information. Specifically, “one seeking to prevent the disclosure or use of trade secrets or information must demonstrate that he pursued an active course of conduct designed to inform his employees that such secrets and infor-mation were to remain confidential.” Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 841; Chiswick v. Constas, 2004 WL 1895044, at *2; Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (Mass. Super. Ct. Aug. 15, 2002) (Agnes, J.). “To that end, the employer must ‘exercise eternal vigilance,’ and the employee must be ‘constantly admonished’ that information is confidential and ‘must keep it so.’” Chiswick v. Constas, 2004 WL 1895044, at *1 (quoting J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. at 738).

The reasonableness of the efforts is dependent on the facts and “circumstances of each case, considering the nature of the information sought to be protected as well as the conduct of the parties.” USM Corp. v. Marson Fastener Corp., 379 Mass. at 101; see also Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 390 (1939) (no protection where “it would not have been difficult for the plaintiff to have imparted this knowledge under conditions that made it confidential”); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (no protection where employer failed to take precautions to protect information and “[t]he nature of the interactions between customers and stylists[] suggests that the information was readily available to an alert stylist”); CVD, Inc. v. Raytheon Co., 769 F.2d at 852. Thus, the Supreme Judicial Court explained as follows:

[W]here a plaintiff has actively sought to protect its trade secret, the question then becomes whether the protective measures are reasonable. “Reasonable pre-cautions against predatory eyes we may require, but an impenetrable fortress is an unreasonable require-ment, and we are not disposed to burden industrial inventors with such a duty in order to protect the fruits of their efforts.”

No general rule may be established to determine whether the security precautions taken by the posses-sor of a trade secret are reasonable. “Relevant factors to be considered include (1) the existence or absence of an express agreement restricting disclosure, (2) the nature and extent of security precautions taken by the possessor to prevent acquisition of the information by


unauthorized third parties, (3) the circumstances un-der which the information was disclosed . . . to [any] employee to the extent that they give rise to a reason-able inference that further disclosure, without the consent of the possessor, is prohibited, and (4) the degree to which the information has been placed in the public domain or rendered ‘readily ascertainable’ by the third parties through patent applications or un-restricted product marketing.” Additionally, a court should consider the relationship and the conduct of the parties. We think it appropriate to balance a plain-tiff’s conduct in maintaining its security measures against the conduct of a defendant in acquiring the in-formation.

USM Corp. v. Marson Fastener Corp., 379 Mass. at 98–99 (citations and foot-note omitted); Stone Legal Res. Group, Inc. v. Glebus, 2003 WL 914994, at *4 (Mass. Super. Ct. Dec. 16, 2002) (Burnes, J.) (informing employees about confi-dentiality obligations and requiring them to sign a confidentiality agreement was reasonable to protect identity and information about clients’ recruiting needs); Atlantic Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *1, 3 (D. Mass. 2010) (Saris, J.) (implicitly finding that the plaintiff took adequate measures to protect confidentiality where it had “an alarm system that was linked directly to the local police; its doors were kept locked; cameras were used to monitor the front door; visitors were required to sign a log book before entering the facilities and to sign nondisclosure agreements before being provided access to proprie-tary information”; and defendant was both told that “all [plaintiff’s] business and development information was confidential and proprietary” and required to sign a nondisclosure agreement); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 29–30 (D. Mass. 2004) (Gorton, J.) (finding information adequately protected even where plaintiff failed to comply with document label-ing requirements in a confidentiality agreement).

Simply put, the requirement of reasonableness does not necessitate “the posses-sor of a trade secret to take heroic measures to preserve its secrecy.” USM Corp. v. Marson Fastener Corp., 379 Mass. at 101; CVD, Inc. v. Raytheon Co., 769 F.2d at 851–52 (“Heroic measures to ensure privacy are not essential, but rea-sonable precautions must be taken to protect the information.”). Alternatively stated, “the standard is reasonableness, not perfection.” Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 30. Thus, for example, restricting access to the confidential information to those who need to know, putting it un-der lock and key (or the electronic equivalent), and requiring employees to sign nondisclosure agreements will likely qualify as reasonable efforts. See, e.g.,

TRADE SECRET LAW


Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *1; see also Steelcraft, Inc. v. Mobi Med., LLC, C.A. No. 08-1934, at *3–4 (Mass. Super. Ct. Nov. 10, 2008) (Tucker, J.) (a written confidentiality agreement or noncompetition agreement may be enough to safeguard confidential business information).

As the Supreme Judicial Court has cautioned, however, an expectation that any information is to be kept confidential must be “expressed or otherwise brought to the attention” of the party expected to maintain the secrecy of such infor-mation. Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840–41; see also USM Corp. v. Marson Fastener Corp., 379 Mass. at 99–100 (even in the absence of an express statement, circumstances may indicate that the information is confiden-tial); People’s Choice Mortgage, Inc. v. Premium Capital Funding, LLC, 26 Mass. L. Rptr. 582, 2010 WL 1267373, *15 (Mass. Super. Ct. Mar. 31, 2010) (Neel, J.) (relying on a confidentiality agreement’s specification of customer contact information and prospect lists). As the court explained in Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 390, “[t]he unexpressed intentions of the plaintiff cannot bind the defendant.” Woolley’s Laundry, Inc. v. Silva, 304 Mass. at 391 (refusing to enjoin a former employee who memorized his former em-ployer’s customer list); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (no trade secret or confidential information where employer failed to ex-press its expectation of confidentiality).

