Mr. Weber

Hospitality Law

When Competitive Research Crosses the Line

By Steven D. Weber, Founder, Weber Law, P.A.

Competitive intelligence is a powerful tool used to maintain an advantage over competitors. A wealth of competitive intelligence can be obtained through public documents like public filings, earnings reports, and legal documents. Compiling, reviewing, and extrapolating the competitive intelligence from those documents takes time and money. Succumbing to the temptation to shortcut the necessary effort can have costly legal consequences. Hospitality industry companies must thus be wary of engaging in methods that cross legal and ethical boundaries. Companies must also be watchful of any efforts by their competitors to gather intelligence from them.

The great value of competitive intelligence entices parties to go to extraordinary lengths to obtain that information. But in employing the various methods available to gain competitive intelligence, companies must be mindful of the relevant legal and ethical boundaries. It should not be a surprise that spying on a competitor using aircraft and conspiring with law enforcement agencies may go too far. Yet those were the allegations in one case concerning the misappropriation of valuable competitive intelligence.

In Dow Corning Corp. v. Jie Xiao, No. 11-10008-BC, 2011 U.S. Dist. LEXIS 105681 (E.D. Mich. Sep. 19, 2011), Dow Corning Corp. and Hemlock Semiconductor Corp. (collectively, "Dow") alleged that certain individuals and companies stole their trade secrets in an effort to lure customers from their business. Among other things, Dow alleged that one individual, an amateur pilot, conducted aerial surveillance of Dow's facilities to explain processes to one of the defendant companies' prospective customers. After one of the defendant individuals created a new company, which was later the subject of a criminal investigation by the Federal Bureau of Investigation (the "FBI"), the FBI allegedly contacted Dow and invited them to view documents from the defendant company that were suspected of containing Dow's trade secrets and which were misappropriated by the defendants. Dow later filed a lawsuit.

In response to that lawsuit, however, it was alleged that Dow conspired with the FBI to obtain the defendant company's trade secrets and proprietary information, which the FBI had obtained through its grand jury investigation. The Court dismissed the defendant company's claims because they were insufficiently plead, but noted that the claims may have survived had it been alleged that an agreement existed between Dow and the FBI prior to the FBI obtaining the defendant company's information. This case should serve as a reminder that companies will go to great lengths to obtain competitive intelligence and, as such, should be wary of where they keep their confidential information.

Hospitality industry companies should not assume that a repository of confidential or trade secret information is safe - and need to think outside the box - when it comes to securing it from competitors. Not even a hospitality company's trash is safe from the prying eyes of a competitor. For example, a competitor may be tempted to engage in acquiring information by dumpster diving - i.e., going into the trash of a competitor to gain competitive intelligence. While this may seem like the stuff of fiction, it can and does happen. In one case, in California, a company "started to suspect that someone was illicitly stealing trade secrets by 'dumpster diving' in the trash bins behind their offices."

Silvaco Data Sys. v. Tech. Modeling Assocs., 896 F. Supp. 973, 974 (N.D. Cal. 1995). That company then discovered, "[a]fter hiring a private investigator to 'stake out' the area," that their competitor's janitor was removing trash bags full of the company's documents from the dumpsters and transporting them back to the competitor. Id. Both companies sued in response to the allegations and eventually settled the lawsuit. Critical to such a claim may be laws of the location where the trash was and where the trash was located at the time (i.e., public or private property) in determining whether such activity is legal. Regardless, hospitality companies must be wary of where they are maintaining (and disposing of) their confidential and trade secret information.

People sometimes provide the best competitive intelligence, but companies must be careful about how they access that information. The people working for a competitor receive and have access to information that may constitute trade secrets or confidential information. As a consequence of that access, they may have entered into non-disclosure agreements ("NDA") and employment agreements governing their disclosure of such information. Those same people may eventually apply to work for a competitor. When confronted with such people, the temptation to utilize the information they have or had access to is immense, but hospitality industry companies must be cautious.

Hiring or speaking to a competitor's employee or officer is a scenario that sometimes can lead to claims of tortious interference with NDA's, breach of employee agreements, misappropriation of trade secrets, and more. For example, in one recent case, a company alleged that its competitor engaged in a scheme to usurp its business by misappropriating its proprietary information and using that information to secure contracts that ultimately replaced its business. Advantor Sys. Corp. v. DRS Tech. Servs., 678 F. App'x 839 (11th Cir. 2017).

As part of that scheme, the company alleged that the competitor created a job posting that drew employees from the company, who were bound by confidentiality and non-compete provisions. The company alleged that the competitor knew of the contracts and intentionally induced them to breach them by sharing their knowledge and expertise of their system. In response to the alleged conduct, the company brought, among other things, a tortious interference claim alleging that the competitor interfered with the confidentiality provision and non-compete provision in the company's employees' agreements. Such allegations may also give rise to liability under various laws designed to protect against the misappropriation of trade secrets.

Along those lines, some courts have found that a new employer can be liable for misappropriation of a trade secret if the employee in possession of those trade secrets discloses them to other employees and the new employer begins to use them. While encountering a person working for a competitor may seem like a competitive intelligence gift, hospitality companies must be wary of potential claims designed to protect against misappropriation of their competitor's trade secret and confidential information. Failure to do so can lead to costly litigation.

What about a laptop belonging to a competitor that a company managed to procure? Although it may seem common sense, a company must be wary of obtaining information without authorization from a computer or computer network belonging to a competitor. The Computer Fraud and Abuse Act ("CFAA") prohibits, among other things, a person from accessing a computer without authorization and obtaining information from the computer. 18 U.S.C. 1030(a)(2)(C). In one case involving the CFAA, it was alleged that an individual logged on to the computer of a company's employee using that individual's credentials, then handed over the computer terminal to another individual who ran his own searches through a database of proprietary information and downloaded files therefrom. United States v. Nosal, 930 F. Supp. 2d 1051, 1063 (N.D. Cal. 2013). The court there found that even though he didn't type in the password himself, he still accessed the computer under the CFAA, which could subject him to liability under the same.

Outsourcing competitive intelligence activities may not protect a hospitality industry company from any repercussions related to illegal intelligence gathering. In one case, a lawyer represented intellectual property owners, and the private investigators it hired allegedly "made false statements to the defendant's employees and used tactics designed to prod the employees into making statements about the product. Respondent's investigators tape-recorded these conversations without notice to the employees." In evaluating the allegations, it was found that such conduct was in violation of the applicable rules of professional conduct and, even though the respondent was unaware that secret tape-recording, pretexting, and dissembling were in violation of those rules, the respondent received a reprimand. In re Nolan, 796 S.E.2d 841 (2017).

In sum, competitive intelligence can make or break a hospitality company. Knowing your competitor's next business idea or having access to its proprietary information can propel a company to financial victory. However, knowing how to obtain competitive intelligence legally is crucial as sidestepping the applicable laws and regulations can lead to costly legal and ethical problems. Additionally, if a competitor is attempting to access a hospitality organizations' confidential or trade secret information, it is important that it be able to detect such actions and respond.

Steven Weber, founder of Weber Law, P.A., began in New York as an attorney for one of the world’s largest public law offices. Mr. Weber‘s clients ranged from elected officials to government agencies with budgets of over $1 billion. After transitioning to private practice with law firms in New York and Florida, he successfully aided individuals, management of private companies, and even other counsel through numerous public and private scenarios. Mr. Weber ultimately founded Weber Law to provide clients with exceptional levels of legal services and customer service. He has received the highest rating possible from Martindale Hubbell and has been named a Rising Star by Florida Super Lawyers. Mr. Weber can be contacted at 305-377-8788 or sweber@weberlawpa.com Please visit http://www.weberlawpa.com for more information. Extended Bio...

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