{"id":105,"date":"2015-12-09T17:07:45","date_gmt":"2015-12-09T21:07:45","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/lifescienceslaw\/?p=105"},"modified":"2015-12-10T13:53:57","modified_gmt":"2015-12-10T17:53:57","slug":"confidential-vs-trade-secret-a-non-binary-dilemma","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/lifescienceslaw\/2015\/12\/09\/confidential-vs-trade-secret-a-non-binary-dilemma\/","title":{"rendered":"“Confidential” vs. “Trade Secret” – A Non-Binary Dilemma"},"content":{"rendered":"

Virtually all life sciences companies use routine protocols which they believe will protect their intellectual property and other confidential or “trade secret” information.\u00a0 Among these routine proactive protocols are having a standard confidentiality\/nondisclosure agreement (sometimes referred to below as “NDA”), limiting access to confidential and trade secret information, periodic internal audits of safeguarding methods, and more.\u00a0\u00a0\u00a0 But are “trade secrets” the same as “confidential information?”\u00a0 <\/p>\n

Most confidentiality\/nondisclosure agreements will include references to “intellectual property,” “trade secrets,” and “other confidential information.”\u00a0 The agreements usually contain a boilerplate laundry list of the types of information the company deems to be protected under the agreement – formulae, protocols, cell lines, and so on.\u00a0 Many agreements define “trade secrets and other confidential information” far too broadly — for example, a clause defining as confidential “all other information about the company or its business.”\u00a0\u00a0\u00a0 There is an inherent tension between defining a company’s confidential\/trade secret information too narrowly (the risk being that something important is not defined as confidential or trade secret) or defining such information too broadly (the risk being that a court will conclude that the definition is overly broad and will refuse to enforce the agreement).\u00a0\u00a0 A discussion on striking the right balance in a company’s definition of its confidential or trade secret information is a topic for another blogging day.\u00a0\u00a0\u00a0 Stay tuned.<\/p>\n

Today’s\u00a0blog will focus on two alternate paths a company might take in seeking to protect its confidential or trade secret information.\u00a0\u00a0 We will work under the assumption that an individual formerly employed by biotech Company A has now left and is working for biotech Company B in the same capacity, a high level research position.\u00a0\u00a0 We will further assume that the worker had access to highly confidential trade secret information belonging to Company A, and that he or she did execute a confidentiality\/nondisclosure agreement while employed by Company A.\u00a0 Company B heralds the employee’s arrival with press releases, and soon thereafter, Company A learns that Company B is now doing research that sounds remarkably similar to that which the employee spearheaded while at Company A.\u00a0\u00a0\u00a0 What are Company A’s options?<\/p>\n

First and foremost, Company A needs to evaluate and identify the specific information it believes that the employee is now disclosing and\/or using for the benefit of Company B.\u00a0\u00a0 The reader will note that I specifically stated that the employee is working in the same capacity at Company B as when he or she was employed at Company A.\u00a0 Some states recognize what is known as the “inevitable disclosure” doctrine, which presumes that the individual will inevitably use or disclose confidential or trade secret information, gained through former employment, if he or she works in the same or closely similar capacity in a subsequent employment.\u00a0 California is a state which does not<\/strong> recognize the inevitable disclosure doctrine.\u00a0 So, to make this exercise even more fun, we’ll assume that the worker is in California, and that Company A will not be able to rely upon the inevitable disclosure doctrine to build its case.<\/p>\n

One path that Company A may have available to it is a lawsuit (or arbitration, if Company A and the employee entered into a binding arbitration agreement) against the employee for breach of his or her confidentiality\/nondisclosure agreement.\u00a0 Company A may also be able sue Company B in the same action if it has a basis for alleging that Company B knew of and encouraged the employee to breach his or her NDA with Company A.\u00a0 (Note that suing the former employee and Company B in the same action may be complicated if Company A has an arbitration agreement with the employee, since Company B is not a signatory to such agreement.\u00a0 Joining non-signatory defendants into an arbitration proceeding is\u00a0yet another topic for another blogging day.)<\/p>\n

A second pathway that Company A might consider is a suit against the employee and Company B for violation of the Uniform Trade Secrets Act (“UTSA”).\u00a0 The UTSA is a statute that has been adopted in 47 states, as well as by the District of Columbia, Puerto Rico and the U.S. Virgin Islands.\u00a0 This claim would allege that Company A had “trade secrets,” and that the employee wrongfully disclosed such trade secrets to Company B, or wrongfully used Company A’s trade secrets for the benefit of Company B.\u00a0\u00a0\u00a0 (Once again, Company A will need to assess whether it can proceed against both defendants in a single action.\u00a0 The existence of an arbitration agreement with the employee might affect Company A’s options, depending upon the wording and scope of the arbitration agreement — yet a third topic for another blogging entry!)<\/p>\n

As a practical matter, if the action is pursued against both defendants in a single action, Company A is likely to allege both theories — the employee’s breach of his\/her NDA (and Company B’s complicity in same), as well as both defendants’ violation of the Uniform Trade Secrets Act.<\/p>\n

However, in order to prevail on a\u00a0claim brought under the UTSA, Company A must show that employee and Company B have misappropriated “trade secrets” belonging to Company A.\u00a0\u00a0 To meet this burden, Company A must show that:\u00a0\u00a0(a) the information in question is not generally known to the public; (b) the non-public nature of the information confers an economic benefit to Company A – in other words, Company A has an economic or competitive edge because it possesses this information and because that information is not known to the public; and (c) Company A takes reasonable steps to protect the information from public disclosure.\u00a0\u00a0\u00a0 Thus, while all “trade secrets” would undoubtedly be considered “confidential,” the reverse is not necessarily true.\u00a0 For example, the details and cost of Company A’s contract with its janitorial service may well be “confidential,” but it unlikely to be considered a “trade secret.”<\/p>\n

Yesterday, my colleagues reported on an unpublished decision<\/a> of the Sixth Circuit Court of Appeals, Orthofix v. Hunter<\/em>, ___ Fed.Appx. ___, 2015 WL 7252996, at *1 (6th Cir.\u00a0 Nov. 17, 2015), in which the court ruled that a former employer could recover against a former employee for breach of a confidentiality agreement, even though the information the former employee took, used or disclosed did not rise to the level required for trade secret protection.<\/p>\n

This decision and others like it raise the question, “why would a company choose to pursue a trade secrets claim rather than the apparently easier course of only pursuing its claim for breach of an NDA?”\u00a0 While the answer will truly depend upon the facts of a particular case and the specific nature of the information disclosed or used, some considerations include:<\/p>\n