Nevertheless, the fact that not all persons with access to the information are re-quired to sign confidentiality agreements does not render the information unpro-tectable. See Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 642–43 (2004) (company “may reasonably decide which persons pose the greatest risk of using its confidential information competitively”); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939 (1984) (where other protective measures are taken, “the absence of admonitions about secrecy or the failure to emphasize secrecy in employment contracts (if there were any in this relatively small busi-ness)” was not fatal). Even where a company “may not have done all it possibly could have to guard the secrecy of the information, the information [may] never-theless [be] confidential,” and therefore protectable. Boulanger v. Dunkin’ Do-nuts Inc., 442 Mass. at 639. Moreover, “[w]here the facts demonstrate that dis-closure was made in order to promote a specific relationship, e.g., disclosure to a prospective purchaser to enable him to appraise the value of the secret, the par-ties will be bound to receive the information in confidence.” Touchpoint Solu-tions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 31 (quoting Burten v. Mil-ton Bradley Co., 763 F.2d 461, 463 (1st Cir. 1985)).


Types of Trade Secrets and Confidential Information

There is an endless variety of types of trade secrets and confidential information. Trade secrets and confidential information may include

customer and vendor information . . . , products, product development, business strategy, financial in-formation, . . . customer or employee lists, technical data, design, pattern, formula, computer program, source code, object code, algorithm, subroutine, manual, product, specification, or plan for a new, re-vised or existing product, or any business plan, mar-keting, financial or sales order, or the present and fu-ture business or products . . . .

EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.). See generally Lombard Medical Techs., Inc. v. Johannes-sen, 2010 WL 2682449, *5 (D. Mass. July 2, 2010) (Gertner, J.) (“While [the new employer] argues that information about [the former employer’s product] and its clinical trials are publicly available . . . , other information, including [the product’s] strengths and weaknesses and clinical trial analyses are confiden-tial.”); Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (Lind-say, J.) (confidential information included the “strengths and weaknesses” of the plaintiff’s product).

Trade secrets do not include “[i]nformation or methods generally known within an industry.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *6 (Mass. Super. Ct. Aug. 7, 2007) (Macdonald, J.). Thus, “[g]eneral concepts, combined with an employee’s talent, are not trade secrets.” Edwards v. Athena Capital Advisors, Inc., 2007 Mass. Super. LEXIS 378, at *6 (citing Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. 254, 267 (1980)). However, “[a] situation where certain information could be ob-tained publicly, but the ex-employee had access to a confidential information superset of that information, poses a complex problem.” Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8–9 (D. Mass. Dec. 3, 2003) (Wood-lock, J.) (positing that “an unscrupulous ex-employee could ‘launder’ confiden-tial information by working down a memorized list . . . , methodically perform-ing Internet searches designed to find the exact person they already have in mind, and saving the results of those searches as a defense against any claims of breach of confidentiality”); see also Modis, Inc. v. Revolution Group, Ltd., 1999 WL 144198, at *8 (Mass. Super. Ct. Dec. 29, 1999) (“The fact that cer-tain . . . customers are well known corporations does not diminish the fact that [the company’s information about them] constitutes confidential infor-mation . . . .”).

TRADE SECRET LAW


Nor does confidential information include information simply passed along (in trainings, for example) by a retailer that it “learns from its manufacturers and distributors,” but which is not its own confidential information, and which is available to other retailers and distributors. Banner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Agnes, J.). Likewise, general con-cepts, combined with an employee’s talent, are not trade secrets. Edwards v. Athena Capital Advisors, 2007 Mass. Super. LEXIS 378, at *7 (citing Dynamics Research Corp. v. Analytic Scis. Corp., 9 Mass. App. Ct. at 271).

Certain specific types of information have received particularized treatment worth considering. They are discussed below.

