Articles Posted in Trade Secrets

Published on: November 19, 2023

MIAMI BUSINESS LITIGATION: POACHING CUSTOMERS WHEN THERE IS NO NON-COMPETE AGREEMENT

Florida’s non-compete statute, Section 542.335, Florida Statutes, accords broad protection in favor of a business seeking to prevent former employees from competing with the business via goodwill with customers with whom the former employee dealt during his employment. In this regard, section 542.335(1)(b)(3) expressly considers a “legitimate business interest” to include “[s]ubstantial relationships with specific prospective or existing customers, patients, or clients.” Under Florida law, however, in the absence of a non-soliciation agreement or non-compete agreement, a former employee cannot be precluded from using contacts and expertise he gained from employment with his former employer. Businesses have sometimes tried to bar former employees from competing for customers when the employee never even signed a non-compete or non-soliciation agreement. In such cases, businesses have argued that the customers are part of a “trade secret” and are confidential. Florida’s Second District Court of Appeal, in Templeton v. Creative Loafing Tampa, Inc., 552 So.2d 288 (Fla. 2d DCA 1989), held in pertinent part that: “The only arguably secret information on the advertiser list was the contact person. However, the testimony shows that appellant knows all of these persons on a first name basis as a result of his experience working for Music and that he did not need a secret list to enable him to ascertain their identity. Appellant cannot be precluded from utilizing contacts and expertise gained during his former employment.” Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Florida appellate courts distinguish between customer lists that are the product of great expense and effort, that are distillations of larger lists, or include information that is not available from public sources. Under appropriate circumstances, such customer lists can qualify as trade secrets. However, an employee’s mental knowledge of customer relationships, as per prior employment, generally will not qualify for protection as a trade secret. Precedent from the Supreme Court of Florida, in Pure Foods, Inc. v. Sir Sirloin, Inc., 84 So.2d 51 (Fla. 1956), stated in pertinent part: “We do not think the circumstances in this case justify further exploration of the law on that subject or a condemnation of appellee’s erstwhile employees because they undertook to sell to customers whom they had come to know during their former employment. Both corporations were wholesalers and their products were sold to retailers of food such as restaurants and ‘drive-ins.’ Certainly, the names of such concerns were easily obtainable from classified telephone directories and like sources, and surely the employees of appellee who became owners of an interest in the appellant-corporation could not be precluded from attempting to sell all customers whom they had known in their former positions.” Florida’s Fifth District Court of Appeal, in Fish v. Adams 401 So.2d 843 (Fla. 5th DCA 1981), has taken these legal principles a step further, explaining that “an employee may take with him a customer list he himself has developed.” How broadly courts will interpret this wording from Fish v. Adams will likely depend on the factual details, including how intricate and valuable was the customer list the employee took and used after leaving his employment with the business. It is important to emphasize that when the employer-employee relationship does not include a restrictive covenant barring competition or solicitation, it can be an uphill battle to bar an employee’s dealing with his former employer’s customers.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.

