Stop And Smell The Trade Secrets

by Orrick - Trade Secrets Group
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[author: Melinda Blake]

http://blogs.orrick.com/trade-secrets-watch/files/2014/03/21mar14-200x150.jpgWhat do Britney Spears, Jennifer Lopez, and Celine Dion all have in common?  Until recently, their own unique perfumes produced by Givaudan Fragrances Corporation, the largest flavor and fragrance manufacturer in the world.  They still have perfumes, but unique?  Maybe; maybe not.  For the last five years, Givaudan has been in litigation against its former vice president and his new employer over alleged misappropriation of Givaudan’s secret fragrance formulas.  Last month, following a five-week trial, that litigation finally came to an end, with a New Jersey federal court jury unanimously holding defendants James Krivda and Mane USA, Inc. not liable.

The lawsuit dates back to September 2008, when Givaudan sued Krivda and Mane soon after Krivda left to work for the competitor.  Givaudan alleged that Krivda accessed its secret database just before he resigned and printed 616 of Givaudan’s secret fragrance formulas.  Givaudan further claimed Mane later sold dozens of those fragrances under similar or identical names to those used by Givaudan.  Givaudan, which  creates perfumes for luxury brands including Yves Saint Laurent, Burberry, Tom Ford, Giorgio Armani, Ralph Lauren, Estee Lauder, Elizabeth Arden, Lancome, and Gucci, alleged the “stolen” formulas were worth more than $80 million and were “the lifeblood of [its] business.”

Givaudan v. Krivda garnered national attention even before the jury verdict.  On October 25, 2013, Judge Sheridan partially granted defendant’s motion for summary judgment because Givaudan failed to give timely and sufficient notice of the trade secrets at issue, finding that “[s]ufficient notice entails a description or identification of the allegedly misappropriated trade secrets with adequate specificity or precision so as to inform the defendant what the plaintiff is alleging he misappropriated.”  Despite defendants’ repeated requests for more information regarding the 616 allegedly stolen formulas, Givaudan provided ingredient lists and percentages for only 34 fragrances and produced a mere “print list” of the remaining 582; this list consisted of nothing more than the name of each formula, an identification number and the date on which it was printed by Krivda.  Apparently unwilling to trust the protections of the protective order in place in the litigation, Givaudan refused to disclose not only the amount of any ingredients, but even the identity of the ingredients.  Unfortunately for Givaudan, defendant Mane successfully argued that, given such a generalized list, it was unable to determine whether it had received an identical product from former employee defendant Krivda.  Only by reviewing the specification of each formula—which for 582 fragrances Givaudan was unwilling to provide—could “appropriate discovery procedures … have precisely identified whether Mane had received any or all of the allegedly purloined formulas.”

In response, Givaudan pointed out that it had provided access to the remaining formulas.  It had simply done so with strict “safeguards” governing that access: 1) formulas would be displayed on a computer at Plaintiff’s firm; 2) defense counsel would be present during the inspection; and 3) no copying or taking notes was permitted.  Unfortunately for Givaudan, the court determined these safeguards exceeded the balance between allowing for discovery and protecting confidential information.  Judge Sheridan explained that the safeguards, particularly the requirement against copying or note-taking, “severely and adversely impacted any reasonable disclosure of discovery.”  Accordingly, Sheridan granted summary judgment as to 582 of the formulas, finding no misappropriation, and allowed only the 34 detailed claims to proceed.  Thus, if there were indeed secrets in those 582 formulas, Givaudan could no longer resort to trade secret protections to prevent Mane from using them—and because trade secret protections only protect against disclosure of information that is not publicly known, by extension Givaudan would also not be able to use trade secret laws to protect against the disclosure of this information to others in the industry.

Givaudan is certainly not the first to resist disclosure even with the guarantees of a protective order.  Coca Cola famously risked contempt when it refused to disclose its complete formula for Coca Cola—arguably one of the best kept trade secrets in the world—when ordered to do so.  107 F.R.D. 288, 290 (D. Del. 1985).  There, however, Coca Cola was the defendant in a contract dispute, and suffered only money sanctions and preclusion from making use of its secret formulae in defending against breach.  110 F.R.D. 363 (D. Del. 1986).  Trade secret plaintiffs, if this case is any indication, have considerably more to lose.

The lesson here is an important one for plaintiffs torn during litigation between disclosing their most sensitive trade secret information and trying to stop its unauthorized disclosure.  If a trade secret plaintiff wants the assistance of the court in seeking redress for the theft of its most sensitive secret information, it must come to terms with the need to inform the defendants (or their lawyers) of what they have been accused of taking, and they must be prepared to do so in specific detail.  Case after case is being dismissed due to the concern that broad claims make it difficult for defendants, and for the trier of fact, to determine the scope of the secrets allegedly stolen.  Trade secret plaintiffs have a Hobson’s choice; they must be prepared to go big in terms of disclosing what has allegedly been stolen, or go home.  Rather than directing their energy at artful discovery positions, plaintiffs should focus on obtaining water-tight protective orders limiting use and disclosure within the defendant’s company to prevent unwanted leaks—because trying to prevent the flow of sensitive information altogether may simply not be an option.

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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