Customer Lists/Information: Customer lists can, but will not always, consti-tute protectable confidential information. Wrentham Co. v. Cann, 345 Mass. 737, 741–43 (1963) (ordering return of customer list that “although confidential in the sense that the [employer] would not furnish it to a competitor, was a compi-lation that could be made by anyone familiar with the business, or from general knowledge, or from trade directories”); Next Generation Vending v. Bruno, C.A. No. 08-0365-G, at *7 (Mass. Super. Ct. May 20, 2008) (reference to client lists and pricing information was sufficient to avoid dismissal of trade secret misap-propriation claim); Lunt v. Campbell, No. 07-3845-BLS, at *6 (Fabricant, J., Sept. 2007) (“[I]t is not apparent that mere names and telephone numbers of customers with whom [defendant] was well acquainted constitute confidential information belonging to [plaintiff].”); Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.) (noting that “specific client information which enhanced [the employee’s] ability to serve cli-ents . . . belongs to [the employer]”); Cabot Money Mgmt., Inc. v. Femia, C.A. No. 04-1188, *6 (Mass. Super. Ct. July 23, 2004) (MacLeod, J.) (“single justices have . . . held that client lists, and the financial and personal information relating to them, constitute confidential information subject to protection under such agreements”); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *8–9 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (customer list can be protected); Ban-ner Indus. v. Bilodeau, C.A. No. 3-236-C (Mass. Super. Ct. Feb. 23, 2003) (Ag-nes, J.) (not protected because no evidence that it was taken and “[c]lient rela-tionships alone cannot be protected” (citing Routhier Placement Specialists v. Brown, 2002 Mass. Super. LEXIS, at *4)).

While a naked customer list is not likely to be protected in the absence of special circumstances, see, e.g., Lunt v. Campbell, No. 07-3845-BLS, at *6 (“mere names and telephone numbers of customers” not likely to be protectable); but see Getman v. USI Holdings Corp., C.A. No. 05-3286-BLS2 (Mass. Super. Ct. Sept. 1, 2005) (Gants, J.) (protecting naked customer list as confidential infor-mation); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 04 1005 (June 30, 2004) (Agnes, J.) (protecting database of customer names, ad-


dresses, and telephone numbers), the more information about the customers that is included in the list, the more likely it will be protected, provided that such information is maintained in confidence. Woolley’s Laundry, Inc. v. Silva, 304 Mass. 383, 388–91 (1939) (failure to maintain customer lists as confidential will preclude their protection); Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (nonconfidential customer in-formation is not protectable); Bear Stearns & Co. v. McCarron, C.A. No. 08-0978BLS1 (Mass. Super. Ct. Mar. 5, 2008) (client contact information was not considered protectable); HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008) (identity of advertising customers in regular publication could be readily determined and therefore did not constitute trade secrets, although notes about advertisers and identity of prospective advertisers were trade secrets); Banner Indus. v. Bilodeau, C.A. No. 3 236 C (citing Nat’l Hearing Aid Ctrs., Inc. v. Avers, 2 Mass. App. Ct. 285, 290 (1974) (“suggesting employer’s customer list is confidential information when described as such in contract with defendant employee”)); cf. Wordwave, Inc. v. Owens, 2004 WL 3250472, at *2–4 (enforcing nonsolicitation agreement, but not nondisclosure agreement, where customer information was not sufficient to warrant protection as trade secret, but “coalesce[d]” with customer goodwill to create protectable legitimate business interest). In addition, the parties’ expectations based on cir-cumstances and industry practice may also have a bearing on whether infor-mation is considered confidential. See, e.g., Morgan Stanley DW Inc. v. Winer, C.A. No. 06-4236-BLS1 (Mass. Super. Ct. Oct. 18, 2006) (van Gestel, J.) (pur-suant to the securities brokerage industry’s “Protocol for Broker Recruiting,” “client names, addresses, telephone numbers, e-mail address and account titles” are not confidential); Mitchell John Coiffures, Inc. v. Jordan & Co., 2000-01272 (Mass. Super. Ct. Aug. 15, 2002) (Agnes, J.) (“it is common practice for stylists to carry their clientele with them should they leave a salon,” and employer failed to establish contrary expectation).

Financial/Business Information: As a general rule, “general business infor-mation and routine data of a particular company normally are not protectible as confidential.” Augat v. Aegis, 409 Mass. 165, 168–69 (1991) (company’s annual sales were not confidential and therefore not protectable (citing New England Overall Co. v. Woltmann, 343 Mass. 69, 77 (1961)). Nevertheless, “the gross sales of a corporation might properly be protectible as confidential information in particular circumstances.” Augat v. Aegis, 409 Mass. at 169 (noting that such information “would not be a ‘trade secret’ of the traditional kind” (citation omit-ted)). Similarly, under certain circumstances, “a list of employees and associated information [can be] property protectible against misappropriation,” as can the names and addresses of members of an agricultural association. Warner-Lambert Co. v. Execuquest Corp., 427 Mass. 46, 48–49 (1998) (citing In re Civil Investi-gative Demand Addressed to Yankee Milk, Inc., 372 Mass. 353, 359–60 (1977)

TRADE SECRET LAW


(list of association members protected where it “would be difficult to duplicate from independent sources, and . . . was made available to officers and employees with the understanding of its confidentiality”)).

