Category Archives: Trade Secret

Is A Twitter Account A Trade Secret?

Businesses have long been able to protect their list of customers as a trade secret, keeping the information out of the hands of competitors. But should the list of customers in a business’ Twitter account be granted the same confidential protection?

The United States District Court for the Northern District considered this question in a recent case. PhoneDog v. Kravitz, 2011 U.S. Dist. LEXIS 129229 (N.D. Cal. Nov. 8, 2011). The plaintiff, PhoneDog, used a variety of social media – including Twitter – to share reviews of mobile products and services with its readers. The defendant, Noah Kravitz (“Kravitz”), was a product reviewer and video blogger for PhoneDog. The company permitted Kravitz to use the Twitter account “@PhoneDog_Noah.” Kravitz used the account to disseminate information and promote PhoneDog services on behalf of the company. He generated approximately 17,000 Twitter followers during the course of his employment. Kravitz used a password to access the account.

PhoneDog claimed that all of its “@PhoneDog_Name” Twitter accounts, as well as the passwords to those accounts, were proprietary, confidential information. When Kravitz ended his employment with PhoneDog in October 2010, the company asked him to stop using the Twitter account. However, Kravitz instead changed the name (or “handle”) of the account to “@noahkravitz” and continued to use it. PhoneDog, alleging that Kravitz’s behavior caused it to suffer at least $340,000 in damages, brought suit against Kravitz for misappropriation of a trade secret and three other claims. Kravitz filed a motion to dismiss the claims.

A motion to dismiss allows a court to terminate a lawsuit that fails to state a claim upon which the plaintiff can receive relief from the court. When considering a motion to dismiss, a court must accept all of the plaintiff’s allegations as true and construe them in the light that is most favorable to the plaintiff. Bell Atl. Corp. v. Twombly¸550 U.S. 544, 570 (2007). Kravitz argued the claim should be dismissed because neither the identity of the account followers or the password to the account constituted trade secrets. Under the California Civil Code, a trade secret is defined as information that:

1) derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

California Civil Code, sec. 3426.1(d)

Kravitz claimed the list of followers was not secret because the information was publicly available on Twitter. He also claimed that the password was not a trade secret because the password itself did not derive any actual or potential independent economic value. Kravitz also argued that PhoneDog failed to allege any act by him that would be considered misappropriation. Under the California Civil Code, misappropriation is defined as the:

1) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means;

2) disclosure or use of a trade secret of another without express or implied consent by a person who:

a) used improper means to acquire the knowledge of the trade secret;
b) at the time of disclosure of use, knew or had reason to know that his or her knowledge of the trade secret was:

i.) derived from or through a person who had utilized improper means to acquire it;
ii.) acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
iii.) derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use

c) before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake

California Civil Code sec. 3426.1(b)

The Court found that Kravitz failed to show any basis for a dismissal of the misappropriation claims. The Court determined that PhoneDog described the subject matter of the trade secret with sufficient particularity and that Kravitz had refused to stop using the password and account despite the company’s requests. Additionally, the Court found that determining whether Kravitz’s behavior constituted misappropriation required consideration of evidence, and thus the claim could not be dismissed.

The future decisions in cases such as this will be very significant for businesses who use Twitter or similar social networking tools as a means of collecting a group of potential customers and establishing a professional relationship between them. It is yet another example of how traditional trade secret law will need to adapt to a world where the relationship between businesses and customers continues to operate more and more online and thus in a less confidential setting.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

How Does LinkedIn Affect What Can And Cannot Be Considered A Trade Secret?

Employment agreements and other contracts have traditionally been drafted in a manner that prevents a former employee from sharing their former employer’s trade secrets and other confidential information with a new business. However, as professional social networking sites, such as LinkedIn, become more prevalent and users are more willing to share information on them, courts have begun to reconsider what type of corporate information should be considered confidential.

The United States District Court for the Eastern District of New York recently considered this problem. Sasqua Group, Inc. v. Courtney, 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. Aug. 2, 2010). The plaintiff, Sasqua Group (“Sasqua”), alleged that its former employer, defendant Lori Courtney (“Courtney”), provided her new employer with Sasqua’s confidential trade secrets, including its customer list. In its complaint, Sasqua asserted that their trade secrets included confidential, proprietary and competitively sensitive information about (a) its client contacts; (b) their individual profiles; (c) their hiring preferences; (d) their employment backgrounds; and (e) descriptions of previous interactions with client contacts. The company claimed that all of the information was kept in a central database and maintained by a computer technician. Sasqua also claimed that the information was not available from any public source and is not information that could be easily duplicated.

