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Articles Posted in Trade Secrets

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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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Protection of trade secrets and proprietary information is critical when a business receives a subpoena for its business information and documents. Even when a business is not a party to a lawsuit, it can be compelled to produce sensitive information that can cause irreparable harm. It is often necessary to seek an order of protection and confidentiality from the court. The court, however, must first determine whether the disputed information is in fact a trade secret or proprietary information. Summitbridge Nat’l Invs. LLC v. 1221 Palm Harbor, L.L.C., 67 So.3d 448 (Fla. 2d DCA 2011). Peter Mavrick is an experienced trade secret attorney and business litigation attorney.

In Lake Worth Surgical Center, Inc. v. Gates, 266 So.3d 198 (Fla. 4th DCA 2019), the plaintiff filed a lawsuit against defendants for damages arising from a car accident. The plaintiff treated at Lake Worth Surgical Center, Inc. (“Center”), a non-party, and was billed for the Center’s services. Defendants served the Center with a subpoena that requested billing information that included, among other things, examples of reimbursement rates from unnamed insurers for the Center’s patients. The Center immediately moved for a protective order to prohibit disclosure of confidential financial information. The Center argued that insurance reimbursement rates and the makeup of the center’s patients are trade secret. The trial court denied the Center’s motion for protective and confidentiality order. The Center immediately filed a petition for certiorari review.

The Center contended that the trial court departed from the essential requirements of law by denying the request for a confidentiality of its proprietary and trade secret information. The appellate court granted the petition in part and denied it in part.

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Protection of trade secrets and proprietary information is critical, when a business receives a subpoena for their business information and documents. Even when a business is not a party to a lawsuit, it can be compelled to produce sensitive information that can cause irreparable harm. It is often necessary to seek an order of protection and confidentiality from the court. The court, however, must first determine whether the disputed information is in fact a trade secret or proprietary information. Summitbridge Nat’l Invs. LLC v. 1221 Palm Harbor, L.L.C., 67 So.3d 448 (Fla. 2d DCA 2011).  Peter Mavrick is an experienced trade secret litigation attorney who has successfully represented clients in cases involving motions for emergency relief, preliminary or temporary injunction, arbitration, and trial.

In Lake Worth Surgical Center, Inc. v. Gates, 266 So.3d 198 (Fla. 4th DCA 2019), the plaintiff filed a lawsuit against defendants for damages arising from a car accident. The plaintiff treated at Lake Worth Surgical Center, Inc. (“Center”), a non-party, and was billed for the Center’s services. Defendants served the Center with a subpoena that requested billing information that included, among other things, examples of reimbursement rates from unnamed insurers for the Center’s patients. The Center immediately moved for a protective order to prohibit disclosure of confidential financial information. The Center argued that insurance reimbursement rates and the makeup of the center’s patients are trade secret. The trial court denied the Center’s motion for protective and confidentiality order. The Center immediately filed a petition for certiorari review.

The Center contended that the trial court departed from the essential requirements of law by denying the request for a confidentiality of its proprietary and trade secret information. The appellate court granted the petition in part and denied it in part.

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Businesses submitting licensing applications with state or local government agencies are often required to file confidential documents and financial records. The State of Florida has a broad public records policy requiring that “all state, county, and municipal records…[shall be]…open for personal inspection and copying by any person.” Florida Statute § 119.01(1). Businesses are often confronted with the challenge of protecting its trade secrets while complying with the obligation to disclose confidential information to a municipality.  Peter Mavrick is a business litigation lawyer who has extensive experience with trade secret protection.

The Florida legislature created an exemption to the public records law for trade secrets. Pursuant to Florida Statute § 815.045, businesses may identify which confidential information furnished to a state agency should be excluded from public disclosure. However, failure to identify information as putatively exempt from public disclosure effectively destroys any confidential character it might otherwise have enjoyed as a trade secret. Sepro Corporation v. Florida Department of Environmental Protection, 839 So. 2d 781 (Fla. 1st DCA 2003) (a company must label a trade secret or specify in writing as such upon delivery to a state agency to invoke the exemption from disclosure).

Even when a trade secret owner has taken the necessary precautions to label its confidential information, the risk of disclosure remains because Florida courts liberally construe the Public Records Act and favor disclosure. Christy v. Palm Beach County Sheriff’s Office, 698 So.2d 1365 (Fla. 4th DCA 1997). Designating information furnished to a government agency as confidential does not automatically render the record exempt from disclosure. Instead the information must qualify as a trade secret pursuant to Florida law. The trade secret owner also must undertake reasonable measures to protect the information from disclosure.

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To protect their trade secrets and other valuable confidential information, former employers have sued former employees for breach of their non-compete agreements, along with additional causes of action.  The factual basis for these additional causes of action and damages therefrom, are typically based on the same factual allegations that form the action for breach of the non-compete agreement. When the former employer fails to provide competent evidence to prove damages arising from the acts alleged in the primary cause of action, then these additional causes of action may not survive a former employee’s motion for summary judgment to obtain dismissal of the lawsuit.  Peter Mavrick has extensive experience with litigation regarding non-compete agreements and misappropriation of trade secrets and other confidential information.

In the case of Crom, LLC v. Preload, LLC, 2019 WL 1440907 (N.D. Fla. Mar. 31, 2019), Plaintiff Crom, LLC (“Crom”) filed a lawsuit against its former employee, Phuong Bacon (“Bacon”), to enforce a non-compete agreement and for damages caused by Bacon’s alleged breach of an employment contract. Crom also sued Bacon for breach of her common law duty of loyalty.  Crom sued Bacon’s subsequent employer, Preload, LLC (“Preload”), for alleged tortious interference with Crom’s business relationship with Bacon, civil conspiracy, and unfair competition. All of Crom’s claims stemmed from allegations that Bacon misappropriated trade secrets and confidential information when she went to work for Preload, Crom’s competitor. Defendants filed a motion for summary judgment to obtain dismissal of Crom’s lawsuit.

Crom built prestressed concrete tanks (“PCT”) to store liquids, most often water or wastewater. Crom’s corporate representative testified that Crom’s “internal design procedures” and expertise from a design standpoint are what distinguish Crom from other companies. Preload, the competitor involved in this lawsuit, commonly would bid against Crom for PCT design and construction projects in the Southeastern United States.  It was undisputed that there were few companies that bid for these projects. In addition to its PCT work, Preload was developing another tank design, a Liquefied Natural Gas (“LNG”) storage tank. It was undisputed that Crom did not build or design LNG tanks, and that LNG tanks are subject to a separate industry design code. Crom argued, however, that an LNG tank can be built with a PCT option, and in that instance, the code requires the LNG tank to be designed in accordance with the same specifications, which are also used in PCTs.

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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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