Tennessee Federal Court Prohibits Misuse of Employer Trade Secrets Butler Snow LLP

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Allegations of trade secret misappropriation often depend on whether the information gathered is truly a “trade secret”. In determining whether information is a trade secret, courts consider a number of factors, including the extent to which it is common knowledge, the steps taken to preserve its secrecy, the value to its owner and to competitors. , the resources devoted to developing the information and the ease for someone else to acquire the information. Employers often ask the courts for a quick pre-trial ruling in the form of a “preliminary injunction” to prevent a former employee from stealing trade secrets. Courts consider the following factors in determining whether to issue a preliminary injunction: the likelihood of success on the merits at trial, if the employer faces irreparable harm in the absence of an injunction , the burden on the defendants to issue an injunction and any prejudice. Recently, a federal district court in Eastern Tennessee issued a preliminary injunction prohibiting someone from using information they stole from their former employer to further their competing business.

Facts:

Billy Maples was General Manager of Knox Trailers, which operates a trailer sales and repair business in Knoxville. In this role, Maples had access to the company’s “Southware” software database where she stored a wide variety of digital information personalized for her business, including customer and supplier information, information about prices and personalized reports. In late 2019, Maples, which was not subject to a non-compete agreement, began exploring plans to open a competing trailer repair business known as Titan Trailers. In February 2020, Maples, while still employed by Knox Trailers, downloaded information from Southware’s databases to a USB stick. Subsequently, he asked Stephen Powell to use the downloaded information to create a database for Titan Trailers. Two weeks later, Maples resigned from Knox Trailers. A week later, Maples texted Powell to tell him that, when setting up Southware’s database, “do not configure anything in Southware that is captive of prices or sales or order history. of Knox Trailer if possible “.

After being suspicious of Maples’ activities, Knox Trailers filed a lawsuit against Maples, Titan Trailers, Powell and others in March 2020, accusing them of trade secret misappropriation and other wrongdoing. In late 2020, during the discovery, Knox Trailers learned of the existence of the USB drive and a series of incriminating text messages between Maples and Powell. Therefore, Knox Trailers asked the Federal District Court to issue a preliminary injunction to prevent the defendants from using any information stored in Knox Trailers databases. Maples said his intention was not to use confidential information, but rather to “save time compared to manual entry” of data and avoid purchasing the software directly from Southware.

Holding:

The court determined that Knox Trailers had fulfilled its obligation to show that a preliminary injunction was warranted. First, the court ruled that Knox Trailers would most likely succeed in the trial by proving that the defendants had abused its trade secrets. Dismissing the defendants’ argument that the uploaded information was not considered trade secrets because it was publicly available, the court noted the “vastness of the information” included in the Knox Trailers databases, “As well as the personalization of their systems to allow the interaction and analysis of this information. He further found that, “[t]Although a single piece of data, such as a customer name or an old invoice, may be available to others in the field, the entire data collection is not accessible to the public, and the duplication is independent. system and collecting data from independent sources would be laborious and expensive.

The court also determined that Knox Trailers had taken steps to protect the secrecy of the information, including password protection. There was no doubt that the database information was valuable, and Knox Trailers presented evidence that it had spent at least $ 350,000 to develop and maintain this information over time. After finding that it was likely that the defendants had misappropriated Knox Trailers trade secrets, the court had no difficulty in concluding that the company suffered irreparable harm in the absence of an injunction and that this prejudice outweighed any prejudice (which was not articulated) by the defendants. Concretely, “the damages resulting from the loss of customers, customer relationships and fair competition are difficult to calculate”. Thus, the court ruled that the defendants were preventing the use of any information from the databases at least for the duration of the trial. Knox Trailers, Inc. v. Clark, 2021 WL 2043188 (ED Tenn. 21 May 2021).

Final result:

Developing the evidence needed to convince a court to issue a preliminary injunction is a difficult task, but in this case, Knox Trailers got the better of Maples. It never looks good when an employee secretly downloads information shortly before leaving. Here, Maples was arrested and his excuse that the stolen information did not constitute trade secrets ringed hollow. Indeed, if the information had no value and could easily have been duplicated in the public domain, then why did Maples bother to download it? And why didn’t he tell anyone from Knox Trailer what he was doing if he didn’t think what he was doing was wrong? This case is important to reinforce the well-established principle that while an employer’s individualized information, in a vacuum, may be publicly available, its compilation over time may lead it to achieve trade secret status when we consider all the circumstances.

This is unusual in that it took Knox Trailers several months to find out what Maples had done. When employers are suspicious of the wrongdoing of a former employee, one of the best first steps to take is an immediate forensic examination of the former employee’s computer or computers. It’s unclear what happened here, but it’s possible that Knox Trailers wiped out Maples’ company hard drive soon after he left, so no forensic examination could have been done. be carried out. Knox Trailers was fortunate enough to have learned of Maples’ mischief during the discovery process, but it took a long time and has likely suffered irreparable damage in the meantime. As for Maples and the other defendants, they seem to be in a world of trouble. . .


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