MIAMI BUSINESS LITIGATION: DEFEATING TRADE SECRETS AND NON-COMPETE CLAIMS BASED ON CUSTOMER LISTS

Many non-compete agreements contain covenants asserting that the employer business has protectible trade secrets. A contractual provision where the parties agree, ex ante, that the employer will have (or actually has) a “trade secret” does not thereby mean the employer will have (or has) a trade secret in the future. As Florida’ Fourth District Court of Appeal explained in Zodiac Records Inc. v. Choice Environmental Services, 112 So.3d 587 (Fla. 4th DCA 2013), “[w]e note that a former employer’s customer relationships do not automatically qualify as trade secrets, even if a party’s restrictive covenant attempts to characterize them as such.” 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.

Florida Statutes Section 688.002(4), states in pertinent part: “‘Trade secret’ means information, including a formula, pattern, compilation, program, device, method, technique, or process that: (a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Precedent from Florida’s Second District Court of Appeal in East v. Aqua Gaming, 805 So.2d 932 (Fla. 2d DCA 2001), states that 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.”

Employers often seek to premise restrictive covenants on the existence of trade secrets because Florida’s restrictive covenant statute thereby extends the allowable duration of a non-compete covenant. Under § 542.335(1)(d)(1), an employment agreement that is not based on trade secrets is presumed reasonable for only six months or less and presumed unreasonable when it extends beyond two years. By contrast, Florida’s restrictive covenant statute, at § 542.335(1)(e), extends the presumption of reasonableness to up to five years when actual trade secrets underlie the non-compete agreement and presumes a duration in excess of ten years as unreasonable.

Importantly, a non-compete claim premised on trade secrets must actually prove the existence of the relevant trade secrets. Failure to do so will be fatal to the non-compete claim to the extent it is based on the protection of alleged “trade secrets.” For example, in the Zodiac Records case, the employer successfully argued to the trial court Judge that the employer did not have to prove trade secrets existed, but instead only that the employment contract aimed to protect trade secrets: “Piccinonna [the former employee] disputed ‘the idea that proprietary information was taken, trade secrets were taken’ and wanted to introduce evidence on the issue. [The employer] Choice’s counsel believed that he did not have to prove whether Piccinonna stole trade secrets, and stated he was not proceeding under a trade secrets claim. He argued, however, that the five-year term of section 542.335(1)(e), Florida Statutes (2011), applied because the consulting agreement was designed to protect trade secrets.” The appellate court in Zodiac Records reversed the trial court’s decision. The appellate court determined that the employer failed to prove, and waived, trade secrets as a basis for the restrictive covenant, stating in pertinent part: “we find that Choice waived its ability to assert that the five-year term of section 542.335(1)(e), Florida Statutes…applied by asserting it did not have to prove that Piccinonna misappropriated trade secrets, and that appellants’ due process right to be heard was violated by entry of the injunction after this waiver, [and] we [therefore] reverse the order granting the temporary injunction against appellants and direct that it be vacated.”

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.