Published on: November 15, 2023

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET MISAPPROPRIATION WITH DERIVATIVE PRODUCT

By Mavrick Law Firm

The plaintiff in a trade secret misappropriation case must prove it has a trade secret and the defendant misappropriated the trade secret. Humphreys & Associates, Inc. v. Cressman, 2015 WL 12698428 (C.D. Cal. Aug. 31, 2015) (“To succeed on a claim of trade secret misappropriation, the plaintiff must establish that (1) the plaintiff owned a trade secret, (2) the defendant acquired, disclosed, or used the plaintiff’s trade secret through improper means….). Defendants usually misappropriate a trade secret by using the same secret they stole from the plaintiff. See, e.g., WHIC LLC v. NextGen Labs., Inc., 341 F. Supp. 3d 1147 (D. Haw. 2018) (enjoining the defendant because it used the plaintiff’s trade secret customer list to contact the plaintiff’s customers and generate business). However, misappropriation is not limited in this respect. Defendants may misappropriate a trade secret by using the secret to test a product or create a derivative product. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Trade secret statutes typically define misappropriation as disclosure or use of a trade secret without consent. See 18 U.S.C.A. § 1839. But this begs the question – what constitutes use? Mere possession of a trade secret without more probably does not satisfy the use requirement. However, use is not limited to implementing or selling the exact same trade secret stolen from the plaintiff. Derivative uses of the plaintiff’s trade secret can constitute use, and therefore, misappropriation. For example, a defendant that experiments with the plaintiff’s trade secret uses that trade secret even if the experiments do not yield a commercial product. See 02 Micro Intern. Ltd. v. Monolithic Power Sys., Inc., 399 F. Supp. 2d 1064 (N.D. Cal. 2005) (“Based on the California and federal cases presented by the parties, the Court concludes that internal experimentation with trade secret information not resulting in a market product can constitute use.”). Defendants also misappropriate trade secrets when they use a substantial portion of the trade secret even if the defendants independently improved that trade secret. BladeRoom Group Ltd. v. Emerson Elec. Co., 331 F. Supp. 3d 977 (N.D. Cal. 2018), vacated and remanded on other grounds, 11 F.4th 1010 (9th Cir. 2021), and vacated and remanded on other grounds, 20 F.4th 1231 (9th Cir. 2021) (holding that “use of any substantial portion of the secret is sufficient to subject the actor to liability” and an “actor is liable for using the trade secret with independently created improvements or modifications if [they]… derived from the trade secret.”).

Courts broadly interpret use to protect trade secrets and effectuate trade secret law. “If trade secret law were not flexible enough to encompass modified or even new products that are substantially derived from the trade secret of another, the protections that law provides would be hollow indeed.” Dev. Corp. v. Nat’l Chem. Co., Inc., 87 F.3d 937, 944 (7th Cir. 1996). In fact, a strong impetus for enjoining defendants in trade secret actions results from the desire to prevent unfair head starts. Lamb–Weston, Inc. v. McCain Foods, Ltd., 941 F.2d 970, 974 (9th Cir. 1991) (noting that a trade secret injunction “seeks to protect the secrecy of misappropriated information and to eliminate any unfair head start the defendant may have gained”). Courts prevent defendants from selling products that are inextricably connected with the plaintiff’s trade secrets because the defendant cannot unlearn or abandon the misappropriated technology. See 02 Micro Intern. Ltd., 399 F. Supp. 2d 1064 (citing General Electric Co. v. Sung, 843 F. Supp. 776 (D. Mass. 1994)). Therefore, defendants cannot evade trade secret liability by incorporating the plaintiff’s trade secret into a new or different product. See, e.g., Speech Tech. Assocs. v. Adaptive Commc’n Sys., 1994 WL 449032 (N.D. Cal. Aug. 16, 1994) (finding misappropriation where some of the technology used in the offending new products was different from that claimed in the trade secret, but most of the functional aspects of the trade secret technology were incorporated).

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Published on: November 12, 2023

MIAMI BUSINESS LITIGATION: DAMAGES FOR WILLFUL AND MALICIOUS MISAPPROPRIATION OF TRADE SECRETS

By Mavrick Law Firm

The Defend Trade Secrets Act (DTSA), 18 U.S.C. section 1836, is the federal statute that provides a cause of action for misappropriation of trade secrets. Under DTSA, “a court may” award (1) “damages for actual loss caused by the misapropriation of the trade secret,” (2) “damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss,” and (3) “if the trade secret is willfully and maliciously misappropriated, … exemplary damages in an amount not more than 2 times the amount of the damages awarded.” Although there is no clearly articulated test for determining whether, upon a finding of willful and malicious misappropriation, an award of exemplary damages is proper, federal courts have considered several factors. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

