In a case out of Florida involving the rapper known as “50 Cent” an arbitrator found the rapper liable for trade secret misappropriation, among other claims, in the creation of his own line of headphones. The arbitrator awarded, the plaintiff in the case, Sleek Audio, LLC, a little over $11.5 million in damages. Attorney’s fees were also awarded to Sleek and two other individual plaintiffs in the amount of nearly $4.5 million.

Summary of Case

Curtis J. Jackson, III, (aka “50 Cent”) had originally invested in a company known as Sleek Audio, LLC, to design a line of headphones.  Jackson also became a member of Sleek’s board.  Sleek began creating a design for over-the-ear headphones known as “Sleek by 50.” However, eventually Sleek and Jackson parted ways in 2011.  Thereafter, Jackson collaborated with another company, of which he was a majority owner, SMS Audio, to create the headphones known as “Street by 50” and “Synch by 50.”  Jackson hired individuals to work on the SMS Audio headphones that had already had access to the design of Sleek’s headphones.

Sleek then sued Jackson for misappropriation of trade secrets in relation to the headphone design of SMS Audio.  Jackson brought claims against Sleek or fraud in the inducement to enter into a securities purchase agreement and operating agreement.  The claims went to arbitration.

Comparing The Headphones

Ultimately the arbitrator found Jackson liable for misappropriation of trade secret claims, as well as other claims.  As for the misappropriation claim, the arbitrator relied upon Sleek’s expert testimony in comparing Sleek’s headphones to SMS’ headphones.  The expert opined that the three sets of headphones “shared a multitude of mechanical design details” unlike those of other headphones.  Moreover, since Sleek had not yet marketed its headphones to the public, the mechanical design was not “generally known” or “readily ascertainable” by others.  The arbitrator thus found that these similarities as well as Sleek’s internal company procedures for attempting to safeguard this information evidenced trade secret misappropriation.

Additionally, the arbitrator found that an employee of one of Jackson’s company’s had misappropriated trade secrets consisting of potential customer data on Sleek’s webpage that had been password protected.

Inevitable Disclosure

Furthermore, the arbitrator, in relying upon Sleek’s expert opinion, found that SMS’ headphone design could not have been started in such a short period of time and be of such quality without having used Sleek’s trade secrets.  This finding was based upon Jackson hiring the individuals who, prior to working for SMS, had access to the design of Sleek’s headphones.

Liability of Jackson

The arbitrator found Jackson was liable for the misappropriation of Sleek’s trade secrets because of Jackson’s role as a corporate officer of SMS. Under applicable case law, a corporate officer that “was aware of or ratified” use of “improperly obtained trade secrets” along with knowing (or should have known) they were “acquired by improper means” can be held personally liable.  Here, the arbitrator found that the misappropriation of trade secrets by SMS employees combined with Jackson’s awareness of the misappropriation was a sufficient basis for Jackson’s liability.

Takeaways

This case highlights the need for entrepreneurs or businesses to be careful about who they hire and for what purpose.  If a new hire or potential new hire has worked on a similar product for a competitor, caution should be applied in development of similar products.  Perhaps the outcome in this case would have been different had Jackson hired individuals to design SMS’ headphones who had not previously had access to Sleek’s design information.  Additionally, an officer of a company may be liable for an employee’s misappropriation of trade secrets.  This case serves as a reminder of the burdens an officer bears.  Finally, in regard to litigation, as has been demonstrated time and again, a key expert can play a major and decisive role in the outcome of a case.