MIAMI BUSINESS LITIGATION: TRADE SECRET PROTECTION REQUIRES VIGILANCE

It is of great importance that businesses protect their trade secrets because disclosure to competitors can have significant negative impact. Disclosure many even be ruinous. The Miami business litigation attorneys of the Mavrick Law Firm represent 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.

Trade secrets are often unlawfully disclosed through outgoing employee who had access to the business’s trade secret while employed. An employee might premeditate theft of the trade secret because she knows she is joining a competitor who eagerly wants to gain a commercial parity or advantage. The employee may therefore take company files and information with her to use for the competitor’s benefit. This type of fact pattern recently occurred in the financial services industry involving the well-known firm Charles Schwab & Co., Inc. (Schwab).

In Charles Schwab & Co., Inc. v. Roberto Ivan Ortega, Charles Schwab is suing a former employee in Texas federal court for misappropriation of trade secrets. According to Schwab’s complaint, the employee worked as a financial consultant who serviced Schwab’s high net worth clients. The clients held approximately $1.5 billion in total with Schwab. Schwab provided the employee access to its confidential client records and information to enable the employee to perform his job. The information included client contact information, transactional histories, account types, account balances, asset allocations, income, net worth, tax information, and investment objectives. This type of information can quality as a trade secret in the financial services sector. Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dunn, 191 F. Supp. 2d 1346 (M.D. Fla. 2002) (“Plaintiff has shown that its customer lists and the information contained therein are trade secrets.”).

Schwab appears to have taken reasonable measures to protect its trade secrets. Trinity Graphic, USA, Inc. v. Tervis Tumbler Co., 320 F. Supp. 3d 1285 (M.D. Fla. 2018) (“A plaintiff bringing a claim under the DTSA must plausibly allege that it… took reasonable measures to keep secret.”). Schwab required the employee to sign a confidentiality and non-solicitation agreement at the commencement of his employment. This agreement required the employee to provide four weeks’ notice before terminating employment, prohibited the use and disclose of confidential client information for non-Schwab activities, and prohibited the solicitation of Schwab clients. Schwab also required passwords to access its computer systems and customer lists.  And Schwab instituted a “Code of Business Conduct and Ethics” containing provisions regarding confidentiality of client information.

The employee suddenly resigned in May 2024 without providing any notice. The employee joined a competing firm, which prompted Schwab to investigate employee’s activities pre-termination. Schwab learned the employee accessed Schwab’s client database and reviewed client profiles an unusually high number of times. Schwab also discovered a witness saw the employee using his smart phone to take pictures of client information displayed on his computer screen.

Schwab acted relatively quickly by commencing a lawsuit against on December 17, 2024, alleging the employee stole Schwab’s highly valuable trade secret customer list. Schwab seeks an injunction and money damages against the employee for his trade secret theft.

We write about this case because it is a cautionary story, and unfortunately, a common story. Schwab took what most courts would consider reasonable measures under the circumstances to protect its trade secrets. Schwab had confidentiality agreements, password protections, and policies and procedures relating to its information. Notwithstanding, the employee avoided those protections by using his phone to photograph computer screen data. These facts demonstrate the importance of vigilance. Businesses cannot simply rely on the systems they put in place to protect their trade secrets. Businesses must act when they know an employee stole their trade secrets like Schwab did. Otherwise, the business will lose its trade secret (and the value that information generates from being secret) forever. Yellowfin Yachts, Inc. v. Barker Boatworks, LLC, 898 F.3d 1279 (11th Cir. 2018) (“We affirm the District Court’s rejection of Yellowfin’s Customer Information trade secret claim because Yellowfin failed to reasonably protect the information.”).

The Miami business litigation lawyers of the Mavrick Law Firm also represent 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.