Small-Town Trade Secrets Fight

Trade secrets are not the exclusive dominion of big business. Virtually all companies have, or at least could have, trade secrets. And all companies face serious risks if they don’t protect their trade secrets. A recent case from the Idaho Supreme Court gives a good example of how even the smallest companies need to focus on trade-secret protection.

La Bella Vita v. Shuler (download here) involves a trade-secrets dispute between two competing hair salons in a small town in Idaho. After a number of employees left the Plaintiff (La Bella Vita) to open a competing salon (Eikova) around the corner, La Bella Vita sued the departing employees, Eikova, and Eikova’s owner (Amanda Schuler). Schuler was La Bella Vita’s former manager. La Bella Vita alleged that the defendants violated their confidentiality agreements and misappropriated trade secrets, including La Bella Vita’s customer information.

The lower court granted summary judgment in the defendants favor, finding no evidence of trade secrets, no misappropriation, and no violation of the agreements. The Idaho Supreme Court reversed, finding a number of genuine issues of material fact.

For a hair salon in small-town Idaho, La Bella Vida was at least somewhat proactive about protecting its confidential information. For example, all employees were required to sign confidentiality agreements. Like many businesses, La Bella Vida was most concerned about protecting its customer information. Over time, it had accumulated a valuable proprietary database about its customers, including each customer’s order history and preferences.

This case centers around whether the customer list was a trade secret, including whether it contained confidential information, and whether La Bella Vida protected it. For example, when Schuler was La Bella Vita’s manager, she used the customer list to create an invite list for her baby shower. When she left, she used the baby-shower list to create Eikova’s customer list. The parties disagree as to whether La Bella Vita’s owner authorized her to use the list for her shower.

La Bella Vita required that all employees sign confidentiality agreements. And all parties testified that they understood that the list needed to be kept confidential. But La Bella Vita could have gone further. Schuler was obviously a key employee. La Bella Vita should have considered having her sign a noncompete or nonsolicitation agreement. And it could have password protected the customer list so that each stylist could only see their own clients, and so that no one could export the entire list. If no one could export the list, it would have been very difficult to create the baby-shower list without the owner’s authorization.

Those relatively minor steps could have saved a lot of money, not to mention heartache. Regardless of how this lawsuit turns out, both sides will likely have spent huge amounts of money litigating. I have no idea what it costs to litigate a case to the Idaho Supreme Court. Nor do I know anything about how much revenue an Idaho salon could generate. But I’m comfortable saying that both La Bella Vida and Eikova will have spent a material amount of their revenue, and suffered through a lot of mental anguish, litigating this case.

All businesses should speak with an attorney who can help them identify their trade secrets and take steps to protect them. A modest investment in protection now can prevent a disaster later.

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