For example, in examining whether exemplary damages are appropriate, the United States District Court for the Southern District of New York, in Syntel Sterling Best Shore Mauritius Ltd. v. TriZetto Group, Inc., 2021 WL 1553926 (S.D.N.Y. April 20, 2021), cited “the degree of reprehensibility associated with the wrongdoer’s actions.” In AgroFresh Inc. v. Essentiv LLC, 2020 WL 7024867 (D.Del. November 30, 2020), the United States District Court for the District of Delaware cited two additional factors: “the duration of misappropriative conduct” and “the defendant’s consciousness of resulting injury and any efforts to cover up malfeasance.” DiscoverOrg Data, LLC v. Vitnine Global, Inc., 2020 WL 6562333 (N.D. Cal. November 9, 2020), the federal district court considered “the need to deter similar misconduct in the future.” The U.S. District Court for the Northern District of California, in Citron USA, LLC v. RiverPay, Inc., 2020 WL 5365980 (N.D. Cal. September 8, 2020), identified two additional factors: “the amount of compensatory damages awarded” and “the wealth of the particular defendant.” All of these factors must be considered in the larger context of Supreme Court precedent concerning punitive damages in all litigation. Precedent from the United States Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), discussed limits on punitive damages in all cases in the context of the United States Constitution’s requirement of Due Process. The Supreme Court explained that “flagrancy of the misconduct is thought to be the primary consideration in determining the amount of punitive damages.”

Florida’s trade secret statute allows recovery of exemplary damages. Under Florida Statutes section 688.004(2), “[i]f willful and malicious misappropriation exists, the court may award exemplary damages in an amount not exceeding twice any award” for compensatory damages for trade secret misappropriation. In addition, Florida law (at Florida Statutes section 688.005) provides that “[i]f … willful and malicious misappropriation exists, the court may award reasonable attorney’s fees to the prevailing party.” In Fin. Techs., LLC v. iControl Sys., USA, LLC, 21 F.4th 1267 (11th Cir. 2021), the United States Court of Appeals for the Eleventh Circuit interpreted Florida’s trade secret statute to allow an award of exemplary damages when “the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard for the rights of others.” In Perdue Farms Inc. v. Hook, 777 So.2d 1047 (Fla. 2d DCA 2001), Florida’s Second District Court of Appeal explained that the traditional standards for evaluating “willful and malicious” conduct in other contexts apply in the context of trade secret misappropriation under Florida law. Applying Florida law as well as the DTSA to assess exemplary damages in a trade secret misappropriation case, the United States District Court for the Northern District of Florida, in Capital City Home Loans, LLC v. Darnell, 2023 WL 4169614 (N.D. Fla. May 11, 2023), stated in pertinent part: “Here, the admitted facts show that Darnell intentionally stole trade secrets…Her conduct exhibited a complete disregard for Capital City’s trade-secret rights, and it constituted at least gross negligence. That is enough to show entitlement to exemplary damages and attorney’s fees under… [Florida’s trade secret statute] and the DTSA. I therefore find, as a matter of discretion, that Capital City is entitled to such damages.”

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Published on: October 28, 2023

MIAMI BUSINESS LITIGATION: DAMAGES IN TRADE SECRETS LITIGATION

By Mavrick Law Firm

Someone misappropriated your trade secrets and you can prove it. But how were you damaged? This is an important question you must ask before commencing a lawsuit because the answer could influence a significant portion of your litigation strategy. Below we provide insights into some of the categories of damages you may be entitled to recover along with some of the impediments to recovering those damages. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Lost profits are a common form of trade secret misappropriation damages. Under Florida Statutes 688.001(4), Florida’s trade secrets act permits recovery of damages “for the actual loss caused by misappropriation.” These damages are calculated by determining the revenue the trade secret owner lost due to the defendant’s conduct less the costs the trade secret owner saved due to the defendant’s conduct. An example could be a manufacturing plant that loses several customers and millions in revenue because a former employee stole the plant’s trade secret and started a competing business. The plant could recover its lost customer revenues minus the costs it saved by manufacturing less products due to the lost customers. However, determining which costs are deductible from revenue can be tricky and vary case by case. A court may refuse to deduct fixed costs from the lost profit analysis because the plant would have incurred those fixed costs regardless of whether it retained all customers. For example, in Fin. Info. Techs., LLC v. iControl Sys., USA, LLC, 21 F.4th 1267 (11th Cir. 2021), the United States Court of Appeals for the Eleventh Circuit agreed with the federal trial court’s decision that “the jury was not required to deduct Fintech’s fixed costs from its revenues to arrive at a proper ‘actual loss’ measure.” See also N. Gregory Mankiw, Principles of Microeconomics 266–68 (6th ed. 2011) (defining fixed costs as those that do not directly vary based on output volume). By contrast, courts may deduct marginal costs from the lost profit analysis because the plant saved money by producing less products. See N. Gregory Mankiw, Principles of Microeconomics 266–68 (6th ed. 2011) (defining marginal costs as the measure of change in cost associated with a change in output). In the iControl Sys., USA, LLC decision, the Eleventh Circuit assessed the plaintiff’s proof at trial vaguely articulated its marginal costs as “minimal” without specifying what were the actual marginal costs or that they were zero. The Eleventh Circuit explained in pertinent part that, “[m]issing from the trial record is any evidence that Fintech’s marginal costs were actually zero. Had Fintech clearly presented that evidence, it might have been entitled to an award that didn’t account for those costs.”

