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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.

On January 23, 2019, ActivEngage sued Smith in federal court, and filed a Verified Motion for Preliminary Injunction. A federal court may issue a preliminary injunction when the movant shows: (1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest. Four Seasons Hotels & Resorts, B.V. v. Consorcio Barr, S.A., 320 F.3d 1205 (11th Cir. 2003). ActivEngage contended that it had a substantial likelihood of success because, among other things, Smith misappropriated ActivEngage’s trade secret.

Smith argued that ActivProspect is not a trade secret. The trial court held that in order to know whether ActivProspect is a trade secret, ActivEngage must first describe with some particularity what ActivProspect actually is. The trial court held the descriptions of the ActivProspect were inconsistent. ActivProspect was sometimes referred to as a CRM, but on other occasions, not a CRM—but rather something like a CRM but “different and unique.”

The trial court further found that the features of ActivProspect that purportedly existed on the date of the hearing may have differed from the version that existed prior to Smith’s termination when he allegedly misappropriated it. ActivEngage provided a current description of its features including that ActivProspect is “gamified” (taking something that already exists and integrating game mechanics into it to motivate participation, engagement, and loyalty). The trial court record showed that the relevant version of ActivProspect did not show that a “gamified” feature existed. The trial court held that this inconsistency demonstrates the basic problem of an inadequate description of this purported trade secret. The trial court found that absent its corporate jargon, ActivEngage did not describe what ActivProspect was and what it actually did.

According to the trial court, ActivProspect seemed to be a concept for a mobile application that identified customers and used data to help dealerships connect with prospects and strategize sales. Even assuming that description is accurate, the trial court held that it was still unclear if ActivProspect constituted a trade secret. Under both the Florida Uniform Trade Secrets Act (“FUTSA”) and the Defend Trade Secrets Act (“DTSA”), a trade secret is “information… that must derive economic value from not being readily ascertainable by others and must be the subject of reasonable efforts to protect its secrecy.” Del Monte Fresh Produce Co. v. Dole Food Co., 136 F. Supp. 2d 1271 (S.D. Fla. 2001).

ActivEngage contended that ActivProspect was a trade secret because it is unique, did not currently exist on the market, and that ActivEngage took reasonable steps to protect ActivProspect’s secrecy. The court record showed that ActivProspect combined features that already existed on the market, which can be a trade secret if the combination is unique. See Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284 (11th Cir. 2003).  ActivEngage claimed that ActivProspect was unique because it was a “mobile-centric application for dealership personnel to use to navigate their daily workflow.” ActivEngage claimed its efforts included: only telling a small group of people about ActivProspect; telling those individuals not to disclose ActivProspect to third parties; having employees sign a handbook that required them to return ActivEngage property upon termination; requiring shareholders to sign an agreement that they would not misappropriate trade secrets; and stored documents about ActivProspect on a Google Drive that automatically locks.

Smith contended that ActivProspect lacked the substance necessary to be a trade secret because all the component parts of ActivProspect existed on the market, multiple products like it existed, and there was no formula for how ActivProspect would have functioned. Smith identified multiple competing mobile applications on the market for dealerships to manage their workflow. Smith further contended that ActivProspect is not a trade secret because it did not derive economic value since it already existed in the marketplace and was not subject to reasonable efforts to protect its secrecy. Smith testified that in his decade of work at ActivEngage, he was never asked to sign the employee handbook, and he regularly talked to prospective investors about ActivProspect without non-disclosure agreements. Smith also stated that while working for ActivEngage, he filed the ActivProspect investor deck on a public docket and thus it there were no reasonable efforts to protect its secrecy.

The trial court held that ActivEngage failed to establish that ActivProspect is a trade secret because it did not meet its burden to show ActivProspect derived economic value from not being readily ascertained by others, as required for a trade secret. Based on these findings, the trial court held that ActivEngage did not establish a substantial likelihood of success or irreparable injury warranting injunctive relief. The trial court denied the motion.

Peter Mavrick is a Fort Lauderdale trade secret attorney. This article does not serve as a substitute for legal advice tailored to a particular situation.

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