We have written before about business collaborations gone sour that lead to trade secret misappropriation lawsuits. In a recent example, The Weather Channel convinced a court to wash away claims that its use of data from a former licensor violated trade secret laws. We can take away some useful lessons from how both parties approached this relationship and the treatment of sensitive data.
The plaintiff, Events Media Network, Inc., maintains a database of “Event Data” and “Attraction Data,” which include among other things location, address, city, state, and zip code data fields. In a series of agreements, EMNI licensed this data to TWC. After the last of these agreements, a storm soon brewed between the companies. EMNI suspected that TWC was continuing to use its data and that TWC had used the data during the term of the agreement for unauthorized purposes.
EMNI filed an action in Pennsylvania state court, asserting claims for violation of the Georgia Trade Secrets Act and breach of contract. The case eventually made its way to the U.S. District Court for New Jersey. The district court granted TWC’s motion for summary judgment on the trade secret claims.
To qualify for trade secret protection under the Georgia Trade Secrets Act, among other things, the information must have been “subject to reasonable efforts to maintain its secrecy.” Here the court found that EMNI made insufficient efforts to maintain the secrecy of the data, so the data were not trade secrets. Georgia follows the Uniform Trade Secrets Act, so the court’s rationale would apply under most states’ trade secret laws.
EMNI had trouble applying trade secret protection to this information: the point of its agreements with TWC was to allow TWC to publish EMNI’s data on its website, so long as it provided EMNI with attribution. And EMNI’s own website (and predecessor paper directory) allowed members of the public access to most of this information. The court noted, “while the information may not have been delivered as widely as, say, the Atlanta Yellow Pages, it was sent to thousands of subscribers.”
Still, EMNI could have protected itself better if it had done a few things differently. EMNI claimed that a subset of the data, geocoding data (called “Coordinate Data”) it sent to TWC, was then misused. The court viewed this as “perhaps a more nuanced issue” but still struck down EMNI’s claim. EMNI provided TWC with this data by email without additional protections, reminders of confidentiality, or warning about restrictions on use. This “seriously undermines EMNI’s claim that it considered the information both confidential and a trade secret.” There’s takeaway number 1: when sending confidential and trade secret information by email, you should clearly mark it as such and encrypt it.
Takeaway number 2 is to not rely on a blanket confidentiality provision to save you. The court cited prior holdings that a confidentiality agreement usually is not enough to maintain the secrecy of confidential information. Here, the court found, the confidentiality provisions in the parties’ agreements did not clearly cover EMNI’s information and did not destroy the purpose of the contract (that is, for TWC to publicize EMNI’s data).
Takeaway number 3 is to promptly and clearly address the issue if you suspect your collaborator is misusing confidential and trade secret information. EMNI emails suggested that it was aware that TWC may have been using the data for purposes other than those contemplated by the agreements. Following that, the parties amended the agreement in what the court acknowledged was an apparent attempt to address this alleged misuse. But in the agreement, EMNI consented to continued use of the information for purposes it had been used for under prior agreements. And the new provision did nothing to protect the information’s secrecy – TWC still could have publicized the information as part of an authorized use.
Although TWC is free of the trade secret claim, the skies aren’t sunny just yet. EMNI’s breach of contract claim survives, because the court found a genuine fact issue as to whether TWC had deleted all EMNI data from its computer systems, as required under the agreements. TWC had not yet proved that it had erased information from backup systems, and had not satisfied the court that it had adequately tracked EMNI data in its system. Here is a takeaway for licensees of confidential and trade secret information: be very careful in what you agree to do in termination provisions and create a plan for complying with those provisions ahead of time.