Disgorgement is a lesser-known remedy in trade secret litigation. Disgorgement in essence requires a defendant to give-up certain profits to the plaintiff as an equitable remedy for ill-gotten gains. In Sensormatic Elecs. Corp. v. TAG Co. US, LLC, 632 F. Supp. 2d 1147 (S.D. Fla. 2008), the federal district court held that “[d]isgorgement of a defendant’s profits is an appropriate remedy where the disgorgement is limited to the amount of time it would have taken the defendant to independently develop its product without the benefit of the plaintiff’s trade secrets—in other words, the ‘head start’ period.” The remedy is intended to prevent the defendant’s unjust enrichment and is measured by a defendant’s improper acquisition of money rather than the plaintiff’s losses. S.E.C. v. Monterosso, 756 F.3d 1326, 1337 (11th Cir. 2014).

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Published on: October 7, 2023

MIAMI BUSINESS LITIGATION: PROTECTION OF TRADE SECRETS AND NONDISCLOSURE AGREEMENTS

By Mavrick Law Firm

For certain business, their trade secrets and are their most valuable assets. Accordingly, businesses will often seek to protect their trade secrets in various ways, including the use of a non-disclosure agreement (commonly referred to as an “NDA”). An NDA is a contract that typically binds current and former employees and independent contractors to maintain the confidentiality of disclosed information. To succeed in business litigation alleging misappropriation of a trade secret, a company must take reasonable measures to protect the secrecy of its information. This requirement is codified within the Defend Trade Secrets Act (18 U.S.C. section 1839(3)(A)) as part of the definition of “trade secret.” The United States Court of Appeals for the Seventh Circuit in Tax Track Sys. Corp. v. New Inv. World, Inc., 478 F.3d 783 (7th Cir. 2007), explained that courts evaluate the question of whether efforts to keep information confidential were sufficient “on a case-by-case basis, considering the efforts taken, the costs, benefits, and practicalities of the circumstances.” The Tax Track decision further stated that, in some circumstances, judgment as a matter of law is appropriate because it is “readily apparent that reasonable measures were not taken.” Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Under the Defend Trade Secrets Act, 18 U.S.C. section 1839(5)(B)(ii)-(iii), a trade secret is “misappropriated” by, among other means, “disclosure or use of a trade secret of another without the express or implied consent by a parson who…at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret was…acquired under circumstances giving rise to a duty to maintain the secrecy of the trade secret or limit the use of the trade secret; or…derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret.” Although an NDA is not a necessary condition to demonstrate reasonable protection for a business’ trade secrets, it nevertheless can serve as persuasive evidence in demonstrating the business took reasonable measures to protect its intellectual property. The United States Court of Appeals for the Eleventh Circuit in Penalty Kick Management Ltd. v. Coca Cola Co., 318 F.3d 1284 (11th Cir. 2003), stated in pertinent part that, “[i]n this case, the surrounding circumstances, namely the Non–Disclosure Agreement, clearly gave rise to a duty on the part of Coca–Cola to maintain the secrecy of any Magic Windows trade secrets.”

