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Articles Posted in Business Litigation

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A temporary injunction is often an effective protection for to prevent an adversary from using stolen trade secrets, such as a customer list.  Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation.

In the case of I.C. Systems, Inc. v. Oliff, 824 So. 2d 286 (Fla. 4th DCA 2002), an employer sued its former employee for damages and injunctive relief and alleged that the former employee misappropriated its client lists and other trade secrets to be used by the employee’s new employer (i.e. a competitor). The employer had no way to control or mitigate the potential damage that would inevitably occur during the lawsuit because the former employee possessed their confidential information. So, contemporaneous to filing its lawsuit, the employer filed a motion for a temporary injunction to immediately prevent further harm by its former employee while the lawsuit proceeded. A temporary injunction is strategically valuable because it penalizes noncompliance by holding them in contempt and the imposition of sanctions against the former employee if he or she fails to comply with the Court’s Order.

The trial court denied the motion for temporary injunction under the mistaken reasoning that the employer did not need the injunction because it could be fully compensated through its claim for monetary damages.  However, in Florida’s Trade Secret Act, the legislature expressly authorized parties to seek both injunctive relief and damages. So, a business should not be limited to recovery of its monetary relief, particularly when its trade secrets could be negatively impacted before a judgment is ever entered by the Court.

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Businesses often envision that litigation over trade secrets will generally involve a direct lawsuit by or against a person or company that steals or divulges such information in violation of a position of trust.  However, trade secrets can come under attack by way of a discovery requests in litigation where the owner of the trade secret may not even be involved in the lawsuit.  The following two recent appellate decisions are examples of the diligence required to safeguard trade secrets in litigation. Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation.

In Kelley v. Healthcare-IQ, Inc., 230 So. 3d 955 (Fla. 2d DCA 2017), former employees sued their former employer for breach of an employment contract.  The former employer filed counterclaims against them alleging disclosure of its trade secrets.  During discovery, the former employer served subpoenas for documents relating to the business practices of its competitor, who was the former employees’ current employer.  The employees asserted the trade secret privilege on its current employer’s behalf. At the court hearing on the privilege, there was no evidence taken and no findings were made by the judge. Nevertheless, the trial court allowed the discovery of the trade secret information.

The employees immediately appealed to prevent the irreparable harm that the disclosure of their employer’s trade secret information would cause to their employer.  On certiorari review, the Appeals Court reversed the decision because the trial court failed to follow the proper procedure, which required it to examine evidence and determine the answers to the following two prongs: 1) whether the information requested is in fact a trade secret and 2) if it is trade secret information, whether there is a reasonable necessity for the requesting party to have the information.

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Trade secrets are a form of intellectual property that are maintained in secrecy. There is no bright line rule that the courts use to determine whether an employee should be enjoined from utilizing a corporation’s trade secrets. The courts must first determine whether the information in question constitutes a trade secret. Courts also look to the reasonable measures taken by the trade secret owner to protect that information. Courts have not been clear on whether skills and knowledge an employee acquired during the course of his employment can be protected as trade secrets.  Peter Mavrick is a Palm Beach trade secret lawyer who has extensive experience with trade secret misappropriation.

A trade secret exists if it has economic value because of it secrecy. As a property right, trade secrets cannot be appropriated without the exclusive consent of the trade secret owner. If a trade secret is misappropriated and made readily available to other competing businesses, they can derive economic benefits from that information to the detriment of the trade secret owner.

In Lee v. Cercoa, Inc., 433 So. 2d 1 (Fla. 4th DCA 1983), Florida Fourth District Court of Appeal was confronted with the issue of whether the skills and knowledge a former employee acquired during the course of his employment are trade secrets. In Lee, the employer was engaged in the business of manufacturing and marketing polishing compounds for glass and plastic materials. The former employee worked for two years as a production manager for the employer. As a part of his job, the former employee learned about the combination of certain chemicals and products to formulate polishing compounds. When the employer learned that the employee was going to use the information he acquired during his employment to begin manufacturing his own glass polishing compound, the employer terminated the employee and filed a lawsuit to enjoin the employee from using trade secrets belonging to the employer.  The former employee contended there was no valid agreement between him and the employer prohibiting him from disclosing or using such trade secrets. The former employee further contended that the manufactured glass polish compounds were derived from major elements and that those processes were well known to others in that field. The trial court granted the employer’s injunction preventing the former employee from utilizing the corporation’s trade secrets. The former employee then appealed that decision.

