“Confidential” Information Protectable in the Sixth Circuit

Orrick - Trade Secrets Group

On November 17, 2015, the Sixth Circuit held in an unpublished opinion that “confidential” information that does not otherwise qualify as a trade secret may nevertheless be protected contractually in nondisclosure or non-compete agreements under Texas contract law.

Orthofix, a medical device company, filed suit against one of its former salesmen, Eric Hunter. Hunter’s employment agreement included provisions prohibiting him from using “confidential information.” When Hunter moved to one of Orthofix’s competitors, he took the Orthofix “playbook” of sales information with him. Orthofix argued that the information Hunter retained was either trade secret information or “confidential information” pursuant to Hunter’s employment agreement.

The District Court had ruled there was no trade secret misappropriation or breach of contract because it believed the employment agreement only covered trade secrets, despite its language to the contrary. Under Texas law, which follows the Restatement (Third) of Unfair Competition Section 42, nondisclosure and non-compete agreements may protect information that does not qualify as a trade secret, but agreements that attempt to prohibit the use or disclosure of publicly available information or an employee’s “general skills, knowledge, training, and experience” are invalid and unenforceable. The Court of Appeals overturned the District Court’s ruling on the breach of contract claim as inconsistent with these principles. (It did not address the trade secret claim, which was based on Ohio law.)

In this case, Orthofix had a clearly defined contractual provision that specifically listed customer lists and sales techniques as examples of the types of information covered by the nondisclosure clause. Because this information was not publicly available or within Hunter’s general knowledge or skills, the employment agreement was enforceable.

As this case demonstrates, it can be important to include provisions in employment agreements covering not just trade secrets, but confidential information as well. Moreover, in states like Texas that permit employers, within certain boundaries, to define what constitutes “confidential” information, it may behoove employers to do so—either by listing specific known items like Orthofix’s “playbook,” or by listing general categories of information such as customer lists and sales techniques. Although such contractual provisions are subject to review for compliance with applicable law, such as Texas’ (and the Restatement’s) posture on an employee’s general skills and knowledge, providing examples of confidential information can make it clear that the agreement is intended to cover information beyond trade secrets and help persuade a court that the agreement is sufficiently clear and understandable to be enforceable with respect to information that falls within the definition. Employers must be careful, however, to define “confidential” information with sufficient breadth, since listing certain items or categories may lead to an inference that unlisted items and categories are not considered confidential.

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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