New Sixth Circuit Case Imposes Liability For Theft Of Confidential Information That Does Not Qualify For Trade Secrets Protection

Michael R. Gottfried, Shannon Hampton Sutherland, and Gregory S. Bombard

Orthofix, Inc. v. Hunter, —- Fed. Appx. —–, 2015 WL 7252996, at *1 (6th Cir. Nov. 17, 2015).

The Sixth Circuit recently ruled, in an unpublished opinion, that a former employer could recover against a former employee for breach of a confidentiality agreement, even if the information the former employee took, used, or disclosed did not qualify for trade secret protection.

In Orthofix, the plaintiff company was a medical device company that markets bone growth stimulators to health care providers.  The defendant employee was a sales person for the plaintiff for twelve years.  At the time of his hiring, the defendant employee signed a nondisclosure agreement, which he reviewed with an attorney and on which he specifically underlined the definition of “confidential information.” 

In 2012, the defendant employee and another negotiated with the company’s competitor to leave the company to work for the competitor.  In the course of doing so, the defendant sent to the competitor “much of the information that [the employee] had acquired over twelve years.”  This information included customer lists and the company’s sales strategies and techniques.  On the employee’s departure, the employee retained much of the company’s information, both in tangible form and in his memory, and no one from the company instructed him to destroy the information.

The company sued the employee and alleged breach of the nondisclosure agreement and theft of trade secrets under the Texas Uniform Trade Secrets Act.  The district court held that the information at issue did not qualify for trade secret protection and ruled against the company on both the breach of nondisclosure agreement claim and the misappropriation of trade secrets claim.

The Sixth Circuit reversed, holding that the employer did not have to show that the information at issue was a trade secret to be entitled to protection under the nondisclosure agreement.  The nondisclosure agreement’s definition of “confidential information” was broader than just trade secrets.  The Court’s ruling included tangible information and information that the employee retained in his memory and used in competition against the company.

This decision is an important reminder that the protection of confidential information is not always limited to traditional “trade secrets.”  In this case, the nondisclosure agreement’s definition of “confidential information” was broader than the strict definition of a “trade secret” under the Uniform Act.  Because such a contract was enforceable under Texas law, the Sixth Circuit ruled that the employee had breached the nondisclosure agreement, even without violating the Uniform Act.

Although the Court found, under the circumstances of the case, that the information the former employee disclosed was protectable, the Court reiterated that protectable “confidential information” does not include publicly available information or an employee’s general skills.

This decision underscores the importance and value of nondisclosure agreements.  Entities holding confidential information should guard it by way of well-drafted nondisclosure and confidentiality agreements with their employees, consultants, vendors, and other entities with whom they do business.