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Intellectual property is the foundation for innovation and ingenuity. Protecting your intellectual property rights, both as an individual or business, is essential to maintaining an economic advantage over your competitors. Trade secrets are one of the most controversial forms of intellectual property because the information is maintained in secrecy. By contrast, other intellectual property, such as copyrights and patents, must follow certain legal procedures. The purpose of a trade secret is to protect any information that is proprietary to your business because it is a secret. A trade secret can be misappropriated by your competitors or employees, who are seeking to directly compete with your business.  Peter Mavrick is a West Palm Beach business lawyer who has extensive experience dealing with trade secret misappropriation.

As an individual or business owner, the preservation of your trade secret is paramount. It is important to take reasonable measures to ensure the protection of your trade secret. Although trade secrets do not require legal disclosure, they are still afforded legal protection. Florida’s Fourth District Court of Appeal in Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 10 So. 3d 202, 203 (Fla. 4th DCA 2009), analyzed a corporation’s alleged claim of trade secret misappropriation by a business rival.

In Chemplex, the plaintiff owned a film spooling machine that would produce a variety of thin film products. The owner and his father invented and built the spooling machine used by the corporation. They also developed and designed all the products, manufactured them, and determined the formulations for all the required chemicals. Although the machine had numerous components that were simple and readily available on the open market, it was the specifications and calculations of these components that made the machine unique in its design and manufacturing capability. The owner of the machine also took reasonable measures to protect the machine. It was isolated and placed into a separate room only accessible by employees who were given permission to operate it. Upon the termination of one of its employees, the spooling machine was stolen and reproduced by a direct competitor. This enabled the plaintiff’s competitor to directly compete with the corporation because they could manufacture the same pre-cut rolls of thin film. Without direct physical access to the spooling machine, the pre-cut film rolls could never be reproduced because of the specific measurements involved.

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As a business owner, ensuring that your customer list is adequately protected can often be a challenging task. Employees who have direct access to a customer list can misappropriate that information and use it to compete directly against the business. Fortunately, a business’s customer list may qualify as a trade secret to justify the enforcement of a non-compete agreement under Section 542.335, Florida Statutes. The aim is to prohibit employees from using the customer list for their own benefit. For a customer list to qualify as a trade secret, courts look at various factors, including but not limited to, the extensive work and considerable effort that went into creating the list, as well as the knowledge, time, and expense associated with its creation. Peter Mavrick is a Miami trade secret and non-compete litigation lawyer who has extensive experience with litigation involving misappropriation of business customer lists.

Simply because a business has a customer list, does not mean that list qualifies as a trade secret. When a customer list is more complex and contains information that is not easily obtainable in the public domain, it makes the content of the list more valuable. By contrast, when a customer list contains information that is easily obtainable on the open market, it is less likely that the list will qualify as a trade secret. Unfortunately, the courts have yet to establish a bright line rule when it comes to determining whether a customer list qualifies as a trade secret.

In Unistar Corp. v. Child, 415 So. 2d 733 (Fla. 3d DCA 1982), Florida’s Third District Court of Appeal analyzed a business’s customer list to determine whether it qualified as a trade secret. A former employer who was in the business of selling investment grade diamonds and gemstones to their customers through “financial planners,” sought a preliminary injunction to prevent former employees from contacting and selling to its customers. The employer alleged their customer list was a trade secret. The former employees contended, inter alia, that the employer is not entitled to a preliminary injunction because the customer list does not qualify as a trade secret since it was available to the public. The trial court denied the employer’s injunctive relief. The employer appealed.

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During discovery opposing parties request the production of relevant evidence and documents to encourage fair judicial proceedings and case settlements. Although the rules of both state and federal civil procedure are broad enough to encompass most discovery requests, not everything that a party requests is discoverable. There are certain objections and privileges that exist to protect against intrusive discovery requests. A key example of this is the trade secret privilege, which enables a party to refuse production during discovery because the evidence being sought is allegedly a trade secret. Peter Mavrick is a Fort Lauderdale trade secret litigation lawyer who has extensive experience dealing with discovery issues and disputes, including the trade secret privilege.

The trade secret privilege is addressed by Section 90.506, Florida Statutes, which states “a person has a privilege to refuse to disclose, and to prevent other persons from disclosing, a trade secret owned by that person if the allowance of the privilege will not conceal fraud or otherwise work injustice. When the court directs disclosure, it shall take the protective measures that the interests of the holder of the privilege, the interests of the parties, and the furtherance of justice require.  The privilege may be claimed by the person or the person’s agent or employee.” The Fourth District Court of Appeal was confronted with the issue of a party invoking the trade secret privilege in Am. Exp. Travel Related Services, Inc. v. Cruz, 761 So. 2d 1206, 1208 (Fla. 4th DCA 2000).

