Articles Posted in Statutory Claims

All businesses have customers. Many maintain an electronic database of their customers that includes such things as contact information, pricing and purchasing information, and other data that has been collected through time and expense. This database can be an important asset to the business and provide it with a competitive advantage in the marketplace. As such, a majority view this information as “confidential” and believe it constitutes a “trade secret” and thus is protected from unauthorized disclosure under the law.

Not all customer information, however, may qualify as a trade secret under Delaware law. In addition, many businesses fail to take steps to protect confidential information such as requiring employees to enter into non-disclosure agreements. Unfortunately, businesses frequently learn this when it is too late to do anything about it. The time to address these issues is before such information is removed by a departing employee or other third party.

All employers should require employees who have access to confidential information and trade secrets to sign confidentiality or non-disclosure agreements. In Delaware, a company may legally require employees who have access to such information to sign such an agreement in order to keep their job. If drafted properly, the agreement can provide the business with contractual remedies against the former employee, including emergency injunctive relief from a court and a potential award of damages. Importantly, in appropriate circumstances, Delaware courts will enforce a provision in a confidentiality agreement providing that an individual who violates its terms is subject to paying the company’s attorneys’ fees and costs in bringing enforcement action.

bloomberg.pngPartners Scott Holt, Barry Willoughby, and William Bowser recently co-authored Bloomberg BNA’s Corporate Practice Series on Noncompetition Agreements. The publication provides an in-depth review of the use and enforcement of noncompetition agreements, including practical tips for prosecuting and defending noncompete cases.

The publication is available through the Bloomberg BNA web site

Employers frequently confront the problem of theft or misappropriation of trade secrets and confidential, proprietary information by departing employees. While employers have an arsenal of legal weapons at their disposal to protect their most valuable business assets, it is critical that they take proactive steps to protect against the disclosure of important business information and prevent unfair competition. From a practical standpoint, failure to implement basic security measures makes it easier for an unethical employee or competitor to misappropriate confidential business information. From a legal perspective, absent efforts to preserve the secrecy of such information and avoid unfair competition, a court is unlikely to respond favorably to an employer request for relief.youngconaway

Trade Secret Protection

Delaware, like most states, has enacted the “Uniform Trade Secrets Act” providing employers with legal protection for trade secret information even in the absence of contractual agreements with employees. While many people may believe that “trade secret” status is only afforded to scientific data such as the formula for Coke, in reality, trade secret protection is available for a much broader array of information. The statutory definition for a trade secret is “information” that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means, by other persons who can obtain economic value from its disclosure or use.” To be protected by the statute, the information must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

I n today’s technology driven workplace, departing employees often leave with more than a few notepads and office supplies. Most companies have a wealth of information available by electronic means that proves to be too tempting for some who have designs to unfairly compete

youngconawaywith their former employer.

The latest trend among noncompete law practitioners has been the assertion of various computer theft statutes to reign in this activity. On the federal level, the Computer Fraud and Abuse Act, 18 U.S.C. § 1030 et seq. (CFAA), is being brought with more frequency in noncompetition enforcement and trade secret cases. The statute requires a showing of intentional access to a protected computer without authorization or beyond authorization that results in damages. It also provides for attorneys’ fees if the plaintiff is successful in proving its case.

In a recent decision by the U.S. District Court for the District of Delaware, the Court used an innovative technique to analyze the plaintiff’s claims of deceptive trade practices. The Court looked to consumer comments in response to the defendant’s blog posts to determine whether potentially misleading posts caused consumer confusion. The Court’s decision is a reminder of the growing trend to rely on social media as evidence during litigation.

In the case of QVC, Inc. v. Your Vitamins, Inc., QVC sued a competitor based on blog posts disparaging QVC’s competing products. The parties in this case are competitors in the dietary supplement market. When QVC released two products that directly competed with Your Vitamins, Inc. (“YVI”), Andrew Lessman, YVI’s founder, took to his blog. In three different blog posts, Lessman compared his products to QVC’s products, reaching unflattering conclusions about QVC’s dietary supplements. Among Lessman’s allegations was the charge that Hyaluronic Acid (“HA”), one of the active ingredient in a QVC supplement, was linked to cancer.

In response to several of Lessman’s blogs, QVC sued alleging multiple claims, including violations of the Delaware Uniform Deceptive Trade Practices Act (“DTPA”). QVC also moved for a Temporary Restraining Order (“TRO”), requiring Lessman to remove the blog posts.

Injunctive relief is normally awarded when the court finds there is no adequate remedy at law. In enforcement actions involving noncompetes, injunctions are usually sought since damages are often difficult, if not impossible, to caculate.

Damages for misappropriation of trade secrets, on the other hand, are often based on lost profits and in many cases can be sufficiently quantified to be awarded. A recent case illustrates that the Court of Chancery may look to novel damage theories to forego the necessity of an injunction.

Agilent Technologies brought suit against three former employees alleging the group had misappropriated its trade secrets. The parties competed in the business of producing high performance liquid chromatography columns used to separate and analyze complex mixtures of gasses, liquids and dissolved substances.

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