Requiring that employees and independent contractors sign NDAs is generally not, by itself, sufficient to prove the employer took reasonable measures to protect its trade secrets. As with any valuable asset, common sense is needed to determine what measures are appropriate under the relevant circumstances. For example, the business may need to limit access to the trade secrets to only those employees who “need to know” the information, limit access to information via separate computer database that is password protected, and limit employee access to certain parts of the business premises to prevent inadvertent dissemination of trade secret information. Such measures may deter or prevent trade secret information. In the event of actual misappropriation, such prudent measures would help the business protect its trade secrets in litigation seeking an injunction and damages.

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Published on: October 5, 2023

FORT LAUDERDALE BUSINESS LITIGATION: CUSTOMER LISTS AND TRADE SECRETS

By Mavrick Law Firm

Some businesses have experienced loss of customer relationships due to former employees taking customer relationships to competitors. The most obvious way to protect against such a situation is to ensure employees sign a restrictive covenant under Florida Statutes Section 542.335, commonly referred to as a non-compete agreement, prohibiting solicitation of customers and competition that diverts the employer’s customers to a competitor. Sometimes, however, businesses do not have a non-compete agreement with their employees. The law of trade secrets can be used, under certain circumstances, to bar use of confidential information, including customer lists, to divert customers to competitors. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s Second District Court of Appeal, in East v. Aqua Gaming, 805 So.2d 932 (Fla. 2d DCA 2001), explained what is required to prove a customer list is a trade secret. To qualify as a trade secret, there must be evidence that a customer list “was the product of great expense and effort, that it included information that was confidential and not available from public sources, and that it was distilled from larger lists of potential customers into a list of viable customers for [a] unique business.” Customer lists can constitute trade secrets where the lists are acquired or complied through the industry of the owner of the lists and are not just a compilation of information commonly available to the public.

In trade secret litigation, it is often a major issue whether the alleged trade secret owner took appropriate measures to keep the the subject information a secret. Under Florida’s trade secret statute, section 688.002(4)(b), a trade secret owner must make “efforts that are reasonable under the circumstances to maintain its secrecy.” As to this issue, Florida and federal courts will often look at whether the alleged trade secret owner had signed agreements with its employees to protect the company information. In My Energy Monster, Inc. v. Gawrych, 2020 WL 8224616 (M.D. Fla. 12/18/2020), the federal court faulted the business that owned the alleged trade secret for not taking better measures to protect its trade secrets, and stated in pertinent part: “However, the record demonstrates that Gawrych was not required to sign a non-compete agreement, non-solicitation agreement, nor a confidentiality agreement and that non existed for other Energy Monster employees. According to Defendants, all employees at Energy Monster had access to the customer list…Defendants, further state that [t]here [were] no ‘need to know’ employees and Energy Monster never obtained nondisclosure agreements or confidentiality agreements–even after the parties parted ways and Gawrych offered to sign an NDA…Yet Energy Monster seeks to prevent the very action that such agreements are typically designed to prevent.”

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Published on: August 31, 2023

FORT LAUDERDALE BUSINESS LITIGATION: SUCCESSFUL DEFENSE AGAINST A TRADE SECRETS CLAIM AND RECOVERY OF LEGAL FEES

By Mavrick Law Firm

The Defend Trade Secrets Act (commonly called “DTSA”) is a federal law that prohibits trade secret misappropriation. DTSA states, at 18 U.S.C. section 1836(a), that “[a]n owner of a trade secret that is misappropriated may bring a civil action under this subsection if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” DTSA allows a party to recover “reasonable attorney’s fees the prevailing party” if a claim of misappropriation is “made in bad faith.” DTSA, however, does not define the term “bad faith.” A body of federal case law has evolved to determine what will trigger a determination of “bad faith” for recovery of attorney’s fees to the prevailing party. One of the predominant tests is the so-called “Stilwell test,” based on the decision from the United States District Court for the Central District of California in Stilwell Dev., Inc. v. Chen, 1989 WL 418783 (C.D. Cal. Apr. 25, 1989). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

