Two recent cases in Massachusetts, one at the federal and one at the state level, address a key issue in the analysis of trade secret claims: the steps employers can and should undertake in order to protect information for which they seek trade secret protection. Taken together, these cases provide valuable instruction to Massachusetts companies about best practices for handling trade secrets.
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In M/K Systems, Inc. v. Glesmann, the plaintiff, a manufacturer of a device used to test the absorbency of various paper products, sued its former employee and the competingbusiness he founded for, among other claims, misappropriation of confidential and proprietary business information. The unreported March 4th, 2011 opinion from the Massachusetts Appeals Court found that, as a threshold matter, the information claimed by the plaintiff to be confidential and proprietary did not meet the secrecy requirement for trade secret protection under Massachusetts law.
Specifically, the court pointed to a number of steps M/K Systems did not undertake in order to protect the alleged confidential nature of the information. These steps included (a) entering into confidentiality agreements with customers, (b) entering into confidentiality agreements with vendors or third-party manufacturers, and (c) entering into noncompete agreements with employees. The court also noted that M/K Systems did not otherwise protect, mark, or otherwise indicate as confidential any information regarding its updated or altered design. Since the plaintiff did not take these steps in order to protect the secrecy of its information, the Appeals Court affirmed the trial court’s ruling against the company and in favor of the defendants.
While the former employer in M/K Systems, Inc. v. Glesmann was unable to convince the court that its business information was, in fact, a trade secret, the plaintiff in Optos, Inc. v. Topcon Medical Systems, Inc., fared much better. In a March 7, 2011 decision out of the District of Massachusetts, the federal court partially granted a motion for a preliminary injunction against a former employee and competitor of Optos, Inc., a retinal image device developer. In this case, Optos brought claims against its former employee and his new employer, including a claim for misappropriation of trade secrets, specifically customer lists.
In the court’s analysis of the plaintiff’s likelihood of success on the merits
of its claims, the court looked at the steps taken by Optos to secure the confidentiality of its customer lists in order to determine whether the information claimed was indeed secret. The court mentioned a number of factors that weighed in favor treating the customer lists as trade secrets. These factors included:
- A requirement that employees sign confidentiality agreements;
- The fact that Optos “password protected its computers and limited internal access to the information on the customer list”; and
- Optos provided its employees with an Employee Handbook which explicitly stated that customer account information and customer lists were confidential.
The court found that, based on such actions, it was likely that Optos would be able to establish that it took reasonable steps to protect its customer list. As a consequence, the court ruled that it would prohibit defendants’ use or dissemination of Optos’ customer list, and bar defendants from soliciting customers identified in Optos’ customer list.
The lesson from both of these cases is clear: companies looking to protect their trade secrets should make sure that they are taking proactive measures to ensure that their trade secrets are, in fact, kept secret. Although courts do not require companies to take “heroic measures” to protect the secrecy of their information, companies that neglect to take reasonable steps to protect their trade secrets may find themselves unable to prevent former employees and competitors from using their information to gain a competitive advantage.
Companies that want to protect their trade secrets – like a client list, product design, financial information, computer program, marketing plan, or product research – should consider taking these practical steps to protect the confidentiality – and thus the trade secret status – of such information:
- Enter into confidentiality agreements with employees, customers, and any other third-parties who will become privy to the information.
- Enter into non-compete agreements with employees.
- Mark or otherwise indicate as confidential the information sought to be protected.
- Use password protection for electronic access to the information.
- Limit internal employee access to the information on a “need-to-know” basis.
- Routinely remind employees that they need to keep information confidential, making sure to specify exactly what information should be treated as confidential and obtain employees’ written acknowledgment that they have been instructed in this regard.
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