It is important for every business to take extensive efforts to protect their trade secrets and limit their disclosure to persons with subject to comprehensive confidentiality agreements. Often, trade secret misappropriation occurs when a business shares its trade secrets with an outside vendor. This is exactly what a plaintiff claims to have happened in Ecolab, Inc. v. IBA Inc. & Webco Chemical Corp., Case No. 4:24-cv-40407-DHH (D. Mass., August 14, 2024), a recent case filed in the U.S. District Court of Massachusetts. Ecolab shows the importance of businesses being careful with whom they share their trade secrets and effectively using confidentiality agreements. Peter Mavrick is 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.
According to the complaint filed by the plaintiff, Ecolab, Inc. (Ecolab), Ecolab creates and sells infection prevention products. This includes “acified sodium chlorite teat dip products” (ASC products) that Ecolab sells to the dairy industry. Ecolab alleges it developed these products after extensive efforts over a period of several years, and its manufacturing process for its ASC products constitute trade secrets.
Ecolab contracted with IBA Inc. (IBA) in 2002 to manufacture and distribute Ecolab’s ASC products. Ecolab had to share its trade secrets with IBA to facilitate IBA’s manufacturing duties. Before disclosure, Ecolab required IBA to execute a confidentiality agreement prohibiting IBA from disclosing the trade secrets or using the trade secrets for its own purposes. The confidentiality agreement allowed IBA to disclose the trade secrets to third party subcontractors as long as the subcontractors were subject to the same confidentiality provisions. IBA then, with Ecolab’s permission, contracted with Webco Chemical Corporation (Webco) for Webco to manufacture the ASC products, while IBA would distribute them. Webco also executed a confidentiality agreement. The three parties continued this relationship until 2022, when, as Ecolab alleges, IBA and Webco stole Ecolab’s trade secrets and released their own line of competitive ASC products.
Ecolab claims IBA and Webco must have improperly used Ecolab’s trade secrets because IBA has no research and development department and could not independently develop ASC products. Ecolab also alleges IBA developed it’s the ASC product in a few months because IBA began development in November 2021 and released the product in early 2022. Ecolab contends the only way IBA and Webco could have developed products so quickly was if they used Ecolab’s trade secrets.
Ecolab involves a common situation in trade secret misappropriation cases, where a business shares its trade secrets with an outside vendor, and the outside vendor then steals the trade secrets. The case shows the importance of businesses carefully choosing who and how to disclose trade secrets and further illustrates the importance of requiring all persons exposed to the trade secret to sign confidentiality agreements. Under the law of many states, a trade secret is only protected if the trade secret owner took reasonable efforts to maintain its secrecy. See, e.g., Fla. Stat. § 688.002 (stating that a trade secret “is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”). Courts often consider whether the trade secret owner required confidentiality contracts before sharing the trade secret with another person. In the case of Ecolab, Ecolab alleges that it did have its outside vendors sign confidentiality agreements. It will be interesting to see how the case develops. Issues of trade secret misappropriation also occur when a disloyal employee misappropriates the employer’s trade secrets to unlawfully compete or to divert proprietary company information to a competing business.
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.