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Articles Posted in Trade Secrets

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A previous article discussed how it is unlawful under the Florida Uniform Trade Secrets Act (FUTSA) to take a trade secret using “improper means.”  As technology has developed, new methods of commercial reconnaissance can make it difficult to determine whether method was lawful acquisition or unlawful espionage.  Peter Mavrick is a Fort Lauderdale business litigation lawyer, representing clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Under FUTSA, it is unlawful for a business to misappropriate, use, or disclose another’s trade secrets when the business knew or had reason to know that it was acquired through “improper means.”  § 688.002(2).  While it is clear that “improper means” includes theft and other crimes, it is less obvious when the reconnaissance crosses the line and becomes unlawful.  This line is further blurred as technology continues to develop to allow information to be acquired remotely.

In E. I. duPont deNemours & Co. v. Christopher, 431 F.2d 1012 (5th Cir. 1970), the United States Court of Appeals for the Fifth Circuit addressed whether the use of a plane to fly over the construction of a factory was an “improper means” to discover trade secrets.  In this important federal court precedent, DuPont held that the use of spy planes was an improper means and explained the legal analysis of trade secret misappropriation:

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The Florida Uniform Trade Secrets Act (FUTSA) allows Florida businesses who have had their trade secrets misappropriated to seek damages or an injunction against the perpetrator of the misappropriation.  For the acquisition to be an unlawful misappropriation, the confidential information must usually have been acquired through “improper means.”  It is lawful for a Florida business to acquire and use another company’s trade secret for itself if it acquired that confidential information through proper means, such as through independent discovery of the trade secret, reverse engineering of the product which uses the trade secret, or through the voluntary disclosure by an owner of the trade secret.  Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach.  The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Pursuant to FUTSA, the misappropriation of a trade secret through improper means is unlawful.  The manner of acquisition of trade secret is a critical question in determining whether there has been unlawful misappropriation.  Generally, if one knows or has reason to know that information was acquired through improper means, the use or disclosure of that information is unlawful.  FUTSA defines misappropriation to mean:

(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

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Trade secrets and confidential information can lose protection under the Florida Uniform Trade Secrets Act (FUTSA) when they are disclosed to third parties. One way to maintain protection of this information under FUTSA, is by entering into a confidentiality agreement with the third parties that will receive the information.  When trade secrets or confidential information is disclosed to employees without a confidentiality agreement, the information does not necessarily lose trade secret protection.  Peter Mavrick is a Miami business litigation lawyer who represents clients in trade secret litigation in Miami, Fort Lauderdale, Boca Raton, and Palm Beach.

A company seeking to protect its confidential information under FUTSA must show that the confidential information at issue was “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”  See § 688.002(4)(b), Florida Statutes.  Disclosing information to third parties can defeat the requisite element of secrecy under either FUTSA when the party given the confidential information is not informed of the confidential nature of the information or otherwise has no obligation to keep the information confidential. “Disclosing the ‘information to others who are under no obligation to protect the confidentiality of the information defeats any claim that the information is a trade secret.’” M.C. Dean, Inc. v. City of Miami Beach, Florida, 199 F. Supp. 3d 1349 (S.D. Fla. 2016).  The underlying principle behind this rule is that something cannot be a trade secret if it is freely shared with outsiders.

“This necessary element of secrecy is not lost, however, if the holder of the trade secret reveals the trade secret to another ‘in confidence, and under an implied obligation not to use or disclose it.’”  Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470 (1974); see Advantor Sys. Corp. v. DRS Tech. Services, Inc., 678 Fed. Appx. 839 (11th Cir. 2017) (“[T]rade secret protection is not lost when a company shares its trade secrets with an entity that has a duty to maintain the secrecy or limit access to the disclosed document”).

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For a trade secret to be protectable under Florida law, a business must protect that information as confidential.  Disclosure of trade secret information to parties without an understanding that the information must be protected as confidential can cause that information to no longer be a protectable trade secret.  In the absence of an express confidentiality agreement, that information may still be protected if the business has an implied confidential relationship with the receiving party by making clear the intention to keep that information protected.  However, that implied confidential relationship may have to be shown by something more than a mere oral understanding, such as a stamp or watermark placed on the documents indicating they are confidential.  Peter Mavrick is a Fort Lauderdale trade secret attorney who represents businesses in trade secret litigation, non-competition agreement litigation, and other business litigation.

Whether information constitutes a trade secret can also make a material difference to the scope of a non-compete agreement.  Under Florida Statute section 542.335(b)2), a trade secret can be a “legitimate business interest” allowing a non-compete covenant and can justify a legal presumption for a more lengthy non-compete obligation.  Under Florida statute section 542.335(e), where trade secrets are proven, “a court shall presume reasonable in time any restraint 5 years or less and shall presume unreasonable in time any restraint of more than 10 years.  All such presumptions shall be rebuttable presumptions.”