Software: While software may be subject to other protections (copyright, in particular), it may also be protected as a trade secret. Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at *6 (D. Mass. Feb. 6, 2009) (Woodlock, J.); Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d 23, 28 (D. Mass. 2004) (Gorton, J.); EMC Corp. v. Gresham, C.A. No. 01-2084-BLS (Mass. Super. Ct. Nov. 14, 2001) (van Gestel, J.) (a “computer program, source code, object code, algorithm, [or] subroutine” may constitute a trade secret). As Judge Gorton of the U.S. District Court for the District of Massachusetts ex-plained:

For software, trade secret protection is not limited to the source code. Harbor Software, Inc. v. Applied Sys., Inc., 887 F. Supp. 86, 90 (S.D.N.Y. 1995). Ra-ther, the overall design of software can constitute a trade secret. Id. (“[I]t is the design of the program that is the most important, not the particular code that reflects that design”) (emphasis in original). In de-termining whether a particular software design is pro-tectable, courts focus on whether that design could be duplicated without undue time or expense. See id.; Hamer Holding Group, Inc. v. Elmore, 202 Ill. App. 3d 994, 118 Ill. Dec. 310, 560 N.E.2d 907, 918 (1990).

Touchpoint Solutions, Inc. v. Eastman Kodak Co., 345 F. Supp. 2d at 28 (finding trade secrets in the program’s “source code, implementation, overall design and ‘distributed computing model’”).

The Cause of Action

A claim of misappropriation of trade secrets requires the plaintiff to prove that it “possessed nonpublic information of value to its business; that it took reasonable steps to preserve the secrecy of that information; that [the defendant] used or disclosed that information for his own benefit or [another]; and that it has been harmed as a result.” Network Sys. Architects Corp. v. Dimitruk, C.A. No. 06-4717-BLS2 (Mass. Super. Ct. Dec. 2007) (Fabricant, J.) (citing Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 940 (1972) and Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 939 (1984)); Touchpoint Solutions, Inc. v. East-man Kodak Co., 345 F. Supp. 2d at 27 (“To prevail on a misappropriation claim,


a plaintiff must show: 1) the existence of a trade secret, 2) reasonable steps to preserve secrecy, and 3) ‘use of improper means in breach of a confidential rela-tionship’ to acquire the secret.’” (quoting Data Gen. Corp. v. Grumman Sys. Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994))); (Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d 161, 174–79 (D. Mass. 2001) (Bowler, J.); Transkaryot-ic Therapies, Inc. v. Bain & Co., 14 Mass. L. Rptr. 397, *3 (Mass. Super. Ct. 2002) (van Gestel, J.) (“[C]onfidential information, . . . even if there is no ascer-tainable damage, is entitled to protection by injunction. See, e.g., Warner-Lambert Company v. Execuquest Corp., 427 Mass. 46, 50 (1998); Middlesex Neurological Assoc., Inc. v. Cohen, 3 Mass. App. Ct. 126, 132 (1975).”). See also Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1165 (1st Cir. 1994); J.T. Healy & Son v. James A. Murphy & Son, 357 Mass. 728, 736–40, (1970); Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 938–39 (1984). Note that different courts formulate the elements somewhat differently, most notably the inclusion or exclusion of damages as an element.

As the Appeals Court has explained,

Once information qualifies as a trade secret, determi-nation of whether the secret has been misused steers the inquiry to examining the conduct of the defend-ant, and the legal character of that conduct, in turn, is much affected by the steps taken by the proprietor of the trade secret to protect it.

Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. at 939; see also Take it Away, Inc. v. Home Depot, Inc., 2009 WL 458552, at * 5–6 (D. Mass. Feb. 6, 2009) (Woodlock, J.) (“In a common law misappropriation claim, ‘[r]elief is granted to protect the secret only where one is attempting to use or disclose it in violation of some general duty of good faith.’” (citation omitted)).

Regardless of the damages element, all courts agree that there must be a misap-propriation of the trade secret. (As noted above, this is a requirement of the Re-statement (First) of Torts, but not the Restatement (Third) of Unfair Competition or the UTSA.) A common issue arises, therefore, when an employee—who properly acquired his or her employer’s confidential information—leaves. The question becomes, what recourse is available to the former employer. At least one court has addressed this issue as follows: “wrongful acquisition by employ-ee may arise where employee properly obtains trade secret but then uses or dis-closes it ‘in breach or abuse of confidence.’” Harvard Apparatus, Inc. v. Cowen, 130 F. Supp. 2d at 176–77 (quoting L.H. Reece III, “Trade Secret Misappropria-tion: A Review and Analysis of Massachusetts Law,” 71 Mass. L. Rev. 171, 176 (1986)).

