“Memorized” Trade Secrets, Quirky Question # 69

Quirky Question # 69:

One of our key employees recently took a position with a competitor.  We do not believe that he stole any of our trade secrets by taking hard copies or electronic copies of our confidential information.  We checked his computer and it does not appear that he downloaded any data or emailed any information that we consider our trade secrets.  But, what if he simply memorized our trade secrets?  Would we have any basis to seek injunctive relief to prevent him from sharing this information with our competition?

Dorsey’s Analysis:

In nearly all states, the governing law regarding misappropriation of trade secrets is determined by the Uniform Trade Secrets Act (“UTSA”).  (There remain a few hold-out states that have not adopted the UTSA, but for the purposes of this question, I will assume you are in a UTSA state.)

The direct response to your inquiry is that you would have a basis to seek injunctive relief against your former employee, even if he only “memorized” your trade secrets and did not remove hard or electronic copies of your confidential data.  To explain why I’ve reached that conclusion, let me address a few of the fundamental principles.

Since I practice out of Minneapolis, I’ll use the Minnesota Uniform Trade Secrets Act (“MUTSA”) as the pertinent statutory scheme.  (The states that have adopted some version of the UTSA have slight variations on the uniform statute.  Further, courts in these jurisdictions have interpreted the statutes somewhat differently.  Thus, as I’ve stressed before, particularly in the area of employment law, you have to examine carefully the subtleties and nuances of the jurisdiction in which your dispute has arisen.)

The MUTSA sets forth a relatively straightforward statutory framework.  The statute defines a trade secret as: “information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(i) derives independent economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and

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

In short, information may constitute a trade secret if: a) it is not generally known, or readily ascertainable; b) it has economic value to the company; and c) the company made reasonable efforts under the circumstances to maintain its secrecy.

The specific question you pose is whether the definition of trade secret somehow is inapplicable to information that someone memorizes rather than misappropriates by stealing in hard copy or electronic form.  First, as a number of courts that have examined this issue have noted, there is nothing in the UTSA suggesting that “memorized” information somehow fails to qualify as a trade secret or is exempt from the reach of the statute.  Second, courts have noted that there is near unanimity among commentators that memorized information should not be excluded from the definition of trade secrets.  Third, many courts have pointed out that including memorized information within the definition of trade secrets advances the important public policies at the heart of the UTSA.  Fourth, some courts have noted that the majority of jurisdictions now recognize that trade secrets encompass memorized data and that, especially where courts are interpreting a uniform statute, it is important for them to reach uniform conclusions.

In your question, you do not identify the type of information you suspect your former employee of misappropriating.  It should be understood that the type of information involved may affect the issue of whether trade secret protection will be available.  For example, imagine that a employee working for Coca Cola memorized the secret formula for Coke.  Assume further that this individual tried to sell the secret formula to a Coke competitor.  Most courts would hold that it mattered little whether the employee had written the formula on a piece of paper or memorized it.  In either case, he would have misappropriated Coke’s trade secrets.

A closer question may be involved if an employee memorized customer information and shared that type of data with a competitor.  Courts have reached differing opinions on whether customer information constitutes trade secrets.  This analysis typically turns on the specific facts involved.  Did the employee only take customer names?  Is that information available through public sources (e.g., phone books, the Internet, trade association publications, etc.)?  Did the employee take information other than customer names (e.g., past purchasing information, contract expiration dates, names/phone numbers/email addresses of key customer personnel)?  Depending on how these and similar questions were resolved, a court may conclude that the customer data either did, or did not, constitute trade secrets.

Assuming that the customer information would meet the standards to qualify as a trade secret, courts then would evaluate whether this information would be protected regardless of whether it was memorized or recorded in some other fashion.  The Supreme Court of Ohio examined that issue earlier this year in the case of Al Minor & Associates, Inc. v. Martin, No. 2008 (February 6, 2008, Ohio).  Martin was a former employee of Al Minor & Associates, an actuarial firm that designed and administered retirement plans.  Martin, an at-will employee who was employed without a contract and who had no post-employment restrictive covenants, started his own competing firm.  He successfully solicited 15 customers of his former employer, who then sued him for misappropriating trade secrets.  The company alleged that Martin had memorized the trade secrets that he misappropriated.

As with so many other issues in employment law, competing principles are often at stake.  In the Al Minor case, the court pointed to the conflicting principles involved – the protection of the employer’s rights in their trade secrets and the employee’s right to exploit his own talents.  In Al Minor, however, the court resolved this conflict in favor of the employer.  The Ohio Supreme Court stated, “we conclude that the determination of whether a client list constitutes a trade secret . . . does not depend on whether it has been memorized by a former employee.  Information that constitutes a trade secret . . . does not lose its character as a trade secret if it has been memorized.  It is the information that is protected by the UTSA, regardless of the manner, mode, or form in which it is stored – whether on paper, in a computer, in one’s memory, or in any other medium.”  (Emphasis added.)

In sum, as the Ohio Supreme Court summarized well, information does not “lose its character” as a trade secret simply because it was memorized rather than recorded in some other fashion.  Therefore, if the information your employee may be sharing with your competition would otherwise qualify as a trade secret, the mere fact that he memorized the data should not prevent you from seeking injunctive relief.  In another Blog analysis, I’ll spend some time addressing the other issues relating to the basis for granting injunctive relief in misappropriation cases.

Dorsey & Whitney

Dorsey & Whitney

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