Banking on Standard Operating Protocols as Trade Secrets

In a testament to the wide breadth of potential trade secret protection to any number of industries, a court in the Western District of Washington denied a 12(b)(6) motion to dismiss Seattle Sperm Bank’s (SSB) DTSA and Washington Uniform Trade Secrets Act claims against its prior employees who set up a competing company, Cryobank America.  Among other things, SSB alleged that in the months leading up to their departure, the employees copied 10 folders, including 67 Standard Operating Procedures (SOPs) and 149 forms, to a portable hard-drive that they took with them upon their departure from SSB.

Defendants attacked SSB’s trade secrets claims on two fronts, neither of which the court found persuasive:

First, the defendants argued that SSB did not allege “reasonable measures” that it took in order to maintain the secrecy of the information.  SSB, however, alleged that each employee is required to verify receipt and review of SSB’s employee handbook via signature.  The employee handbook specifically prohibits misuse of SSB’s trade secrets.  SSB further alleged it limited access to SSB’s networks and file servers to certain employees with “important roles.”  The court found that SSB’s allegations were sufficient to survive the motion to dismiss stage.

Second, the defendants argued they did not violate the UTSA because the prior employees did not sign a non-compete agreement, and under Washington law, employees can use non-trade secret information to engage in competitive ventures.  Defendants further argued that Cryobank America is located in a different state, Texas, and is therefore not generally competing with SSB.  The court noted that to give credence to defendants’ arguments ignores the threshold issue of whether the information defendants acquired is actually a trade secret.

This decision is notable because it deals with SOPs, which occupy a sort of gray area in terms of trade secret protection.  Generally, SOPs are step-by-step standardized instructions that many laboratory-based businesses use to maintain quality standards.  Although technical in nature, SOPs can be a compilation of public information, including well-known laboratory techniques and methods.  This publicly known information can then be refined over time into commercially valuable trade secrets.  That in certain instances the SOPs may be a compilation of public information and is then refined through significant time and investment, provides potentially valid arguments to both trade secret plaintiffs and defendants that such information may or may not be entitled to protection.

In denying defendants’ motion, the court reasoned that “[w]hether the SOP’s at issue are readily commercially available, or whether Plaintiff invested considerable time, money, and resources in developing SOP’s specific to its company” is an inappropriate inquiry at the motion to dismiss stage.