TRADE SECRET LAW


Although the absence of any taking of a physical manifestation of a trade secret or confidential information is “significant,” such information can—sometimes—be protected even if only retained by a former employee in his or her memory; the courts have, however, come down on both sides of this issue. See Jet Spray Cooler, Inc. v. Crampton, 361 Mass. 835, 840 (1972); New Eng. Overall Co. v. Woltmann, 343 Mass. 69, 76–77 (1961) (in absence of contract, former employ-ee may use “the names of customers retained in his memory”); Woolley’s Laun-dry, Inc. v. Silva, 304 Mass. 383, 389–90 (1939) (“We fail to see why complain-ant is entitled to less protection when the names on the list are carried off in the employee’s memories.” (quoting Empire Steam Laundry v. Lozier, 165 Cal. 95 (1913))); Sherman v. Pfefferkorn, 241 Mass. 468, 472, 475 (1922) (restraining former employee from soliciting customers where he learned their names and addresses from the employer, even though no customer list was provided or tak-en); Chiswick v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.) (quoting Jet Spray Cooler, Inc. v. Crampton, 361 Mass. at 840 and citing Velo-Bind, Inc. v. Scheck, 485 F. Supp. 102, 107 (S.D.N.Y. 1979) (“[a]ctual physical copying is not essential to establish an unlawful appropria-tion of trade secrets”)); Prof’l Staffing Group, Inc. v. Champigny, 2004 WL 3120093, at *2 (Mass. Super. Ct. Nov. 18, 2004) (noting that a memory of non-confidential customer information does not violate any recognized duty); Oxford Global Res., Inc. v. Guerriero, 2003 WL 23112398, at *9 (D. Mass. Dec. 3, 2003) (Woodlock, J.) (noting that plaintiff might, after discovery, be able to prove that defendants had memorized confidential information, which would then warrant injunctive relief). But see Am. Window Cleaning Co. v. Cohen, 343 Mass. 195, 199 (1961) (discharged employee may use remembered information to solicit clients) (cited in Wordwave, Inc. v. Owens, 2004 WL 3250472, at *3 n.4 (Mass. Super. Ct. Dec. 7, 2004) (Muse, J.)); HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008) (where, albeit in the ab-sence of a noncompetition agreement, the parties did not challenge that a former employee “could use anything ‘in his head,’ i.e., what he remembers from the [confidential] information he developed”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dewey, C.A. No. 04-1005 (June 30, 2004) (Agnes, J.) (employee is permitted to use information in his or her memory); Boston Partners Asset Mgmt., L.P. v. Archambo, C.A. No. 01-3078-BLS, at *5 (Mass. Super. Ct. Ju-ly 19, 2001) (van Gestel, J.) (carrying away confidential information in one’s head “is not a misappropriation”).

This issue was recently squarely presented to Judge Gertner in Lombard Medical Technologies, Inc. v. Johannessen, 2010 WL 2682449 (D. Mass. July 2, 2010). In that case, the employees argued that they had no relevant trade secrets or con-fidential information, and even if they did, they would not use it. Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, at *7–8. In contrast to so many of these cases, there was no assertion that the employees had misappropriated


the employer’s trade secrets or other confidential information. Accordingly, the court was left to reconcile the use of a noncompete against employees who had not misappropriated confidential information, but instead, had simply retained such information in their memories. The court analyzed the issue as follows:

Even if they fully intend to protect [the former em-ployer’s] confidential information, they do not begin at [the new employer] with “a tabula rasa with re-spect to [the former employer’s] products, its devel-opment strategies, its marketing plans, its customers and other significant business information. It is diffi-cult to conceive how all of the information stored in [their] memory can be set aside as [they] appl[y] [themselves] to a competitor’s business and its prod-ucts.” Marcam Corp., 885 F. Supp. 294, 297 (D. Mass. 1995). See also Boulanger, 815 N.E.2d at 579 n.12 (“[W]orking for a competitor of the defend-ant makes it likely that the information the plaintiff possesses will be used, yet it might be impossible to detect or prove.”); C.R. Bard, Inc. v. Intoccia, No. 94-11568-Z, 1994 WL 601944, at *3 (D. Mass. Oct. 13, 1994) (Former employee “could not and did not leave behind his special knowledge of plaintiff’s operation, and in serving his new employer he will inevitably draw upon that knowledge.”). Further, [the former employer] has invested considerable time and re-sources into the development, testing, and evaluation of [its product]. ($85 million dollars and 12 years . . .), and any loss in competitive edge could be significant.

Despite defendants’ assertions, it is impossible to im-agine that they will not use, consciously or not, in-formation they have gleaned during their time at Lombard. And despite defendants’ best intentions, as Judge Lindsay found in Marcam Corp., 885 F. Supp. at 297, given the similarities among the products and the defendants’ positions at the companies, I find that disclosure would be inevitable. Plaintiffs have suc-cessfully demonstrated that without injunctive relief, they will suffer irreparable harm.

Lombard Med. Techs., Inc. v. Johannessen, 2010 WL 2682449, at 8; see also Inevitable Disclosure Doctrine, above.

TRADE SECRET LAW


Thus, to some extent, this issue may turn more on the confidentiality of the in-formation than whether information can be misappropriated through memory. See BNY Mellon, N.A. v. Schauer, 27 Mass. L. Rptr. 329, 2010 WL 3326965, at *9 n.23 (Mass. Super. Ct. May 14, 2010) (Hinkle, J.) (“While the publicly-available contact information for clients with whom [the employee] was ‘inti-mately familiar’ would seem to escape classification as confidential information, those clients were not the only ones on the list given to [the new employer].”).

