A recent Massachusetts Superior Court (Court) decision serves as a reminder that employers must take affirmative steps to protect information that they consider to be confidential and/or trade secrets.
In C.R.T.R., Inc. v. Lao, CRTR, which recycles and sells nonfunctioning electronics, sued two individuals who had a business relationship with the company for alleged misappropriation of trade secrets. Defendant Kenneth Lao worked for CRTR as an independent contractor and assisted in running CRTR. Kenneth also worked for another corporation at the same time. Defendant Jimmy Lao, Kenneth's uncle, was a customer of CRTR and was also in negotiations to acquire CRTR. Both Kenneth and Jimmy had access to CRTR's business records, including pricing information and customer names. CRTR, however, did not require Kenneth or Jimmy to sign a confidentiality agreement.
In August 2011, Jimmy wrote a demand letter to CRTR, alleging that CRTR was not providing the proper discount for the purchase of recycled electronics. At the same time, Kenneth resigned from CRTR. CRTR sued Kenneth, Jimmy and Jimmy's company, alleging that they had misappropriated CRTR's trade secrets, including pricing information and customer lists.
Defendants moved for summary judgment, arguing that (i) the records at issue were not trade secrets, and (ii) even if considered trade secrets, CRTR had not taken adequate steps to protect the confidentiality of the records. Defendants pointed to the fact that CRTR had not required them to sign a confidentiality agreement.
The Court found that there was sufficient evidence that the records at issue were trade secrets. The Court relied on company testimony that competitors could use pricing information and customer names to offer better pricing to CRTR's customers, and that the business records were not known to others outside of CRTR's business.
However, the Court found that CRTR did not take reasonable steps to protect the records. Most notably, the Court found that CRTR never required Kenneth or Jimmy to sign a confidentiality agreement. According to the Court, in order to maintain a misappropriation of trade secrets claim a plaintiff must warn the persons to whom trade secrets have become known, preferably in writing, that the information is confidential and that they are expected to protect its confidentiality. While some CRTR employees testified that they knew that the records were confidential, CRTR never told them so, never drafted a confidentiality policy, and never took any steps to prevent unauthorized disclosure. Because CRTR could not establish sufficient protective measures, the Court dismissed the trade secrets claim.
The Court's decision shows how important it is for companies to use confidentiality agreements, policies and/or other affirmative steps to protect confidential information Without taking appropriate measures, an employer may have no recourse if an employee or third party misuses information.