Often, in trade secrets cases, a pivotal issue is whether or not what the plaintiff claims is a trade secret is, in fact, a trade secret under the Tennessee Uniform Trade Secrets Act (“TUTSA”). TUTSA’s definition of “trade secrets” includes “information” which is “technical, nontechnical, or financial data, a formula, pattern, compilation, program, device, method, technique, process or plan” that has independent economic value because it is not generally known or readily accessible. To qualify as a trade secret, the plaintiff must also prove that there were “reasonable efforts” taken to keep the information secret.
Here are some basic rules and guidelines used in Tennessee trade secrets cases for determining whether information constitutes a trade secret:
- Just because a party calls certain information a trade secret does not mean that it will qualify as a trade secret after the court reviews other facts and applies the TUTSA
- A former employee’s goodwill with customers or the fact that the former employee was the face of the company are not trade secrets because they are not information (an employer may protect against a former employee’s use of goodwill developed while the employee was employed by a non-competition/non-solicitation agreement)
- Just because a product or process can be reverse engineered does not necessarily mean that it will not qualify as a trade secret. If the plaintiff can prove that reverse engineering would be time-consuming or very expensive, the product or process may still be entitled to trade secret protection
- A former employee’s remembered information about customers, pricing, vendors and the like is not a trade secret
- The degree of the egregiousness of the former employee’s or new employer’s conduct always has some effect on the court’s decision. For example, if a former employee took information improperly and passed it on to her new employer, it is more difficult to argue that the information taken was not a trade secret. After all, if it was not valuable and secret, why take it?
- The extent that the information is known to the public will affect the decision as to whether the information is a trade secret
- Whether the owner of the information has taken steps to keep it secret will affect the decision as to whether it is a trade secret
- The economic value of the information will affect the decision as to whether the information is a trade secret
- Even if components of the information, standing alone, may not be trade secrets, the aggregation, compilation or formatting of information may be
- Whether information is, or is not, a trade secret is a question of fact
The below summary of five different trade secret cases is helpful in understanding what might, and what might not, qualify as a trade secret under the Tennessee Uniform Trade Secrets Act.
Eagle Vision, Inc. v. Odyssey Medical, Inc. (Tenn. Ct. App. 2002): The Plaintiff developed and marketed punctul plugs for eyes. For a number of years, it had a contractual relationship with the Defendant, which manufactured the plugs for it. The Plaintiff shared design specifications with the Defendant as well as prototype punctal plugs. The design specifications were marked “confidential.” The relationship between Plaintiff and Defendant ended and Defendant began making and selling punctal plugs. Defendant offered evidence that it could easily reverse engineer the punctal plugs with a certain device it possessed. Plaintiff claimed that it was impossible to reverse engineer the punctal plugs. The court held that the question of whether or not the information which Defendant had allegedly misappropriated was a trade secret was a question of fact for the jury.
Hauk Manufacturing Company v. Astec Industries, Inc. (E.D. Tenn. 2005): This case is a long read, but a necessary one if your case involves alleged misuse of trade secrets to manufacture a product. The jury determined that the Defendants had not violated the TUTSA, apparently, based largely on the defense argument that it could build the products at issue based upon publicly available information. It is unusual for district court’s to reverse jury verdicts, but the court in this case did. The defense had managed to convince the jury that, regardless of the egregious conduct of the former employee in taking information from his former employer, the Plaintiff, the former employee and his new employer could, nevertheless, have built the product from publicly available information. I suggest that the ultimate outcome in this case stands for the proposition that, where a former employee has blatantly taken substantial information from his former employer directly related to how to build a product, it is just not possible that it was not needed to build the product. Thus, the information had to be trade secrets.
Partylite Gifts, Inc. v. Swiss Colony Occassions (6th Cir. 2007): In this case, the Plaintiff argued that its former sales representative and the competitor with whom she began working after she ended her relationship with the Plaintiff violated the TUTSA because the sales representative used information about consultants of Plaintiff. Plaintiff’s consultants were those persons who had become part of its pyramid structured sales force. Plaintiff’s business model was based on sales consultants recruiting other sales consultants. The lower court held that the names used by Plaintiff’s former sales consultant were nothing more than remembered information which were not trade secrets. The Sixth Circuit agreed. The Plaintiff’s argument that it had taken it years to compile the names was unavailing because it had published materials disclosing those names, and because many of the names could be discovered by searching the internet.
Hamilton-Ryker Group, LLC v. Keymon (Tenn. Ct. App. 2010): In this case, the Plaintiff was in the business of preparing Verizon phone directories for a client called Oasis. The Defendant was a former employee who had supervised this work. Before leaving her employment with the Plaintiff to work for Oasis, the Defendant emailed herself information Plaintiff had including Verizon’s anticipated production schedule for that year; a profit and loss analysis; Verizon’s mailing address listings formatted so that labels could be printed; as well as other information related to Verizon that Plaintiff had compiled. One witness testified that Defendant had emailed herself pretty much everything she needed to service the Verizon account. The former employee, the Defendant, argued that the mailing addresses she had taken were not trade secrets because Verizon would have supplied those to her new employer. While that may well have been true, the court held that the aggregation of the addresses and formatting of them amounted to a trade secret.
Hinson v. O’Rourke (Tenn. Ct. App. 2015): I included this case because it is a good example of what clearly could never amount to trade secrets. The Plaintiff was in the business of conducting live entertainment events like bingo and trivia games at bars and restaurants. Plaintiff hired Defendant. Plaintiff trained Defendant on how to keep score, use the microphone, use music, and keep the event entertaining. Defendant worked for Plaintiff for a couple of years and then started his own business doing the same thing he had done while employed by Plaintiff. The court held that the fact that Plaintiff had trained Defendant on how to handle live entertainment events, which events were plainly observable by the public, did not amount to a trade secret.
If you are involved in a trade secrets case, or trade secrets matter, you should consult with a qualified Tennessee trade secrets attorney for further advice.