MIAMI BUSINESS LITIGATION: TRADE SECRET MISAPPROPRIATION DURING EMPLOYMENT

In business litigation, claims for trade secret misappropriation often arise under Florida’s Uniform Trade Secret Act (“FUTSA”) or the Defend Trade Secrets Act (“DTSA”). For liability to attach under the DTSA and FUTSA, the information must be the fruit of wrongful acquisition, or misappropriation. The DTSA defines “misappropriation” to include “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means” or “disclosure or use of a trade secret of another without express or implied consent” in specified circumstances. 18 U.S.C. § 1839(5). “Improper means” under the DTSA includes “theft, bribery, misrepresentation, [and] breach or inducement of a breach of a duty to maintain secrecy,” but excludes “reverse engineering, independent derivation, or any other lawful means of acquisition.” Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation 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 courts routinely find that trade secrets are acquired through improper means when a business’ employee copies or extracts electronic information before their employment ends. For example, in Pharmerica, Inc. v. Arledge, the United States District Court for the Middle District of Florida held that the defendant “misappropriated those trade secrets by duplicating and copying them and/or sending them to his home computer or personal email account and deleting them from the [plaintiff’s] computers.” 2007 WL 865510 (M.D. Fla. Mar. 21, 2007). Pharmerica considered the fact that the defendant “copied almost all of his electronic files from his work computer” just two days before he resigned from his position with his former employer. The trade secrets and proprietary information involved the former employer’s distribution and operational plans, quality control programs, and—most importantly—the former employer’s pricing details for major corporate clients that represented at one-third of the company’s total revenues.

Under the DTSA, federal courts across the United States have held that misappropriation by acquisition via download or password protected database requires evidence that an employee took affirmative action to ensure they retained access to the information after he or she was terminated, such as copying the information to his or her hard drive. For example, in Samick Music Corp. v. Gordon, the Court held it was reasonable to suspect that defendants obtained the customer’s information from the former employer’s database through improper means because: (a) many of the purchases were made by individuals who had previously purchased products from the former employer, and (b) the plaintiff identified two instances after the employee’s termination where defendants contacted former customers to sell them purported former employer’s replacement parts. The district court found that Plaintiff had demonstrated a likelihood of success on its DTSA and CUTSA trade secret misappropriation claims. 2020 WL 3210613 (C.D. Cal. Mar. 26, 2020).

In Compulife Software Inc. v. Newman, the Eleventh Circuit Court of Appeals held that the individual quotes from a computer database in a bit-by-bit fashion was not individually protectable trade secrets because each is readily available to the public. 959 F.3d 1288 (11th Cir. 2020). However, Compulife considered that, even if the individual quotes were not trade secrets, the improper removal of a certain number of the quotes could amount to misappropriation of the underlying trade secret. Compulife ultimately held that appropriation of a “substantial portion” is sufficient to establish a trade secret misappropriation claim.

Moreover, in AUA Private Equity Partners, LLC v. Soto, the United States District Court Southern District of New York held that, “Courts evaluating claims for misappropriation of trade secrets under the various state [trade secret laws] that define ‘misappropriation’ in terms nearly identical to the DTSA have found that liability attaches to employees who … abscond with their employers’ trade secrets, even in the absence of any subsequent use or disclosure of the information.” 2018 WL 1684339 (S.D.N.Y. Apr. 5, 2018). In AUA Private Equity Partners, LLC v. Soto, the defendant signed a variety of confidentiality agreements upon her hiring. She had a contractual duty to abide by her employer’s terms, including compliance with the Email Retention Policy and with the provisions of the Policies and Procedures that prohibited employees from transferring work-related information to their personal devices and from uploading business information to cloud-based storage. Soto ultimately held that the defendant acquired the trade secrets by improper means because she uploaded the trade secrets to her personal Google Drive.

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.