Trade-Secrets Trial Post-Mortem

Several months ago, I tried a trade-secrets case in front of a jury and obtained a liability verdict in my client’s favor. This week, the case settled in advance of Monday’s scheduled damages trial. (Thus explaining the shortage of posts lately; I’ve been preparing for trial.) Now that it has settled, I’m going to write a series of posts about this case, since it illustrates how companies can better protect their proprietary information and the consequences of failing to do so.

My client provides services to hotels and is the largest company in its industry within its geographic market. After its sales director quit, my client found out that for at least the prior two years, he had been secretly setting up a competing company. Shortly thereafter, the sales director’s new company took my client’s largest and most important client. Since then, his company has become our largest competitor.

While we had a compelling story, we also had some problems. In particular, the sales director was not subject to a noncompete agreement. And we had limited direct evidence that his company was using my client’s proprietary information. But there was plenty of circumstantial evidence.

We sued for violations of Florida’s Trade Secrets Act, tortious interference with business relationships, and violations of the Florida Deceptive and Unfair Trade Practices Act. From the outset, we knew we would have difficulty proving misappropriation of trade secrets, though we certainly had a good-faith basis for bringing that claim.┬áSince there was no noncompete and we had limited hard evidence, we were hesitant to seek a temporary injunction. Instead, we proceeded with discovery. Because civil cases in Florida state court proceed slowly, it took four years between complaint and verdict.

At trial, the court directed a verdict against my client on the Trade Secrets Act claim, but allowed the tortious interference and deceptive-and-unfair-trade-practices claim to go to the jury. They took less than an hour to enter their verdict in our favor.

Had my client simply required its key employees to sign noncompete agreements, this case would have ended much earlier. We would have immediately moved for, and likely won, injunctive relief. In fact, with a noncompete, I believe the defendant never would have tried to open a competing company (he was being paid handsomely by my client). Instead, my client lost significant business, and had to suffer through and pay for years of litigation. While the ultimate result was very favorable for them, no company wants to endure this type of process.

So the critical lesson from this case, as has been repeated often in these pages, is that companies need to have their key employees sign restrictive covenants, including noncompte and nonsolicitation agreements.

In future posts, I’ll discuss some unique aspects of this case, including how we used a consumer-protection statute to get around the lack of a noncompete, and why we were unable to prove our misappropriation claim. I’ll also talk about how we were able to use a bifurcated liability and damages trial to our advantage.