Take Steps to Protect Your Trade Secrets

Hold Them Close or Let Them Go

By Steven D. Weber Managing Partner, Stark Weber PLLC | May 07, 2017

Taking measures to protect your hospitality organization's trade secrets before filing or defending against a lawsuit may significantly increase your organization's chances of obtaining a favorable result in any lawsuit related to the misappropriation of trade secrets. While there are many ways to protect information, hospitality organizations need to be educated on what the law applicable to them considers to be "reasonable" steps that provide the secrecy that is required under the circumstances. This article explores how some courts have interpreted what is reasonable or adequate protection of information such that the information may qualify as a trade secret.

A hospitality organization may operate in one location or around the globe. Whether information qualifies as a trade secret depends on the applicable law. In the United States, almost all states have adopted the Uniform Trade Secrets Act ("UTSA") – a model meant to conform the rules of the states. Hospitality hot spots such as Florida and Nevada, which have adopted law from the UTSA, have statutes in place that define a trade secret as (1) information, (2) that derives independent economic value, and (3) "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." New York, another hospitality hotspot, has not adopted the UTSA. Instead, New York case law sets forth factors to be considered in determining if information is a trade secret, including, among others, the value of the information, the amount of money expended in developing the information, and the extent of measures taken to protect the information's secrecy.

In addition to state law, in May 2016, President Obama signed the Defend Trade Secrets Act ("DTSA") into federal law. The DTSA creates a federal cause of action for misappropriation of trade secrets. 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."

While many factors are considered to determine if certain information is a trade secret, one key and common factor under the law of Florida, Nevada, New York, and the DTSA, is whether the secrecy of the information is protected. More specifically, Florida and Nevada law requires that a trade secret be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Similarly, New York law considers the extent of measures taken to guard the secrecy of the information. And, the DTSA provides that information is a trade secret only if "the owner thereof has taken reasonable measures to keep such information secret." The question from a hospitality organization looking to protect its trade secrets thus becomes: what is reasonable protection under the law? The answer to this question will depend on the factual circumstances of each case. Nonetheless, there are some general guidelines that hospitality organizations should consider.

Hospitality organizations should consider using confidentiality agreements and other restrictive covenants to protect their trade secrets. Factors such as 1) who an organization requires to sign a confidentiality agreement; 2) what does the confidentiality agreement say regarding any trade secrets; and 3) how the organization uses the confidentiality agreement or other restrictive covenants in practice, may influence whether a court finds such an agreement reasonably or adequately protects a trade secret. For example, in the case LIBERTY AMERICAN INS. v. WestPoint Underwriters, 199 F. Supp. 2d 1271 (M.D. Fla. 2001), the court considered whether the plaintiff took reasonable precautions to protect its proprietary software from competitors. In support of its finding that the plaintiff took reasonable efforts to maintain its secrecy, the court stated that "Plaintiff Liberty American requires key employees with access to the software to sign confidentiality agreements," as well as taking other protective measures. In contrast, the court found that certain other information, that the plaintiff contended was trade secrets, was not reasonably protected because there were no contractual confidentiality protections for it and the plaintiff shared the information with others.

A confidentiality agreement may be required to explicitly state that the information to be protected is a trade secret. In the case LEEDOM MANAGEMENT GROUP, INC. v. Perlmutter, Case No.: 11-cv-2108, (M.D. Fla. February 15, 2012), the court considered a claim by the plaintiff that an individual misappropriated confidential data, including its client list. In finding that the plaintiff took steps to protect the confidentiality of its trade secrets, the court found as persuasive the contents of an offer letter that the individual signed upon commencing her employment. The court found that the letter was "an express agreement with the aim of protecting Plaintiffs' confidential data" because the letter stated that the individual recognized that certain information was proprietary in nature and trade secrets.

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