In Cruz, the plaintiff was a credit card company that sought the recovery of unpaid account charges from a former cardholder and employee. The defendant counterclaimed for damages and alleged that the credit card company had issued a supplemental credit card to a third party on her account and breached the terms of their agreement by authorizing the third party’s charges, even though she had closed her account. During discovery, the defendant requested production of the credit card company’s Internal Credit Authorizations Manual (“Manual”), the personnel files for herself and the other employees alleged to be involved in the unauthorized charges, and a report pertaining to the company’s investigation of these employees for similar misconduct. The plaintiff objected to the production of these items, and claimed the Manual was a protected “trade secret” under Section 688.002(4), Florida Statutes, otherwise known as Florida’s Uniform Trade Secrets Act. The plaintiff further objected to the production of the personnel files and investigative reports and alleged they were confidential and privileged commercial records.

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Competitive bidding is common for many businesses, including construction companies, supply companies, and retail providers, among others.  In most cases, an entity will solicit bids from competing bidders through a request for proposal (RFP) and will award a contract to the most attractive bid, which can depend on several factors.  Although competitive bidding can lead to great for results for the entity soliciting the bids and for the bidder ultimately chosen, it can also leave the unsuccessful bidders resentful.  In some cases, the losing bidder may attempt to bring an action for tortious interference with a business relationship against a person or entity they believe may have interfered with their bid.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has extensive experience defending against claims for tortious interference, and, based on such experience, know that these claims will generally be unsuccessful.

To prevail on a tortious-interference claim, the plaintiff must prove “(1) the existence of a business relationship; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the relationship.” Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812 (Fla.1994).  Pursuant to the Southern District of Florida’s ruling in Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 946 F. Supp. 2d 1321 (S.D. Fla. 2013), the plaintiff is the factual scenario supra will likely be unable to demonstrate a protected business relationship sufficient to justify a claim for tortious interference.

Duty Free involves the competitive bidding process for airport duty-free stores.  Duty-free operators, such as the plaintiff Duty Free Americas, Inc. (“DFA”), generally secure space to operate duty-free stores in a particular airport via competitive bidding.  Defendant, Estee Lauder Companies, Inc. (“ELC”), is the largest manufacturer of beauty products sold in duty-free stores. Prior to June 2008, DFA and ELC had a healthy business relationship.  However, beginning in June 2008, ELC announced it would be raising its pricing, causing DFA to object and refuse to further sell ELC products.  DFA subsequently discovered that ELC ultimately did not raise its prices, and thus tried to mend its relationship with ELC, but ELC refused to continue doing business with DFA.

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To have legal recourse for the misappropriation of a trade secret under Florida law, a plaintiff must: (1) prove the existence of a trade secret; (2) prove that it took reasonable measures to protect the trade secret; and (3) demonstrate that the trade secret was misappropriated. See Del Monte Fresh Produce Co. v. Dole Food Co., Inc., 136 F. Supp. 2d 1271 (S.D. Fla. 2001). The Florida Uniform Trade Secrets Act (the “Act”) protects a party’s trade secrets from “misappropriations.” Section 688.002 of the Act defines misappropriation as:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

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Florida’s Uniform Trade Secrets Act, Fla. Stat. Sections 688.001-688.009 (the “Act”), prohibits the misappropriation of a business’ trade secrets even if the business does not have a non-disclosure or similar agreement with the disclosing party. Misappropriation generally includes the improper possession of, or the disclosure of, a trade secret: “misappropriation” is fully defined in section 688.002, Fla. Stat. A business’ use of a non-compete agreement or non-disclosure agreement is the best way for a business to comprehensively protect its legitimate business interests in its trade secrets. However, even if a business does not have a valid non-compete agreement with an employee or a non-disclosure agreement with anyone, the Act prohibits the misappropriation of trade secrets and, where applicable, compensates the injured party for the theft and disclosure of its trade secrets. See Unistar Corp. v. Child, 415 So. 2d 733, 735 (Fla. 3d DCA 1982) (“lack of an agreement not to disclose a trade secret is not critical on the question of whether a plaintiff may enjoin [or seek damages for] its infringement”). If you have a trade secret litigation issue, Peter Mavrick is a Fort Lauderdale trade secret litigation lawyer who will assist you.

