In Smash Franchise Partners v. Kanda Holdings, the Chancery Court of Delaware declined to grant a preliminary injunction related to allegations of trade secret misappropriation, finding that the plaintiff, the founder of Smash, did not take reasonable steps on Zoom to protect the claimed trade secrets. Although the court noted that the defendants’ acts were indeed deceptive, the record didn’t warrant the application of broad injunctive relief. Companies beware: the existence of a nondisclosure agreement in this case was insufficient to establish reasonable measures to maintain confidentiality.

Smash operates a franchise of mobile trash compaction businesses, selling franchises to entrepreneurs in protected territories. A Smash franchisee would service its customers by compacting the customers’ dumpsters on site in order to save on fees paid to the customers’ waste management companies. The defendant in this case, Todd Perri, expressed an interest in learning more about becoming a franchisee and signed an NDA to move forward in the process. Shortly thereafter, Perri joined a “Founder Call” on Zoom, the video-conferencing application that would by March 2020 replace the function of conference rooms for companies everywhere as a result of this year’s stay-in-place orders. Perri was provided a meeting ID for the Zoom call, but Smash did not require a password for the meeting or use Zoom’s waiting room function. (The waiting room feature places participants into a virtual lobby upon signing in, where the host verifies a participant’s identity before admitting the participant into the meeting.) Perri joined a Founder Call using the meeting ID, which could be used to join any of the weekly Founder Calls, as well as Smash’s “Franchisee Forum Calls.” During these calls, franchisees could discuss any topic of their choice. Perri attended one of each type of meeting and determined that he had the engineering background to start his own trash compaction company. Thereafter, Perri and his co-defendant started to gather information from the Smash-sponsored calls, feigning interest in the franchise only to collect information secretly for their plans to launch a competitor company.

As a result, Smash filed suit seeking a preliminary injunction to shut down the defendants’ Dumpster Devil business. In order to grant relief, the court had to find that the defendants obtained and used highly confidential and valuable information from Smash. The court concluded that all the information that the defendants received was freely shared by Smash’s franchisees on the Franchisee Forum Calls or provided by Smash without adequate precautions to protect confidentiality.

This case serves as a cautionary tale. In the era of virtual meetings, it’s important to use available security features, as specified by the Chancery Court of Delaware: (1) provide unique meeting IDs for each call, (2) require a password for access and (3) place participants in a waiting room so the host can admit them only after verifying their identity. Implementing these simple tools will help support a showing to the courts that your company is taking reasonable steps to protect the confidential nature of its trade secrets.