Trade Secrets and Public Records

Companies performing municipal or government work face unique challenges when they need to share their confidential or proprietary information with public agencies. These companies must be wary of state public records laws and the Freedom of Information Act. A recent case, All Aboard Florida — Operations, LLC v. State of Florida, et al., filed in Leon County, Florida, illustrates this.

All Aboard Florida is attempting to develop passenger rail service between Miami and Orlando. It is doing so in partnership with various governmental entities. Recently, Orlando developer Matthew Falconer served various Florida agencies with requests under Florida’s Public Records Act for various documents relating to All Aboard Florida’s efforts.

According to the complaint, these agencies told All Aboard Florida that they intended to provide Falconer with All Aboard Florida’s Florida Ridership and Revenue Study. In response, All Aboard Florida filed this complaint for declaratory and injunctive relief, seeking protection under Florida’s Trade Secrets Act. According to All Aboard Florida, this study is a trade secret:

The Ridership Study analyzes expected market share for AAF’s service, including the effects of various pricing and travel time scenarios on AAF ridership. As such, the Ridership Study is an extremely sensitive and commercially valuable document, the disclosure of which to the public could place AAF at an unfair competitive disadvantage vis-à-vis airlines and other transportation alternatives.

Under Florida’s Public Records Act, trade secrets are exempt from disclosure.

When All Aboard Florida provided this study to the government, it marked each page as proprietary and confidential. For companies facing this situation who have no choice but to provide proprietary information to a government agency, I would recommend going one step further: Label each page of any proprietary document as “Trade Secret Information Protected From Disclosure By Section 815.045, Florida Statutes” (or the relevant statute in the state at issue).

The goal is to make it as simple as possible for the government employees responding to a public-records request to recognize that the document at issue should not be disclosed.

 

Slightly Off Topic: Major Opinion Changes the Standard for Unfair Trade Practices Claims in Florida

I’m going to take a brief detour from trade-secrets issues today, and instead wander in to the world of the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). This statute, like many state consumer-protection laws, prohibits unfair trade practices, among other things.

Prior to this week, Florida courts have defined an unfair trade practice as one that is immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers. (The definition of consumer includes just about all individuals and business entities.) This broad standard allowed FDUTPA to serve as the Swiss Army Knife of claims, since it could apply to diverse types of bad acts. For example, I obtained a judgment for violating FDUTPA where my client’s former independent contractor started a competing business using my client’s proprietary information. (So there’s at least some connection between FDUTPA and trade secrets, since FDUTPA claims could be brought in a misappropriation action.)

But this week, in Porsche Cars North America, Inc. v. Peter Diamond, Florida’s Third District Court of Appeal changed the standard. Now, an unfair trade practice is one that causes injury to a consumer that (1) must be substantial, (2) must not be outweighed by any countervailing benefits to consumers or competition that the practice produces, and (3) must be an injury that the consumers could not reasonably have avoided.

This revised definition, and the third prong in particular, will make it more difficult to bring unfair-trade-practice claims.

As a result of this decision, there is now a district split on this issue. It will be interesting to see if this case gets appealed, and if so, whether the Florida Supreme Court settles the issue.

Do Noncompetes Stifle or Encourage Innovation? Should you care?

The New York Times published an article yesterday discussing the increased use of noncompete agreements in nontraditional industries. The article starts by talking about a 19-year-old college student who had a job offer to work as a summer-camp counselor withdrawn as a result of a noncompete agreement she signed at another camp:

Colette Buser couldn’t understand why a summer camp withdrew its offer for her to work there this year.

After all, the 19-year-old college student had worked as a counselor the three previous summers at a nearby Linx-branded camp in Wellesley, Mass. But the company balked at hiring her because it feared that Linx would sue to enforce a noncompete clause tucked into Ms. Buser’s 2013 summer employment contract.

The article also talks about a lawn-maintenance person, an entry-level social-media marketer,  and a hairdresser, all of whom had to sign restrictive covenants.

As more and more employers require restrictive covenants, there has been increased push-back. Against the backdrop of Massachusetts’ proposed ban on noncompetes, the article goes on to discuss arguments for and against employee restrictive covenants. Some argue that noncompetes stifle innovation:

“Noncompetes are a dampener on innovation and economic development,” said Paul Maeder, co-founder and general partner of Highland Capital Partners, a venture capital firm with offices in both Boston and Silicon Valley. “They result in a lot of stillbirths of entrepreneurship — someone who wants to start a company, but can’t because of a noncompete.”

Employers argue that the opposite is true:

“Noncompetes reduce the potential for poaching,” said Mr. Hazen, whose company makes scratch lottery tickets and special packaging. “We consider them an important way to protect our business. As an entrepreneur who invests a lot of money in equipment, in intellectual property and in people, I’m worried about losing these people we’ve invested in.”

There has always been a dispute about restrictive covenants’ effect on macro-level economic health. From my perspective, I am more concerned about using restrictive covenants to my clients’ benefit, as opposed to resolving this dispute; the policy implications of restrictive-covenant law are irrelevant to companies trying to protect their proprietary information. But the article leaves out a real-world benefit: increased certainty for employers and employees.

When permitted to use restrictive covenants, employers and employees have a better understanding of what will happen when the employer/employee relationship terminates. Employers can more comfortably share proprietary information with their employees, knowing that the restrictive covenants protect the employers’ interests. And employees know the precise limitations on their future employment, which can better inform their employment-related decisions.

Regardless, as I’ve discussed over and over, companies seeking to protect their proprietary information need to consider whether to require restrictive covenants. As long as the applicable jurisdiction permits them, restrictive covenants are often a company’s most powerful weapon to prevent unwanted disclosure.

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