When Friend Turns Foe: The Risks of Sharing Trade Secrets during M&A Negotiations

In the world of election politics, arms-length dealing with political adversaries is a delicate dance.  Recently, TargetSmart, a Democratic data firm learned how risky even negotiating with those on the same side of the aisle can be.  On June 28, 2018, TargetSmart filed a complaint in the District Court of Massachusetts against GHP, a Boston-based investment firm, and Catalist, TargetSmart’s competitor in the Democratic consulting space, seeking damages and permanent injunctive relief for misappropriation of trade secrets, breach of contract, and other claims arising from a merger negotiation gone-wrong.

TargetSmart alleges GHP approached TargetSmart in late 2017 claiming to represent wealthy donors interested in improving the data infrastructure in Democratic and progressive markets by acquiring TargetSmart.  TargetSmart describes itself as an industry-leading data, technology, and consulting firm with the leading national voter file, VoterBase.  As part of its negotiations with GHP, TargetSmart entered into a mutual non-disclosure agreement (“NDA”) with GHP and shared a wide range of confidential, proprietary information regarding products, services, platforms, software, clients, and financial data. Unbeknownst to TargetSmart, GHP was acting on behalf of TargetSmart’s competitor, Catalist, and allegedly shared TargetSmart’s trade secrets with Catalist in violation of the mutual NDA.  When GHP ultimately disclosed its true client as Catalist, TargetSmart pulled out of negotiations and demanded the return of all information previously shared. GHP and Catalist insist the information has been destroyed, but TargetSmart is not convinced and instead chose to seek judicial intervention.  While TargetSmart awaits resolution of its lawsuit, it may choose to seek a temporary restraining order (“TRO”) or preliminary injunction for immediate relief.

TargetSmart’s allegations offer a cautionary tale for companies that need to share trade secrets during negotiations for a merger or acquisition.  As this case demonstrates, obtaining a NDA is one tool parties can use to protect trade secrets in this setting.  Ultimately, parties may need to seek judicial enforcement of that NDA if there is bad faith or if the deal sours—which parties should be prepared for.