Harm/Remedies

Assuming that there has been a provable misappropriation of trade secrets, dam-ages, including double damages, are available, as is injunctive relief. Damages may be lost profits, disgorgement of the defendant’s profits (i.e., unjust enrich-ment), or, in some cases, a reasonable royalty; no double recovery (excluding double damages) is permitted. See Curtiss-Wright Corp. v. Edel-Brown Tool & Die Co., 381 Mass. 1, 11 (1980). Notwithstanding the absence of an express limitation of its application, the double damages provision under G.L. c. 93, § 42 has been interpreted to apply only to the plaintiff’s lost profits—not apply to damages obtained through a disgorgement remedy. USM Corp. v. Marson Fas-tener Corp., 392 Mass. 334, 353–54 (1984).

With regard to injunctive relief, the scope of any injunction must correspond to the injury. For example, the court in HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2 (Mass. Super. Ct. Feb. 8, 2008), found that the so-called head start rule entitled the plaintiff to benefit from its development efforts and precluded the defendant from profiting from its wrongdoing. HX In Boston, LLC v. Berg-gren, C.A. No. 08-510BLS2, at *2–4. Specifically, quoting Jillian’s Billiard Club of America, Inc. v. Beloff Billiards, Inc., 35 Mass. App. Ct. 372, 375–76 (1993), which was in turn quoting Restatement of Unfair Competition § 44(2) (Tent. Draft No. 4, 1993), cmt. c, the court explained,

Injunctive relief is often appropriate in trade secret cases to insure against additional harm to the trade secret owner from further unauthorized use of the trade secret and to deprive the defendant of additional benefits from its wrongful conduct. If the information has not become generally known, an injunction may also be appropriate to prevent destruction of the plaintiff’s rights in the trade secret through a public disclosure by the defendant. If the trade secret has al-ready entered the public domain, an injunction may be appropriate to remedy any head start or other un-fair advantage acquired by the defendant as a result


of the appropriation. If the defendant retains no unfair advantage from the appropriation, an injunction against the use of information that is no longer secret can be justified only on a rationale of punishment and deterrence. However, because of the public interest in promoting competition, punitive injunctions are ordi-narily inappropriate in trade secret actions.

HX In Boston, LLC v. Berggren, C.A. No. 08-510BLS2, at *2–3; see also Chis-wick v. Constas, 2004 WL 1895044, at *2 (Mass. Super. Ct. June 17, 2004) (Kane, J.). In Peggy Lawton Kitchens, the Appeals Court explained that a per-manent injunction, unlimited in space, is “unusual, but not without precedent.” Peggy Lawton Kitchens, Inc. v. Hogan, 18 Mass. App. Ct. 937, 940 (1984).

In a very recent case, Judge Saris focused on the so-called head start rule. Atl. Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *8 (D. Mass. 2010) (apply-ing the head start rule). As Judge Saris explained,

Where “the plaintiff’s product, including the trade se-cret, has been marketed,” Massachusetts courts often look to the “head start rule,” crafting injunctions to prevent defendants from receiving an unfair head start in competing with the plaintiff’s product. Jet Spray Cooler, Inc. v. Crampton, 377 Mass. 159, 171 n.11 . . . (1979). The head start rule follows from the fact that “[t]he marketing of the product gives com-petitors a legitimate opportunity to study the product and to learn the principles of the trade secret through reverse engineering or similar procedures.” Id. As such, “the time necessary to engineer in reverse is one factor to be considered in determining . . . the [appropriate] duration of injunctive relief.” Id. Also relevant is “evidence that other manufacturers have been able to design and produce devices nearly iden-tical to” the product that incorporates the trade secret. Analogic Corp. v. Data Translation, Inc., 371 Mass. 643, 648 . . . (1976). These considerations insure that the defendant cannot benefit from an ill-gotten “head start,” but is not enjoined longer than necessary. “The scope of an injunction depends on a comparative ap-praisal of all of the facts of the case, and what is rea-sonable will depend in each instance on the particular facts.” Jillian’s Billiard Club, 619 N.E.2d at 638. In

TRADE SECRET LAW


Jillian’s Billiard Club, the court found it instructive to look to the Restatement of Unfair Competition:

If the trade secret has already entered the public domain, an injunction may be ap-propriate to remedy any head start or other unfair advantage acquired by the defendant as a result of the appropriation. If the de-fendant retains no unfair advantage from the appropriation, an injunction against the use of information that is no longer secret can be justified only on a rationale of pun-ishment and deterrence. However, because of the public interest in promoting competi-tion, punitive injunctions are ordinarily in-appropriate in trade secret actions.

Id. at 638–39 (quoting Restatement (Third) of Unfair Competition § 44(2) cmt. c (Tentative Draft No. 4, 1993)).

Atl. Research Mktg. Sys., Inc. v. Troy, 2010 WL 1904849, *8–9 (D. Mass. 2010) (refusing to extend the injunction because the product had been marketed long enough that it had already been reversed engineered and marketed by other competitors).