The Stilwell test is a two-pronged analysis that has been frequently adopted to evaluate claims of bad faith in the context of trade secret misappropriation. Under Stilwell, “[t]he party seeking an award of attorney’s fees must show (2) the objective speciousness of [an] opposing party’s claim, and (2) the subjective bad faith of the opposing party in bringing or maintaining the action for an improper purpose.” In Kipu Sys. LLC v. Zencharts LLC, 2021 WL 1891710 (S.D. Fla. Apr. 6, 2021), the United States District Court for the Southern District of Florida essentially used the Stilwell test. Kipu explained that “objective speciousness” means “generally shown with a demonstration that there was no misappropriation or threatened misappropriation or that the opposing party could not have suffered any economic harm…’Objective speciousness exists where there is a complete lack of evidence supporting Plaintiff’s claims.’” The second prong, requiring subjective bad faith, is satisfied when it may be inferred from the evidence that a party “intended to cause unnecessary delay, filed the action to harass [the opposing party], or harbored an improper motive.” Relying on California appellate court precedent, Kipu explained that “[s]ubjective bad faith means the action was commenced or continued for an improper purpose, such as harassment, delay, or to thwart competition…That question ‘involves a factual inquiry into the plaintiff’s subjective state of mind: Did he or she believe the action was valid? What was his or her intent or purpose in pursuing it?’” Kipu relied, in part, on case law from the United States Court of Appeals for the Sixth Circuit, in Degussa Admixtures, Inc. v. Burnett, 27 F.App’x 530 (6^th Cir. 2008), concerning an award of attorneys’ fees in a trade secret case governed by Michigan law. Degussa awarded attorneys’ fees under Michigan law when the evidence showed, not that the plaintiff had an objectively supportable and good-faith claim that the defendant was using trade secrets to gain new customers, but that the plaintiff’s “own product-quality, employee-retention and marketing shortcomings led it to file this action in an attempt to slow the bleeding from those self-inflicted wounds—to avoid losing additional market share and salespeople to [the competitor] and to convert [the defendant’s] confidentiality agreement into a noncompete agreement.” The Degussa decision summarized its holding that, “[f]iling a trade-secret action to restrain legitimate competition and job mobility, needless to say, is not proper.”

Federal courts do not generally look at the failure to properly state a claim, by itself, as enough to warrant an inference of bad faith for an award of attorney’s fees. The United States Court of Appeals for the Eleventh Circuit, in Mar. Mgmt., Inc. v. United States, 242 F.3d 1326 (11th Cir. 2001), explained that “[i]n determining the propriety of a bad faith award, ‘the inquiry will focus primarily on the conduct and motive of a party, rather on the validity of the case.'”

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Published on: August 17, 2023

FORT LAUDERDALE BUSINESS LITIGATION: FLORIDA TRADE SECRETS CLAIMS PREEMPTION

By Mavrick Law Firm

Florida employers who have non-compete agreements may enforce the restrictive covenants based on the legitimate business interest of trade secrets under Florida Statutes Section 542.335(1)(b)(1). Employers may also sue for misappropriation of trade secrets. However, employers sometimes sue former employees for common law claims that are related to misappropriation of company trade secrets. Such common law claims have sometimes faced roadblocks because many state law trade secret statutes preempt or displace all other non-contract claims arising from the trade secret misappropriation. Florida’s trade secret statute, like many others, preempts all potential claims arising from the unauthorized use of a trade secret unless the claim sounds in contract. Fla. Stat. § 688.008 (The Uniform Trade Secrets Act “displace[s] conflicting tort, restitutory, and other law of this state providing civil remedies for misappropriation of a trade secret [except]… contractual remedies”). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s Third District Court of Appeal in Digiport, Inc. v. Foram Dev. BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), provided an analysis of Florida law trade secret preemption. Digiport explained that Florida courts look to the facts alleged in the complaint to determine whether “there are material distinctions between the allegations comprising the additional torts and the allegations supporting the [trade secret claim].” The appellate court determined the plaintiff’s claims were preempted because they were premised on the same allegations and elements as its trade secret claims, stating “[b]oth the trade secret misappropriation claim and the misappropriation of a business idea count are premised upon allegations that [the plaintiff] invested substantial time in creating a novel business idea, the idea was disclosed to [the defendant] in confidence, reasonable measures to protect the secrecy were undertaken, and [the defendant] misappropriated the idea by disclosing its plans to other companies for its own benefit.” Conversely, courts allow claims affiliated with trade secrets to proceed if trade secret misappropriation does not alone comprise the underlying wrong. For example, in Mortgage Now, Inc. v. Stone, 2009 WL 4262877 (N.D. Fla. Nov. 24, 2009), the United States District Court for the Northern District of Florida allowed a claim of civil conspiracy to proceed because the defendant’s acts were unrelated to the misappropriation of trade secrets.