Section 688.003 of the Act allows Florida courts to enjoin a disclosing-party’s misappropriation of a trade secret. If the disclosing-party threatens to misappropriate the trade secret or actually does, the disclosing-party may be prevented from doing so. See Barberio-Powell v. Bernstein Liebstone Associates, Inc., 624 So. 2d 383, 384 (Fla. 4th DCA 1993) (“We recognize that a threatened misappropriation of trade secrets may be enjoined”). Section 688.003 of the Act provides that “[a]ctual or threatened misappropriation [of a trade secret] may be enjoined … for a … reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.  Thus, even if a business believes that its trade secrets are being misappropriated, or that they will be, a court can prevent the act as long as there are facts present to support an injunction. See Unistar Corp., 415 So. 2d at 734. Moreover, such injunctions can be in effect for as long as the trade secret is commercial advantageous.

In addition to injunctive relief, section 688.004 (1) of the Act allows injured businesses to recover damages for misappropriation so long as the injured party establishes that the misappropriation actually injured it. The Act does not authorize awards of nominal damages. See Alphamed Pharm. Corp. v. Arriva Pharm., Inc., 432 F. Supp. 2d 1319, 1335 (S.D. Fla. 2006) (citing Milgrim on Trade Secrets § 15.01 (“It is fundamental that even if defendant’s actual or threatened wrongful use is established, plaintiff must nonetheless establish that such use is to plaintiff’s detriment”)). However, the Act does enable plaintiffs to recover damages for the actual loss caused by the misappropriation.  Actual losses “need only be “caused by” the misappropriation.” Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 94 So. 3d 640, 646 (Fla. 4th DCA 2012). Thus, plaintiffs can measure their damage computations under a variety of methods: such as lost profits using a market share analysis, disgorgement of profits, unjust enrichment, or some other form of measurement that is casually linked to the misappropriation. Premier Lab Supply, Inc. 94 So. 3d at 645. The Act also allows for exemplary/punitive damages for “willful and malicious misappropriations” for “an amount not exceeding twice any award made under subsection (1).”688.004 (2), Fla. Stat.

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It has become common practice for businesses to include arbitration provisions within agreements.  Arbitration provides businesses a more efficient and less costly alternative to expensive, time-consuming litigation.  Normally, arbitration provisions are drafted very broadly to cover all disputes or controversies that could arise between the contractual parties, commonly using the wording “arising from” or “relating to” the contract or agreement.  Thus, anyone who signs an agreement containing such a provision will usually be required to proceed with arbitration if a contractual dispute occurs.  Often times, however, a dispute will arise and the complaining party will wish to proceed in court rather than being compelled to participate in arbitration.  To circumvent arbitration, the complaining party will attempt to argue that the contract is not valid for some reason, i.e. lack of consideration or arguing that the contract was procured by fraud.  Based on these arguments, the complaining party will assert that the contract, as well as the arbitration provision contained therein, is not enforceable.  Peter Mavrick is a Fort Lauderdale business litigation attorney who has defeated such arguments by arguing that courts, at both the state and federal levels, have concluded that attacking the validity of a contract does not remove a party from the scope of an arbitration provision contained therein.

The leading authority for this principle is the 1967 United States Supreme Court decision in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967).  In Prima Paint, the plaintiff brought an action seeking to rescind a contract based on fraud in the inducement.  The contract contained an arbitration provision, and the Supreme Court held that the plaintiff’s action for fraud was undoubtedly encompassed by the broad wording of the arbitration provision.  In so holding, the court reasoned that if the alleged fraud related to the arbitration clause itself, then a court should resolve the issue. But if the fraud in inducement related to the whole contract which contained an agreement to arbitrate, that issue should be resolved by arbitration.

Although Prima Paint was decided under federal law, Florida courts have found its reasoning persuasive and have extended Prima Paint’s holding to contracts formed and executed in Florida.  For example, in Simpson v. Cohen, 812 So. 2d 588 (Fla. 4th DCA 2002), the Florida Fourth District Court of Appeal cited Prima Paint when holding that “[c]ontract language agreeing to arbitrate ‘[a]ny controversy or claim arising out of or relating to this Agreement, or breach thereof ’ has been found to be broad enough to encompass a claim that the execution of an agreement itself was procured by fraud…The fraud in the inducement claim arises from the contract and relates to the other claims that the arbitrator must determine.”

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