Inevitable Disclosure Doctrine

When a former employee possesses confidential information of a former em-ployer, the employer may be able to obtain injunctive relief preventing the em-ployee not just from disclosing such information, but from working for a com-petitor under a doctrine known as the inevitable disclosure doctrine. Specifically, “the doctrine . . . allows the court to enjoin a former employee from working at a competitor of the employer . . . if the court finds that such employment would inevitably lead to a disclosure of the trade secret.” Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *3 (Mass. Super. Ct. May 19, 2005) (Lowy, J.); see also Campbell Soup Co. v. Giles, 47 F.3d 467, 471 n.7 (1st Cir. 1995) (distinguishing facts from those in Pepsico, Inc. v. Redmond, 1994 WL 687544 (N.D. Ill. Dec. 15, 1994), which applied inevitable disclosure doctrine to untrustworthy former senior executive, and noting absence of “raiding”). After the First Cir-cuit’s decision in Campbell Soup Co., the Seventh Circuit affirmed the PepsiCo District Court in the seminal decision, PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995).


Although neither the Supreme Judicial Court nor the Appeals Court has yet adopted or rejected the inevitable disclosure doctrine, Architext, Inc. v. Kikuchi, 2005 WL 2864244, at *3, Judge Gants, now on the Supreme Judicial Court, re-jected the notion that, in the absence of a noncompetition agreement, a former employer could prevent the “subtle inevitable disclosure” of the employer’s con-fidential information. Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2008) (Gants, J.). As Judge Gants stated, “the risk of subtle inevitable disclosure is precisely the type of competitive harm that a brief period of noncompetition is designed to prevent.” Ounce Labs, Inc. v. Harwood, C.A. No. 08-2377BLS1 (Mass. Super. Ct. June 18, 2008).

In a less determinative decision, Judge Lindsay of the U.S. District Court for the District of Massachusetts approvingly articulated as a basis for the enforcement of a noncompetition agreement the precise rationale underlying the inevitable disclosure doctrine. Specifically, in Marcam Corp. v. Orchard, 885 F. Supp. 294, 297 (D. Mass. 1995) (Lindsay, J.), although the plaintiff had the benefit of a noncompetition agreement, the court observed that the former employee would “inevitably, even if inadvertently, be influenced by the knowledge he possesses of all aspects of [the former employer’s] development efforts.” Quoting Bard v. Intoccia, 1994 WL 601944 (D. Mass. 1994), the court stated, “he could not and did not leave behind his special knowledge of plaintiff’s operation, and in serv-ing his new employer he will inevitably draw upon that knowledge.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. The consequent harm to the plaintiff “could not be avoided simply by the former employee’s intention not to disclose confidential information, or even by his scrupulous efforts to avoid disclosure.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. Thus, the court found, “[t]he problem for [the former employer] is that when [the former employee] goes to [the new employer] he does not go with a tabula rasa .” Marcam Corp. v. Or-chard, 885 F. Supp. at 297. The court further observed, “It is difficult to con-ceive how all of the information stored in [the former employee’s] memory can be set aside as he applies himself to a competitor’s business and its products.” Marcam Corp. v. Orchard, 885 F. Supp. at 297. Accordingly, the court conclud-ed, “what [the employee] knows . . . is bound to influence what he does . . . , and to the extent it does, [the former employee] will be disadvantaged.” Marcam Corp. v. Orchard, 885 F. Supp. at 297; see also Boulanger v. Dunkin’ Donuts Inc., 442 Mass. 635, 643 n.12 (2004) (“working for a competitor of the defend-ant makes it likely that the information the plaintiff possesses will be used, yet it might be impossible to detect or prove”); Boch Toyota, Inc. v. Klimoski, 2004 WL 1689770, at *4 (Mass. Super. Ct. June 28, 2004) (Graham, J.) (former em-ployee, who was bound by a noncompetition agreement, “will inevitably draw upon” her “special knowledge of plaintiff’s operation”).

TRADE SECRET LAW


Although the Marcam, Boulanger, and Boch Toyota decisions implicitly recog-nize the validity of at least the rationale for the inevitable disclosure doctrine, each of the plaintiffs had obtained noncompetition agreements from the defend-ants. Accordingly, none of the courts was called upon to explain why an em-ployer who was not diligent enough to obtain an enforceable noncompetition agreement should be able to de facto obtain the benefits of such an agreement through the application of the inevitable disclosure doctrine. In this respect, the inevitable disclosure doctrine is at odds with the general requirement that in order to be entitled to injunctive relief for the protection of confidential infor-mation and trade secrets, the employer must have taken steps to maintain the confidentiality of the information. The failure to require covenants not to com-pete from those entrusted with such information must call into question whether the steps taken by the employer in the first instance—i.e., before resorting to the courts—evince the required protective measures.