It is well established that a business must protect the secrecy of business information for that information to be protected as a trade secret under the Florida Uniform Trade Secret Act (“FUTSA”).  Section 688.002(4)(b), Florida Statutes, describes that a trade secret, by definition, must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

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The Florida Uniform Trade Secrets Act (“FUTSA”) requires courts to take reasonable steps to preserve the secrecy of trade secrets. Fla. Stat. § 688.006. Injunctive relief may be ordered to preserve trade secrets based on actual or threatened misappropriation, as well as, compelling parties to perform specific acts. Fla. Stat. § 688.003.  FUTSA, however, may not be used as a vehicle to restrict competition. In Hatfield v. AutoNation, Inc., 939 So.2d 155 (Fla. 4th DCA 2006), the Florida’s Fourth District Court of Appeal held that FUTSA deals with misappropriation, but not with alleged violations of non-competion agreements. Peter Mavrick is a Fort Lauderdale non-compete lawyer and trade secret lawyer who has extensive experience in trade secret litigation.

An example of this circumstance is the case of Norton v. American LED Technology, Inc., 245 So.3d 968 (Fla. 1st DCA 2018), where American LED Technology, Inc. (“American”) filed a lawsuit against Steve Norton (“Norton”), its former employee.  American filed a motion for a temporary injunction based on an alleged violations of FUTSA and of a non-compete agreement. After a hearing on the motion for temporary injunction, the trial court entered an order granting American’s motion based only on the alleged FUTSA violation. The trial court’s order stated that its findings were “separate and independent from any breach of contract claim” and did not make any other reference to the non-compete agreement. The temporary injunction required, among other things, that Norton could not compete with American. Norton immediately appealed.

American contended that Hatfield v. AutoNation, Inc. demonstrated that courts have discretion to restrain competition when granting injunctive relief under FUTSA. In Hatfield, the appellate court affirmed an order granting a temporary injunction that “included a brief respite from employment as part of the court’s fashioning a remedy that would aid [the plaintiff] in minimizing the potential damage by disclosure of time sensitive trade secrets.”

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For a business to be to protect its confidential information as a protectable trade secrets under the Florida Uniform Trade Secret Act, the business must preserve the secrecy of its confidential information.  There are no hard and fast rules that must be followed for a business to protect its confidential information as a trade secret.  “No single ‘step’ taken to maintain the secrecy of the information secrecy will be determinative; but if the claimant can establish a consistent approach to keeping the information ‘secret’ it will go along way to satisfying this element of the statutory definition.” Gary S. Gaffney and Maria E. Ellison, A Primer on Florida Trade Secret Law: Unlocking the “Secrets” to “Trade Secret” Litigation, 11 U. Miami Bus. L. Rev. 1 (2003). Peter Mavrick is a Fort Lauderdale trade secret attorney, non-compete attorney, and business litigation attorney who represents businesses in trade secret litigation, non-compete agreement litigation, and other business litigation.

A recurring issue in non-compete covenant litigation is whether a trade secret exists and justifies the restrictive covenant.  Under Florida Statutes § 542.335(b)2), a non-compete can be based on a legitimate business interest of a trade secret.  If a trade secret is a proven legitimate business interest under Florida’s non-compete statute, the consequences are severe for the opposing party due to the expanded time-frame the statute allows to enforce a non-compete.  Section 542.335(e), Florida Statutes, provides that “In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint 5 years or less and shall presume unreasonable in time any restraint of more than 10 years.  All such presumptions shall be rebuttable presumptions.”  Because Florida law accords protection to genuine trade secrets and because of the potentially lengthy period of a non-compete based on trade secrets, parties in litigation will often scrutinize whether the alleged trade secrets were closely guarded to ensure and maintain their status as protectible trade secrets.

Trade secrets are defined under § 688.002(4), Florida Statutes, as:

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Protection of trade secrets and proprietary information from a business’ competitors can be a critical part of owning a company. An injunction may become necessary to stop a competing company from possessing or using those trade secrets for their own benefit. The injunction, however, must be specific enough for the enjoined party to understand what they are no longer allowed to do. Peter Mavrick is a Fort Lauderdale trade secret attorney who represents businesses in trade secret litigation and other business litigation.

In American Red Cross v. Palm Beach Blood Bank, Inc., 143 F. 3d 1407 (11th Cir. 1998), Palm Beach Blood Bank, Inc. (“Palm Beach”) opened a branch in Miami. Palm Beach hired a person for the Miami Branch, who previously worked for the American Red Cross (“Red Cross”). Palm Beach and Red Cross competed for sponsors and donors. The former employee took a donor list from Red Cross and provided it to Palm Beach.  Palm Beach then contacted the persons on Red Cross’ list to recruit its blood donors.

Red Cross filed a lawsuit against Palm Beach and alleged that its donor lists were trade secrets that Palm Beach illegally misappropriated.  The district court granted Red Cross’ motion for a temporary restraining order (“TRO”) against Palm Beach. The TRO prohibited Palm Beach from, among other things, “soliciting donations from any Red Cross donor” or “in any way adversely affecting Red Cross’s reputation or goodwill.” The district court held evidentiary hearings on Red Cross’s motion to convert the TRO into a preliminary injunction. Palm Beach moved to modify the TRO to allow Palm Beach to accept donations from persons whom it had not solicited from any Red Cross list. The district court denied the motion to modify the TRO, without explanation. The district court entered a broad preliminary injunction against Palm Beach.

