Novel Legal Strategy Deflates Employer’s Trade-Secrets Case

Recently, in Putters v. Rmax Operating, LLC, 2014 WL 1466902 (N.D. Ga. April 15, 2014) (opinion linked below), the court dismissed a counterclaim for trade-secrets misappropriation, brought in response to a declaratory judgment action filed by the defendant’s former employee. When I first read this opinion, I thought that the defendant did not move fast enough, thereby allowing the plaintiff to select the forum. When I dug further, however, I found out I was wrong.

In this case, the defendant is a Texas company that manufacturers insulation materials. The plaintiff worked for the defendant for 26 years in Georgia as a sales manager, and had access to the defendant’s confidential information. After the plaintiff left the defendant to work for a competitor, the defendant discovered that the plaintiff “had downloaded documents containing proprietary and confidential information to an external hard drive.”

While not clear from this opinion, the complaint gives the back story. A copy is linked below. The defendant originally filed suit in Texas state court and obtained an ex parte temporary restraining order prohibiting the plaintiff from working for his new employer.

After that, the plaintiff made an interesting legal maneuver. He filed this lawsuit in Georgia state court, seeking a declaration that he is permitted to continue working for his new employer, and an injunction prohibiting the defendant from prosecuting the Texas action, since Texas courts did not have personal jurisdiction over him.

This maneuver worked. The case (after being removed to federal court) is proceeding in Georgia federal court, where the court dismissed the defendant’s counterclaim and denied the defendant’s request for a TRO.

Normally, when a defendant believes that there is no personal jurisdiction over him, he will simply litigate that issue in front of the court where the plaintiff filed the lawsuit. Here, the employee took an entirely different course and successfully redirected the litigation to a different forum. And he was able to get the case in front of a judge with much more favorable views of his case.

Takeaway: Companies should be wary of personal-jurisdiction issues when filing trade-secrets lawsuits. The last thing you want is to be bogged down in a personal jurisdiction fight before the court will even hear a temporary injunction motion. Or, even worse, you could end up like the employer in this case, who spent time and money getting a TRO, only to be whisked away to a Georgia court with a very different view of the employer’s arguments.

Also, had this company simply had its employees sign restrictive covenants (including a venue and jurisdiction clause), they would be in a far better legal position.

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“Trade Secret Perfume”

Recently, I was in New York. The dry winter air in the Northeast is always a shock to my system, since I’m used to the South Florida humidity. So I bought some lip balm. Upon reading the ingredients, I was intrigued to see this:

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“Trade secret perfume.” Aside from creative marketing, does labeling an ingredient as a “trade secret” offer any legal benefits?

Formulas and recipes can be trade secrets. But of course, just labeling something as a trade secret does not make it so. Now if the lip balm company also takes other precautions—such as only disclosing the perfume formula to those employees who need the formula to do their jobs, and requiring that those employees sign confidentiality agreements—the “trade secret” label could be used to strengthen the argument that the formula is actually a trade secret.

This is similar to a document confidentiality policy. Labeling documents containing proprietary information as “confidential” can bolster a claim that the information is a trade secret, when the information is otherwise reasonably protected. But a label is never enough alone. As always, the key to protecting trade secrets starts with requiring that employees with access sign confidentiality agreements.

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