Your Hospitality Industry Trade Secrets May be at Risk

By Steven D. Weber Founder, Weber Law, P.A. | January 22, 2017

The hospitality industry may be able to protect their trade secrets using newly enacted federal legislation. The Defend Trade Secrets Act of 2016 (the “DTSA”) was signed into law on May 11, 2016. The DTSA creates a federal cause of action for an owner of a trade secret that is misappropriated if the trade secret “is related to a product or service used in, or intended for use in, interstate or foreign commerce.” The DTSA also provides a powerful new remedy of allowing ex parte applications for an order allowing the seizure of property necessary to prevent the dissemination of the trade secret that is the subject of the action.

Under the DTSA, a “trade secret” encompasses a wide variety of forms and types of information but only if “(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” Pursuant to the DTSA, prohibited “misappropriation” includes both the acquisition of a trade secret by improper means and the trade secret’s disclosure by a person who knew at the time of disclosure that the knowledge of the trade secret was “derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret,” or other circumstances. The protections, secrecy measures, and access limitations that a trade secret owner puts in place may determine the rights and remedies afforded them under the DTSA.

The hospitality industry may also be able to take advantage of state law rights and remedies related to trade secrets. The Uniform Trade Secrets Act (“UTSA”) was intended to make uniform the state law regarding theft of trade secrets. One hospitality hot spot, the state of Florida, adopted the UTSA as the Florida Uniform Trade Secrets Act (“FUTSA”). FUTSA provides damages and other relief related to the misappropriation of trade secrets.

Under FUTSA, a trade secret may be (i) information, (2) that derives independent economic value from not being generally known or ascertainable and (3) is the subject of reasonable efforts to maintain its secrecy. For example, in the case Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 10 So. 3d 202, 206 (Fla. 4th DCA 2009), a Florida appellate court found that a thin film spooling machine was properly a trade secret because, inter alia, evidence was presented “that the design of machine is very specific and involves many calculations”, “without access to the machine one would be unable to obtain the required measurements” necessary to reproduce it, the “machine was kept in a separate room away from the public”, and that “only certain individuals who operated the machine were authorized to enter” the room where the machine was stored. Notably, there, the lack of a confidentiality agreement did not defeat the argument that the machine was a trade secret – however, this will not always be the case. Accordingly, the protection a company provides to its hospitality trade secrets could determine whether they are in fact found to be trade secrets.

The need to protect hospitality trade secrets is not merely a hypothetical concern. There are numerous cases that relate to allegations of misappropriation of hospitality trade secrets. In 2009, Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”) sued Hilton Hotels Corporation n/k/a Hilton Worldwide (“Hilton”) and certain individuals alleging that Hilton induced those individuals to leave Starwood and work for Hilton, and that Hilton, the individuals, and others, “stole hundreds of thousands of electronic files and documents constituting confidential and proprietary Starwood information and/or trade secrets [] for use by Hilton across all of Hilton’s luxury and lifestyle brands in direct competition with Starwood.” See Amended Complaint ¶¶ 7, 9, DE 31, Starwood Hotels & Resorts Worldwide, Inc. v. Hilton Hotels Corporation N/K/A Hilton Worldwide, No. 09 Civ. 3862 (S.D.N.Y). Starwood plead a claim of misappropriation of trade secrets (among other claims) and alleged that through the actions of Hilton and the individuals, they knowingly misappropriated and used, or aided and abetted the misappropriation and misuse of, Starwood’s trade secrets.

Although it appears that the parties reached a settlement, a key issue in the case would have been whether the protection that Starwood provided to the information at issue was sufficient to find that the information constituted a trade secret. In Starwood’s complaint, it alleged that the individual defendants signed employment agreements, including a “Non-Solicitation, Confidentiality and Intellectual Property Agreement.” Starwood also alleged that the individuals signed agreements that were “subject to ‘all Starwood policies, procedures and directives as they currently exist or as they may be adopted or changed from time to time,’ which included Starwood’s Code of Business Conduct,” which required, among other things, that each employee protect and keep confidential certain non-public information. Starwood further alleged that its data is maintained on secure servers and hard drives, that remote access is permitted only upon proper certification, that employees may not access Starwood’s systems through computers not properly certified by Starwood’s IT staff, and that employees are not permitted to forward confidential materials to outside systems, “including their own homes or personal e-mail accounts.” While the court did not determine whether Starwood’s measures are adequate, this case is a good example of the steps that a company may be required to take to protect its hospitality trade secret information.

Coming up in April 2018...

Guest Service: Empowering People

Excellent customer service is vitally important in all businesses but it is especially important for hotels where customer service is the lifeblood of the business. Outstanding customer service is essential in creating new customers, retaining existing customers, and cultivating referrals for future customers. Employees who meet and exceed guest expectations are critical to a hotel's success, and it begins with the hiring process. It is imperative for HR personnel to screen for and hire people who inherently possess customer-friendly traits - empathy, warmth and conscientiousness - which allow them to serve guests naturally and authentically. Trait-based hiring means considering more than just a candidate's technical skills and background; it means looking for and selecting employees who naturally desire to take care of people, who derive satisfaction and pleasure from fulfilling guests' needs, and who don't consider customer service to be a chore. Without the presence of these specific traits and attributes, it is difficult for an employee to provide genuine hospitality. Once that kind of employee has been hired, it is necessary to empower them. Some forward-thinking hotels empower their employees to proactively fix customer problems without having to wait for management approval. This employee empowerment—the permission to be creative, and even having the authority to spend money on a customer's behalf - is a resourceful way to resolve guest problems quickly and efficiently. When management places their faith in an employee's good judgment, it inspires a sense of trust and provides a sense of higher purpose beyond a simple paycheck. The April issue of the Hotel Business Review will document what some leading hotels are doing to cultivate and manage guest satisfaction in their operations.