A district court for the Eastern District of Wisconsin recently held that even though misappropriated information no longer was a trade secret on the date the wrongdoer was sued, a misappropriation lawsuit may be maintained if the information qualified as a trade secret on the date of the wrongdoing.  Encap, LLC v. The Scotts Co., LLC, Case No. 11-C-685 (E.D. Wis., Sept. 14, 2012).

The case involved a dispute between two companies in the lawn and garden industry.  Plaintiff Encap has invented many novel platform technologies in the seed, mulch, and fertilizer industries.  Defendant The Scotts Company is well known for its Miracle-Gro, EZ Seed, and Turf Builder Grass Seed products.

In early 2002, Scotts personnel allegedly had several introductory confidential communications with persons at Encap inquiring about Encap’s platform technologies. In particular, Scotts was allegedly interested in how Encap’s encapsulated seed technology absorbed water.  Scotts allegedly requested cases of Encap’s new seeds for testing purposes.

In June of 2002, Encap sent Scotts a confidential memorandum, which allegedly contained certain Encap trade secrets. For example, the memorandum contained information about encapsulating seeds to aid in water absorption, using the color of mulch as a watering indicator, and developing a business strategic business plan to exploit these new technologies.  The memorandum, however, provided that Scotts agreed to keep the document confidential and not use or disclose the data within.  A dispute arose when Scotts allegedly used Encap’s confidential information from the memorandum without authorization to make similar competitive products and derive substantial profits.

Encap subsequently sued scotts for patent infringement and trade secret misappropriation.

Encap later brought a motion to dismiss Encap’s trade secret missapropration claim for failure to state a cause of action.  Shortly before Scotts’ motion, Encap requested leave of court to file its 2002 confidential memorandum under seal.

The court entered an order rejecting Encap’s request on the ground that the memorandum was “ten years old and does not contain any apparent trade secrets or underlying data, such as chemical formulas or manufacturing processes.”  Scotts’ motion to dismiss the claim of misappropriation was based on the absence of a trade secret, as seemingly determined by that order.  However, the court reasoned that the decision with respect to filing the memorandum under seal “does not mean that some of the information [in the memorandum] was not a trade secret in 2002 and thereafter when Scotts is alleged to have misappropriated,” and to have used, the information for its own advantage.  So, the motion to dismiss was denied.

This decision teaches that, just because information no longer is confidential at the time a misappropriation case is filed, a cause of action can be stated if (a) the information constituted a trade secret when the misconduct occurred, and (b) damages resulted.  So, whenever trade secrets are disclosed pursuant to a confidentiality agreement, the party making the disclosure should remain alert for a considerable period to the possibility that the agreement was violated.