(f) Related State Law Claims

Cases involving claims of trade secret misappropriation typically involve myriad other state claims as well, some applicable generally, some applicable only to employees, and some not applicable to employees. Such claims typically include breach of contract (including noncompetition agreements, nondisclosure (or confidentiality) agreements, nonsolicitation agreements, no-raid agreements, and other restrictive covenants), breach of fiduciary duty, tortious interference with advantageous business relationships, invasion of privacy, unfair competition (including, in particular, a violation of G.L. c. 93A), conversion, and violation of the wage act. These claims are discussed in Russell Beck, Negotiating, Drafting & Enforcing Noncompetition Agreements & Related Restrictive Covenants (MCLE, Inc. 4th ed. 2010).

§ 1.2.2 Federal Law

In addition to state law claims, there are various federal causes of action—some civil, some criminal—that should be evaluated. These claims include violation of the Economic Espionage Act, the Computer Fraud and Abuse Act, the Wire-tap Act, and the Stored Communications Act. These claims are discussed in Chapter 1.


§ 1.3 ESTABLISHING A TRADE SECRET PROTECTION PROGRAM

The best practice for protecting trade secrets (including both trade secrets and other confidential information) is the establishment of a trade secret protection program to limit opportunities for their misappropriation and have a plan for responding to threatened or actual misappropriations. Indeed, as to the former, it is essential to have taken reasonable measures to preserve the secrecy of the trade secret, as failure to do so can result in the loss of the trade secret and any ability to protect it.

§ 1.3.1 Trade Secret Audit

The process for establishing a trade secret protection program starts with a trade secret audit. A trade secret audit consists of the following steps.

(a) Catalog

The first step in the process is the identification of any trade secrets and other confidential information that may exist within an organization. As part of that process, the value of each must be determined, although it need not be deter-mined with precision.

(b) Review

Once the trade secrets and other confidential information are identified, a thor-ough review should be conducted to understand how each trade secret and other type of confidential information is presently protected. This will include review-ing any agreements in place, written policies, unwritten courses of conduct, em-ployee handbooks, and physical security measures.

(c) Analyze

Determine whether the current protections are adequate. Those protections that are adequate should be retained and those that are not adequate should be re-placed.

The end result should be a thorough inventory of the trade secrets and confiden-tial information and a comprehensive plan of how to protect each.

TRADE SECRET LAW


§ 1.3.2 Trade Secret Protection Program

A proper trade secret protection program includes policies, procedures, and agreements to preserve and protect trade secrets and an action plan to respond to actual or threatened misappropriation. The program must be reasonable in rela-tion to the value of the trade secrets. Coca-Cola needs to (and does) take heroic measures to protect its secret formula, but most trade secrets do not need that level of protection. Conceptually, the greater the value of the trade secret, the more protections will be expected to be in place. Similarly, the ease with which a protection can be implemented will inform whether such protection should be implemented. One caveat: If a company does not bother to protect itself, neither will a court.

The tools for your trade secret protection program are myriad, complementary to one another, and may be separately required to some extent by the new Massa-chusetts data privacy law, G.L. c. 93H and 201 C.M.R. pt. 17. They include the following:

computer safeguards (protecting computer systems with the ap-propriate level of security, including passwords changed at regular intervals, firewalls, hard drive encryption, access notifications, access logs, etc.);

security measures for all electronic technologies (USB drives, flash cards, smartphones, ftp sites, social media sites, etc.);

restrictions on and protocols for access to and use of facilities that house confidential information;

policies for the use of company property (including computers, etc.);

protocols for accessing, handling, marking, storage, retention, and shredding of paper documents (e.g., including “confidential” leg-ends, use of locked file cabinets, adoption of a “clean desk” poli-cy);

protocols for sharing information with third parties;

procedures for ensuring employee awareness of all policies and procedures (including through new employee orientations, em-ployee handbooks, discussions of the policies at meetings, and scheduled computer pop-up reminders);


protocols/checklists for when an employee resigns or has been terminated (proper exit interviews, shutting down computer ac-counts, terminating cell phones, eliminating facility access, exam-ining all items taken by the employee, etc.);

postdeparture reviews of possible security breaches; and

restrictive covenants—with employees and others.

Restrictive covenants include the following basic types:

noncompete agreements,

garden leave clauses,

forfeiture-for-competition agreements,

“compensation-for-competition” agreements,

forfeiture agreements,

nondisclosure/confidentiality agreements,

nonsolicitation agreements,

antipiracy/no-raid/no-hire agreements, and

invention assignment agreements.

Each of these agreements serves a specific purpose. Which to use, when to use them, how to properly craft them, and how to enforce them are determined by a combination of the needs of the company, the corporate ethos, and the skill, knowledge, and experience of the attorney assisting. Proper attention to each of these issues in advance will save much needed time and unnecessary expense later.

No matter what protections are in place, adherence to the policy is critical. The best policy is worthless if it is not followed and enforced. Enforcement includes, when necessary, litigation. Most often, cases involving trade secrets are preced-ed by a “cease and desist” letter.

TRADE SECRET LAW


Documents

AIPLA Mid-Winter Institute Tampa Marriott Waterside Hotel ... · PDF file2nd Edition 2011 1–1 AIPLA Mid-Winter Institute Tampa Marriott Waterside Hotel & Marina. Tampa, Florida