line of reasoning begs the question, what if
Benson had not characterized the formula
in a way that could be held as an admission that he knew they were confidential?
Though both of these cases occurred
prior to the adoption of their version
of the Uniform Trade Secrets Act by
Pennsylvania and Iowa, but they highlight the differing outcomes that can occur based on slight tweaks to the facts of
the case in the absence of written contractual agreements. Trade secret law,
a creature born of cases argued before
the various state courts, are always fact-intensive. Basically, they revolve around
the old who-done who wrong made-for-TV melodrama format.
In certain circumstances, a court may
wind up splitting the baby in two regard-
ing ownership of a trade secret created
by an employee under the shop rights
doctrine. The shop rights principal finds
its home in various state court patent
case law where an employee conceives
an invention while using an employer’s
resources, such as using equipment or
materials. An important difference here
though is the factor that the employee
was not hired to develop the invention
that was conceived. Under this doctrine,
the employee owns the invention (or
trade secret), but the employer
has the right to use it without
paying a royalty. But, to clearly
establish a shop right exists re-
quires a judge deciding so after
the hassle of a court case. And
the employee is free to use the
trade secret as a competitor.
However, if you are in
California, an employee may
have a harder time using this
or other types of arguments
to gain ownership of work
related trade secrets. The
Golden State’s Labor Code
Section 2860 explicitly states
– “Everything which an employee acquires by virtue of his
employment, except the compensation which is due to him
from his employer, belongs to
the employer, whether acquired
lawfully or unlawfully, or during or after the expiration of
the term of his employment.”
Well, that seems helpful. On
the flip side, California statues
generally ban non-competition
agreements that we have previously discussed as a way to limit
potential misuse of trade secret
information by former employees. And California statutes,
as well as those of some other
states, explicitly prohibit an
employment agreement from becoming
overly ambitious by requiring assignment
of an invention made using the employee’s own time and resources, which argu-ably carries over to trade secrets.
To make things even murkier, what
happens if in the above examples, if it
was not an employee, but an independent
contractor involved?
The Massachusetts Superior Court re-
cently ruled in C.R. T.R., Inc. v. Lao, et al.
that an independent contractor who had
taken customer names, prices, account-
ing records and business relationship in-
formation about another company could
not be sued for trade secret misappro-
priation. Some of the facts that seem to
weigh most against the plaintiff was the
lack of confidentiality agreement with the
independent contractor, and the deposi-
tions of employees that one “know the
customer lists were confidential, though
no one had ever told her so” and another
employee stating that “on one occasion,
she was told not to bring work out of the
office” as being inadequate evidence that
“any measures were taken to protect its
purported trade secrets.”
However, for creation of a trade se-
cret by an independent contractor work-
ing for a client, the U.S. District Court in
Colorado in Computer Assoc. Int’l, Inc.
v. American Fundware, Inc., applied ex-
tension of trade secret common law em-
ployer ownership to an employee created
trade secret to an independent contractor
stating that “status as an employee or an
independent contractor … is irrelevant
to the ownership of a trade secret.” This
case is often cited in other federal district
court cases.
Sorry to tell you this, but this area of
laws protecting your trade secrets is literally “ 50 shades of Grey” as that’s the
number of stars in old glory. The take
home message is you should check with
your local counsel familiar with the state
laws that may come into play in protecting your trade secrets. Though almost
all states have now adopted versions of
the Uniform Trade Secrets Act, there
may be differences between the versions
from one state you do business in with
another’s. And each state may have very
specific statues and past case law history
that may influence the outcome of litigation. With that in mind, your legal team
should without fail draft legal agreements
that most advantageous for you to match
the likely jurisdictions where lawsuits
may be filed, and minimalize the shadows
cast by state law effects’ on your claim to
ownership of the trade secrets created in
the conduct of your business. CW