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Plaintiffs in litigation often allege as many types of claims as are applicable to the facts of their case. This practice essentially allows a party to plead alternative claims for different types of relief based on the same nucleus of facts. Under Florida law, a trade secret claim may preempt, i.e. supersede or displace, pleading alternative claims that are not materially different from a plaintiff’s claims for misappropriation of trade secrets.  Lawsuits that include such alternative claims may be subject to dismissal. Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation and other business litigation.

In Sentry Data Systems, Inc. v. CVS Health, 361 F.Supp.3d 1279 (S.D. Fla. 2018), Sentry Data Systems, Inc. (“Sentry”) was a developer and provider of information technology systems that assisted certain hospitals and hospital-like entities—which the parties refer to as “covered entities”—in monitoring compliance with a federal drug pricing program, the 340B Program. Sentry developed tracking software to assist covered entities in managing their prescription inventory, tracking reimbursements and rebates, and maintaining records of eligible drugs and patients. A covered entity may contract with several “contract pharmacies” to dispense its 340B Program-eligible drugs. Sentry and 340B administrators like it, provided tracking software to their covered entity customers and serve as a conduit of information between the covered entity and the contract pharmacy.

CVS Pharmacy, Inc. (“CVS”) is one of these contract pharmacies. Sentry worked directly with CVS to develop contracts between CVS and covered entities, improve CVS’s operational procedures, and develop proprietary software programs for CVS.  During this process, CVS was given a “front-row seat to Sentry’s core business model and internal business methods …,” and signed several confidentiality, non-disclosure, and non-compete agreements. As part of this arrangement with CVS, Sentry also worked with Wellpartner, Inc. (“Wellpartner”), a competitor 340B administrator, to provide CVS with operational and software support for administering CVS’s side of the 340B Program where Wellpartner served as the 340B administrator. Wellpartner and Sentry also entered into several non-disclosure and confidentiality agreements.

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Many businesses create new business concepts. A business concept, however, does not automatically evolve from an interesting idea to a legally protected trade secret.  A concept doesn’t need to be built to be protected, but the concept needs enough substance to be economically valuable and for a court to know what it’s protecting. Peter Mavrick is a Fort Lauderdale trade secret lawyer who represents businesses in trade secret litigation and other business litigation.

In the recent federal court case of ActivEngage, Inc. v. Smith, Middle District Court Case No: 6:19-cv-1638-ORL-37LRH, (M.D. Fla. Nov. 5, 2019), Ted Rubin (“Rubin”) and Defendant Todd L. Smith (“Smith”) co-founded ActivEngage, Inc. (“ActivEngage”), a company which provided messaging services, including live call, email, chat, texting, and advertisement services, to car dealerships throughout North America.  Rubin was the President and Smith was the CEO and later worked for ActivEngage in another capacity. Smith also created his own company, 360Converge, as a holding company for new technological ideas. Smith contended that he always presented ideas of value to ActivEngage first.

In 2018, Smith worked on a new product, ActivProspect, a “lead enhancement” product for dealerships.  Rubin and Smith’s relationship collapsed because of disagreements over the direction of ActivEngage. ActivEngage terminated Smith’s employment. Smith also resigned from the Board of Directors but continued to hold a third of ActivEngage’s stock. After Smith’s termination, he began developing new technology in form of a customer relationship management platform (“CRM”) for his company, 360Converge. Rubin discovered that Smith was planning to release a product similar to ActivProspect in December 2018.

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Florida law can protect companies when their trade secrets are stolen.  For such protections to apply, the confidential information at issue must qualify as a “trade secret” as defined by the Florida Uniform Trade Secrets Act (“FUTSA”).  Fla. Stat. 688.001, et seq.  Generally, something can be a trade secret if derives “independent economic value from not being generally known” and the company makes a reasonable attempt to maintain the secrecy of the information.  Florida case law has helped define what kinds of confidential information qualifies for the statutory requirement of “independent economic value.”  Peter Mavrick is a Fort Lauderdale business litigation attorney and an experienced trade secret attorney.

Trade secrets can exist in many forms.  For example, trade secrets can include confidential business process relating to the production of goods, such as a machine or formula.  Trade secrets can also “relate to the sale of goods or to other operations in the business, such as a code for determining discounts, rebates or other concessions in a price list or catalogue, or a list of specialized customers, or a method of bookkeeping or other office management.”  Summitbridge Nat. Investments LLC v. 1221 Palm Harbor, L.L.C., 67 So. 3d 448, 450 (Fla. 2d DCA 2011).   “Trade secret” is defined by FUTSA as:

Information, including a formula, pattern, compilation, program, device, method, technique, or process that:

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