Florida Amends Trade-Secrets Laws to Protect Financial Information

This week, Governor Rick Scott signed into law S.B. 180 and 182, broadening the definition of Florida’s criminal trade-secrets-theft statute to include financial information, and applying that definition to the trade-secrets exception to public-records laws.

Section 812.081, Florida Statutes, criminalizes trade-secrets theft. Previously, the definition of “Trade Secret” did not explicitly reference financial information. As of this week, the definition has been amended as follows, with the new language underlined:

“Trade secret” means the whole or any portion or phase of any formula, pattern, device, combination of devices, or compilation of informa- tion which is for use, or is used, in the operation of a business and which provides the business an advantage, or an opportunity to obtain an advantage, over those who do not know or use it. The term includes any scientific, technical, or commercial information, including financial information, and includes any design, process, procedure, list of suppliers, list of customers, business code, or improvement thereof. Irrespective of novelty, invention, patentability, the state of the prior art, and the level of skill in the business, art, or field to which the subject matter pertains, a trade secret is considered to be:

1. Secret; 2. Of value; 3. For use or in use by the business; and 4. Of advantage to the business, or providing an opportunity to obtain an advantage, over those who do not know or use it

when the owner thereof takes measures to prevent it from becoming available to persons other than those selected by the owner to have access thereto for limited purposes.

While this is a criminal statue, it could affect civil actions as well. First, Section 812.035(6) allows an “aggrieved person” to sue for an injunction that remedies a violation of the statute. Notably, under the civil-remedy provision, the plaintiff does not need to show special or irreparable damage. This is another tool for companies harmed by trade-secret misappropriation.

Second, even though there was no corresponding change to Florida’s Uniform Trade Secret Act, Sec. 688.001, Fla. Stat., the broadened criminal definition could affect actions under the UTSA where financial information is at issue. The fact that the legislature has criminalized theft of financial information bolsters a claim that an injunction is necessary to remedy that type of misappropriation.

Finally, a number of other Florida Statutes were also amended to make clear that trade secrets, as defined in the newly amended Sec. 812.081, are exempted from disclosure under Florida’s public-records laws. Companies involved in “P3s”—public/private partnerships—lobbied heavily for the passage of this bill. The amended statute affects just about all companies that do government contracting. Those companies now have statutory protection against having their financial information disclosed when bidding for or performing government contracts.

“You’re going to accept this offer or we’re going to … take your company … and do it ourselves.”

Guest post by Solomon B. Genet.

It is worth reading Bailey v. St Louis, if for no other reason than it is a good story where the good guys seem to have won, and the bad guys got smacked – and when I say “smacked,” I mean hit with an award of punitive damages.

All of the details (as found by the court) won’t fit in this post, but in summary, a private equity (“PE”) firm met with a profitable medical center (plaintiff), to consider giving the plaintiff loan. The plaintiff provided the PE firm with confidential materials, including a copy of the business plan and financial information, to perform due diligence.

The PE firm did not offer a loan, but instead offered to purchase a controlling interest in the plaintiff, and accompanied that offer with the following threat: “you’re going to accept this offer or we’re going to take your doctors and we’re going to take your company.  And we’re going to go up the street, and we’re going to do it ourselves.”

And to the PE firm’s credit (maybe the only thing to its credit), the PE firm did as it promised. The PE firm created dissent among the plaintiff’s employees, using the confidential documents it had received to mislead certain employees as to the plaintiff’s integrity.  It hired away two of the plaintiff’s doctors and established a competing facility.  It used the plaintiff’s business plan, in a “cut and paste job,” to create its own business plan.  A doctor that left the plaintiff to join the PE firm’s competing facility said that one of the a plaintiff’s principals had many aliases, was a wanted felon, and had “possible” sexual offenses, all of which were false. The PE firm even paid certain of the plaintiff’s employees to quit working for the plaintiff. And the plaintiff’s list of patients and leads and accounts payable information were also misappropriated.

The appellate court directed the trial court to award punitive damages, finding that it met the standard of “wanton intentionality, exaggerated recklessness, or such an extreme degree of negligence as to parallel an intentional and reprehensible act.”

For purposes of this post and the focus of this blog, it’s most relevant that the Court’s conclusion flows from the fact that the plaintiff provided the PE firm with a copy of its business plan and certain financial information upon the condition that they would be kept confidential, and that the PE firm disregarded and abused this agreement.  The takeaway is simple and straightforward: if you are contemplating a business relationship of any sort and intend to share confidential information, take the relatively minor step of seeing a lawyer to draft a non-disclosure/limited-use agreement that protects your information.  You could be thanking yourself later.

Bailey v. St. Louis

When Noncompetes Attack

Noncompete agreements aren’t always appropriate. This is a pretty simple concept that sophisticated companies don’t always grasp. I’ve written often about how noncompete agreements can be a company’s most powerful tool to protect its trade secrets and proprietary information. But only if the employee has access to trade secrets and proprietary information. When a big company takes a blunderbuss approach and makes all of its low-level employees sign noncompete agreements, it can backfire.

In the past few months, companies like Jimmy John’s and Amazon have faced backlash after the media learned that they were forcing sandwich makers and warehouse employees to sign noncompetes. This week, the Wall Street Journal ran a story about Stephanie Russell-Kraft, a former reporter—apparently entry level—at Law360. When Ms. Russell-Kraft left to work at Reuters, Law360 informed Reuters that she had signed a noncompete agreement while at Law360. Reuters fired her for not disclosing the noncompete when she applied.

Now, Law360 is facing bad PR (as reflected in these articles in Slate and Above the Law). Far worse, the New York Attorney General is now investigating Law360 to see if it violated New York labor laws.

I’m not going to claim to be an expert in the legal news-wire business. But it’s hard to see how an entry-level reporter would have access to proprietary information justifying a noncompete. In almost all circumstances, companies should limit noncompetes to senior executives and employees with access to proprietary information and trade secrets.

That’s not to say that companies shouldn’t take steps to protect against lower-level employees misusing or disclosing confidential information. Many times, this can be accomplished by less restrictive agreements such as nonsolicitation or nondisclosure agreements. I’ve found that courts are much more willing to enforce these types of agreements.

This brings us back to one of the key themes that you will find throughout my blog posts: each company needs a personalized strategy for protecting its trade secrets and proprietary information. This strategy should implement appropriate protections, which will often include targeted noncompete agreements. But too many companies force all employees to sign noncompetes. As we’ve seen recently, the company can come off as a bully. Or worse.

UPDATE: Here’s an interesting interview with Russell-Kraft.

%d bloggers like this: