Preparation Counts: Two Courts Reaffirm the Benefit of Identifying and Taking Steps to Protect Trade Secrets

Two recent decisions emphasize yet again the value of defining and taking steps to protect a company’s trade secrets.

On May 16, 2013, Judge England issued a preliminary injunction in Farmers Insurance Exchange v. Steele Insurance Agency, Inc., United States District Court, Eastern District of California, No. 2:13-cv-00784 MCE in a customer list misappropriation claim.  Farmers successfully established that its lists were trade secrets because its customer information included commercially specific data such as insured property descriptions, policy inception and expiration dates, claims history, and policyholder financial information.  Farmers also demonstrated that it had invested appreciable resources in assembling the policy holder information.  Critically, Farmers utilized multiple strategies to protect the secrecy of its customer information.  Its agents signed agreements affirming confidentiality.  In addition, Farmers maintained its customer data on a secure website that was password-protected with significantly restricted agent access.  Its data portal also contained notices that Farmers considered the content to be confidential, proprietary, and trade secret.  Presented with the particularity of Farmers’ asserted trade secrets and its extensive efforts to keep that information off the street, the District Court readily granted Farmers’ preliminary injunction motion against its former agents who had taken the customer information to help start a competing insurance agency.

In a somewhat different context, on May 15, 2013, the Fifth Circuit in Wellogix, Inc. v. Accenture, LLP, 2013 WL 2096356, affirmed a $26.2 million compensatory damages award and a $18.2 million punitive damages award against Accenture stemming from its misappropriation of Wellogix’s source code for a state-of-the-art software system to estimate and manage complex oil industry construction project costs.  One of the essential facts leading to the favorable outcome for Wellogix was its apparently well-drafted nondisclosure agreement with Accenture.  Having established that the source code was a trade secret and that Wellogix sought to limit use through a NDA, the Court had little difficulty finding misappropriation and approving the significant compensatory and punitive damages award.

Identifying what is valuable in one’s business can take time, a precious commodity in any company.  Once identified, the process of segregating that confidential information and then protecting it from dissemination can take even more time and, usually, money, a further impediment to action when profit margins are thin, costs are rising, and the key employees involved in the trade secret identification and protection process have countless other demands on their resources.  But what happens when a company’s key intellectual property lands in a competitor’s hands through the departure of an employee or in the course of collaborating with another business?  As Farmers Insurance and Wellogix illustrate and underscore, when a business makes a genuine effort to identify and protect its trade secrets, courts can act decisively to protect the company’s intellectual property rights.  The converse is also true.  Failing to identify and protect a company’s intellectual property at the outset can lead to disappointment and profound economic damage when the tools of justice cannot be accessed.

Topics:  Customer Lists, Data Protection, Misappropriation, Non-Disclosure Agreement, Preliminary Injunctions, Punitive Damages, Trade Secrets

Published In: Civil Remedies Updates, General Business Updates, Insurance Updates, Intellectual Property Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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