Preemption is a powerful tool that may apply to claims involving the use of information that does not qualify as a trade secret. K3 Enterprises, Inc. Saspwski, 2021 WL 8363506 *9 (S.D. Fla. Nov. 19, 2021), explained that, “[a]ccording to the majority view, non-FUTSA, non-contractual civil misappropriation claims do constitute conflicting law under Florida Statute § 688.008(1) and are preempted at the motion to dismiss stage.”) (internal quotations omitted). Similarly, another federal district court in American Registry, LLC v. Hanaw, 2014 WL 12606501, *6 (M.D. Fla. July 16, 2014), stated in pertinent part that, “[t]he Court finds that the FUTSA preempts all non-contract claims based on the misappropriation of confidential and/or commercially valuable information even if the information does not constitute a trade secret under the FUTSA.”

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Published on: August 10, 2023

FORT LAUDERDALE BUSINESS LITIGATION: TRADE SECRET COMPILATIONS AND CUSTOMER LISTS

By Mavrick Law Firm

The first rule of the law of trade secrets is that they must be secret. Obviously, the word “secret” is contained within the term “trade secret.” And the definition of trade secret dictates that it must be information that “derives independent economic value… from not being generally known to… other persons.” Fla. Stat. 688.002(4)(a); see also 18 U.S.C.A. § 1839 (same). The holder of the trade secret must take reasonable measures to protect the secrecy of his information. Id. at (4)(b). But is one-hundred percent secrecy always required? Can some or all portions of a trade secret be public and still derive trade secret status? The answers to both questions are examined below. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s Third District Court of Appeal, in Digiport, Inc. v. Foram Development BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), explained that a unique compilation of public information can qualify as a trade secret so long as the compilation adds value. The unique compilation warrants trade secret protections because it provides a competitive advantage in the marketplace (and corresponding value). The Digiport decision stated in pertinent part that, “‘A trade secret can exist in a combination of characteristics and components, each of which, by itself, is in the public domain, but the unified process, design and operation of which in unique combination, affords a competitive advantage and is a protectable secret.’” (citing In re TXCO Res., Inc., 475 B.R. 781 (Bankr. W.D. Tex. 2012) (quoting Metallurgical Indus. Inc. v. Fourtek, Inc., 790 F.2d 1195 (5th Cir. 1986)). Therefore, amalgamated information can qualify as a trade secret even if its individual parts do not qualify as trade secrets. Similarly, the United States Court of Appeals for the Eleventh Circuit, in Compulife Software Inc. v. Newman, 959 F.3d 1288 (11th Cir. 2020), discussed trade secrets based on compilations, and explained that, “[e]ven if [insurance] quotes aren’t trade secrets, taking enough of them must amount to misappropriation of the underlying secret at some point. Otherwise, there would be no substance to trade-secret protections for ‘compilations,’ which the law clearly provides”).