Under New York law, courts consider several factors in order to determine whether information constitutes a trade secret, including:

1) the extent to which the information is known outside of the business;

2) the extent to which the information is known by employees and others involved in the business;

3) the extent of measures taken by the business to guard the secrecy of the information;

4) the value of the information to the business and its competitors;

5) the amount of effort or money expended by the business in developing the information; and

6) the ease or difficulty with which the information could be properly acquired or duplicated by others.

Unisource Worldwide, Inc. v. Valenti, 196 F.Supp.2d 269, 278 (2002).

Additionally, “[a] customer list developed by a business through substantial effort and kept in confidence may be treated and protected at the owner’s instance against disclosure to a competition, provided the information it contains is not otherwise readily ascertainable.” Id. Knowledge of a customer’s needs and prices charged to that customer are also considered confidential.  In order to claim misappropriation of a trade secret, a plaintiff must prove that:

1) it possessed a trade secret; and

2) the defendant is using that trade secret in breach of an agreement, confidence, or duty, or as the result of discovery my improper means.

Computer Associates International, Inc. v. Bryan, 784 F. Supp. 982, 987 (E.D.N.Y. 1992).

Sasqua could not complete the first prong of this test because the Court did not find that its customer list was a trade secret. Courtney testified that the information could have been acquired through a series of Google searches as well as through professional networking sites such as Bloomberg and LinkedIn. The Court determined that, in earlier years, the information in Sasqua’s database might have been a protectable trade secret because greater time, energy and resources would have been needed to gather such detail. “However, for good or bad, the exponential proliferation of information made available through full-blown use of the Internet and the powerful tools it provides to access such information [today] is a very different story.” Sasqua at 63.

The Court’s decision in Sasqua may have a major impact on trade secret law. Traditional non-compete clauses may need to be revised and drafted in a way that grants protection over — or at least accounts for — information that might be available through social networking sites.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What Remedies Would Be Allowed If New Jersey Adopts the Uniform Trade Secrets Act?

New Jersey is currently one of just four states that has not passed a version of the Uniform Trade Secrets Act, but that could all change soon.

On September 19, the Senate Commerce Committee unanimously recommended passage of A-921/S-2456. An amendment included by the committee required the bill to be returned to the Assembly for final legislative approval after it is approved by the state Senate. It has now been submitted to the Governor, who is expected to sign it.

Under current New Jersey law, trade secrets are largely protected by common law and the Computer Related Offenses Act. N.J.S.A. 2A:38A-3(a). The adoption of the Uniform Trade Secrets Act would grant trade secret protection in a manner that federal law does not provide. Currently, federal law protects patents, copyrights and trademarks. In New Jersey, there is no statute that directly protects trade secrets. The adoption of this uniform law would provide plaintiffs with the opportunity to receive civil remedies under New Jersey state law if their trade secrets are misappropriated.

New Jersey, New York, Massachusetts and Texas are the only states that have yet to pass versions of the Uniform Trade Secrets Act. However, the law is pending in Massachusetts.

The law would allow plaintiffs the opportunity to seek the following remedies:

  1. There would be damages for both actual loss suffered by the plaintiff and for any unjust enrichment enjoyed by the defendant as a result of the misappropriation. Damages may also include the imposition of reasonable royalty for unauthorized disclosure or use.
  2. There would be injunctive relief for actual or threatened misappropriation of a trade secret. (Under certain conditions, an injunction may condition future use upon payment of a reasonable royalty.)
  3. Where there is willful and malicious misappropriation of a trade secret, punitive damages in the amount of double the compensatory damages would be available under the statute to be awarded by the court;
  4. The award of attorney’s fees would be authorized if
    1. Willful and malicious misappropriation exists;
    2. A claim of misappropriation is made in bad faith; or
    3. A motion to terminate an injunction is made or resisted in bad faith.

http://www.njleg.state.nj.us/2010/Bills/A1000/921_S2.PDF

The amended bill also states that if a public entity or employee is the defendant in any action brought for the misappropriation of a trade secret, the provisions of the state’s Tort Claims Act supersede any conflicting provisions of the bill. So the very short deadlines for providing notice of a claim against a governmental entity would apply to this cause of action. Additionally, an amendment to the bill removes the presumption in favor of granting protective orders in connection with discovery proceedings pursuant to section 4:10-3(g).

The passage of this bill would be significant for New Jersey businesses because it would provide both legal relief if there is actual misappropriation of trade secrets and also injunctive relief if one believes there might be an actual or potential misappropriation. Of course, this law has not yet been passed, and even if it is (as is expected), it would be wise for businesses to still consider whether to include language in service and employment agreements that account for how trade secrets and similar confidential information is handled.

Comments/Questions: gdn@gdnlaw.com

© 2011 Nissenbaum Law Group, LLC