Stealing Confidential Information is Not Necessarily Trade Secret Misappropriation

This article was originally published by Tangibly.

Imagine this—A consultant starts a competing company after taking your proprietary information while under a confidentiality agreement. You promptly file a trade secret misappropriation claim, but can you prove that what he took was a “trade secret”? If not, you could be out of luck, and potentially liable to pay the consultant!

This is what happened in Applied Predictive Technologies v. MarketDial. Judge Parrish reminds us why businesses must proactively identify trade secrets: 

“Although this misconduct may have given rise to other claims, it became abundantly clear that APT had no basis for a trade secret claim. To prove a claim under the DTSA … the plaintiff must first show that a trade secret exists.”

APT and MarketDial competed in the business analytics market. MarketDial was founded by former McKinsey consultants who had consulted for and accessed APT confidential information—fueling APT’s misappropriation claims when MarketDial entered the market. Following years of litigation, Judge Parrish granted summary judgment for MarketDial because APT failed to identify a single trade secret or any associated economic value. 

Identify the trade secret! According to the court:

• “[APT’s] citations seem to be included merely because they refer to the trade secret, not because they meaningfully disclose the secret, parse out known or readily ascertainable information, or explain the value proposition”;
• “[APT’s discovery responses] “reveal[ed] only cursory, high-level description of categories or sources of information allegedly comprising each trade secret, without much more”; and
• “APT insisted that everything it filed was secret, suggesting that it would reveal its trade secret ‘down the line—that once it is speaking to the jury, it will divulge its secrets and what it means when it refers to ‘methods’ and ‘how’ it accomplishes certain tasks in a valuable, secret manner.’”

Failure to identify a trade secret was costly! Judge Parrish awarded Marketdial $2.8 million in attorneys’ fees. “APT was never able to define the trade secret at the heart of its claim” and “subjective misconduct . . . may be inferred from the speciousness of [its] trade secret claim and its conduct during litigation.” The court noted that APT refused to drop its claims even when “it became apparent that it had no evidence to support them.” 

Key Takeaways for Businesses:

• Clearly identify your trade secrets before you sue.
• Litigation strategy matters. Courts scrutinize not just the merits, but how aggressively and ethically a case is litigated.

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