In an opinion issued on July 23, 2015 in Sweet Street Desserts, Inc. v. Better Bakery, LLC, the United States District Court for the Eastern District of Pennsylvania underscored the need to think carefully before filing a lawsuit for misuse of trade secrets.
In Sweet Street Desserts, two baking companies wished to discuss a potential joint venture to manufacture and sell a pretzel sandwich. The companies entered into a non-disclosure agreement to protect the disclosure of confidential information, and then exchanged ideas for the pretzel sandwiches, including length, “open ends,” “slits,” and “crumbs,” as well as the overall look of the sandwiches, color, and the manufacturing process. Ultimately, the joint venture fell through, and both parties produced their own pretzel sandwiches.
Shortly thereafter, the plaintiff sued the defendant for (among other things) misappropriation of “trade secrets,” or information that derives “independent economic value . . . from not being generally known to, and not being readily ascertainable by proper means by,” third parties. According to the district court’s opinion, however, the plaintiff made three serious mistakes:
- The complaint was “void of any facts” suggesting the ideas exchanged about the pretzel sandwich were, in reality, secret;
- The plaintiff’s responses to written discovery “were equally nonspecific”; and
- The plaintiff’s corporate deponent testified that the “secrets” in question (regarding the size, shape, and appearance of the sandwich) were entirely visible to anyone examining the product.
The district court granted the defendant’s motion for summary judgment, emphasizing that the plaintiff did not have evidence that the defendant used any information meeting the definition of a trade secret. Before the ruling, the case had dragged on for almost three years.
The overriding lesson of Sweet Street Desserts is simple, but important: trade secrets that form the basis of a claim must actually be a secret and truly confidential. Information that is available to the public is not likely to be found to be a trade secret and cannot form the basis of a successful misappropriation or breach of contract action (based upon the misappropriation of confidential information/trade secrets or breach of a confidentiality/trade secrets provision). In this case, once the pretzel sandwich was produced, its features were evident to everyone in the public, and anyone could have tried to remake the pretzel sandwich simply by looking at it. It seems easy to overlook, but too often companies, frustrated by an actual or perceived betrayal of trust, leap into trade-secrets lawsuits without first considering how they are going to prove the defendant misappropriated information that was in fact, a tradesecret.
For companies contemplating a claim for misappropriation of trade secrets, here are three takeaways from Sweet Street Desserts:
- Before filing suit, decide how to plead specific facts that, if true, would establish the defendant actually misappropriated, or threatens to misappropriate, trade secrets that belong to your company. A company that cannot, or is not willing to, plead trade secrets with that level of exactitude should think twice before proceeding to litigation.
- When answering interrogatories, provide even more specific facts (under the protection of a protective order, if necessary) about the secrecy of the information in question.
- During depositions, be prepared for the corporate witness to provide a coherent answer as to why the information in question is (or was) actually secret, why it is (or was) valuable to the plaintiff because of its secrecy, and the reasonable steps the plaintiff took to keep the information secret.
In conclusion, carefully analyze the nature of the trade secret before deciding how to proceed. If the misappropriation is of a true trade secret, then litigation can be pursued. If it is not a trade secret, then the company is facing paying attorneys’ fees not only for its own lawyers but for the other side under the Pennsylvania Uniform Trade Secrets Act.1