Trade-secret misappropriation actions, not surprisingly, require discovery into the trade secrets at issue. This can create problems, particularly when the action is being litigated between competitors. In a recent case out of Nebraska, the plaintiff appears to be facing a pretty terrible choice: either disclose its proprietary information to a competitor, risk discovery sanctions, or walk away from its claims. Even worse, some simple proactive thinking could have prevented this problem.
In McDonald Apiary, LLC v. Starrh Bees, Inc., 201 WL 299014 (D. Neb. 1/25/16), the plaintiff and defendant are competitors in the beekeeping and honey production industry, with the plaintiff based in Nebraska and the defendant in California. They entered into an oral agreement under which the plaintiff would place a number of the defendant’s bee hives in Oklahoma and Nebraska.
The plaintiff now accuses the defendant of breaching the contract and has sued for misappropriation of trade secrets and other claims. Of course, the defendant has sought discovery into the alleged trade secrets, including information about the locations where the plaintiff places beehives.
As happens routinely in these cases, the plaintiff is only willing to produce its claimed trade-secret documents on an “attorney’s eyes only” (AEO) basis. The defendant objected, leading to this particular order.
The court rejected the AEO designation, focusing on the plaintiff’s failure to protect this information. Including when the plaintiff shared some location information with the defendant and other competitors:
Plaintiff has failed to explain how it can share certain location information with a competitor and simultaneously claim its location information is held strictly confidential. . . . The parties apparently did not enter into any type of confidentiality agreement as part of their oral contract. And this type of undocumented business arrangement does not appear to be unusual for the Plaintiff: McDonald Apiary has entered into similar contracts with other competitors and has not provided evidence it demands a confidentiality agreement in those contracts.
So the plaintiff has spent time and money developing certain information about the best places to locate bee hives. There’s no reason why this information couldn’t be a trade secret — it certainly appears to give the plaintiff benefits by virtue of being unknown to others. But the plaintiff didn’t adequately protect the information when it shared portions of it with third parties under oral contracts with no confidentiality restrictions.
Here, the lesson is simple: First, never enter into oral contracts. Second, any time you are sharing proprietary information with a third party, the contract must include confidentiality/non-disclosure obligations. While this may seem obvious, this case (and many others I’ve seen) show that companies far too often focus on “business” terms, without regard for protecting proprietary information.