Establishing a trade secret customer list usually presents a question of fact as to whether the list is a unique compilation justifying trade secret protections. Poet Theatricals Marine, LLC v. Celebrity Cruises, Inc., 307 So. 3d 927, 929 (Fla. 3d DCA 2020), stated that “[w]hether a particular type of information constitutes a trade secret is a question of fact.” “Under Florida law, customer lists are generally considered trade secrets [if] (1) the list was acquired or compiled through the industry of the owner of the list and is not just a compilation of information commonly available to the public; and (2) the owner shows that it has taken reasonable efforts to maintain the secrecy of the information.” Digital Assurance Certification, LLC v. Pendolino, 2017 WL 320830 (M.D. Fla. Jan. 23, 2017). The trade secret proponent must demonstrate it spent significant time, effort, and expense compiling the list. In Sentry Data Sys., Inc. v. CVS Health, 361 F. Supp. 3d 1279, 1294 (S.D. Fla. 2018), the United States District Court for the Southern District of Florida allowed the plaintiff’s trade secret claim to proceed because the plaintiff alleged it took considerable effort, knowledge, time, and expense to identify clients interested in participating in the program along with understanding the clients’ capabilities and needs. For example, in Bridge Fin., Inc. v. J. Fischer & Associates, Inc., 310 So. 3d 45 (Fla. 4th DCA 2020), the appellate court determined a client list was a trade secret even though the trade secret proponent purchased its list from another company. The appellate court concluded that the trade secret proponent “spent a significant amount of time, effort, and money developing the client list, which was kept on [the proponent]’s password protected server.” Therefore, the possessor of a client list must be prepared to demonstrate the substantial efforts taken to create that list if he wants to protect it as a trade secret.

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Published on: August 3, 2023

FORT LAUDERDALE BUSINESS LITIGATION: COMPANY TRADE SECRETS ACCESSED VIA EMPLOYEES’ SMARTPHONES

By Mavrick Law Firm

Employers beware: it is possible to invalidate trade secret protections if employees access your trade secrets using personal smartphones and other similar devices. The erosion of trade secret protections can occur even if the employer undertakes other, reasonable measures to protect those very same trade secrets. Most, if not all, trade secret statutes require the trade secret proponent to take reasonable measures to protect its trade secrets. See, e.g., 18 U.S.C.A. § 1839 (defining trade secret as information “the owner thereof has taken reasonable measures to keep such information secret”); Fla. Stat. § 688.002 (2) (requiring that a trade secret be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy”); Cal. Civ. Code § 3426.1 (mandating that trade secrets be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”). Employers commonly protect trade secrets by limiting access to essential employees and storing the secrets in password protected computer systems. See, e.g., Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018). These safeguards are usually sufficient to protect the information’s secrecy and preserve the trade secret. See Bridge Fin., Inc. v. J. Fischer & Associates, Inc., 310 So. 3d 45, 49 (Fla. 4th DCA 2020) (storing trade secrets on password protected server constituted reasonable protections); but see Physiotherapy Associates, Inc. v. ATI Holdings, LLC, 592 F. Supp. 3d 1032, 1042 (N.D. Ala. 2022) (holding that the utilization of password protections alone does not sufficiently protect trade secrets).Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

However, employers can nullify trade secret protections by allowing employees to access trade secrets on their personal smartphones. For example, in Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018), the former employer took normal precautionary measures to protect the secrecy of its trade secrets. The former employer limited employee access to trade secrets and maintained the trade secrets on a password-protected computer system. However, the federal appellate court refused to find the existence of a trade secret because the employer “encouraged [the former employee] to store the information on a personal laptop and phone.” As a result, the court determined that the former employer “compromised the efficacy of these [security] measures by encouraging [the former employee] to keep the Customer Information on his cellphone and personal laptop.”

It is important to point out that employees do not automatically destroy trade secret protections by accessing information using personal devices. As a general matter, trade secrets protections are vitiated when the employer approves or knowingly permits the employee to access the trade secret using a personal device. Therefore, unauthorized access or access unbeknownst to the employer may not terminate trade secret protections concerning the information. For example, the United States District Court for the Northern District of California, in WeRide Corp. v. Kun Huang, 379 F.Supp.3d 834, 848 (N.D. Cal. 2019), determined the employer was likely to succeed on the merits under the federal Defend Trade Secrets Act where the employee copied company files to his personal devices during the same period when he was actively seeking alternative employment.

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