Three years ago, the federal Defend Trade Secrets Act (DTSA) became law, supplementing state law claims with a federal civil cause of action for trade secret misappropriation.
DTSA cases making headlines since the statute’s adoption include cases in the food and beverage sector:
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The first DTSA case reported to be tried to a jury involved fig jam products, resulting in a plaintiff’s verdict for the owner against a former distributor and contract manufacturer on trademark and trade dress claims.1 Various posttrial motions were filed raising arguments relating to whether the jury’s monetary award reflected any relief under the DTSA as opposed to the state statute. The case settled before these issues were clarified.
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In another case asserting DTSA and state law claims, a federal district court in Missouri issued a temporary restraining order prohibiting a former executive from one restaurant company from starting work at another restaurant company.2 The DTSA limits the circumstances under which a former employee can be enjoined, providing that an injunction to prevent any actual or threatened misappropriation may not “prevent a person from entering into an employment relationship, and that conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” 18 U.S. Code § 1836 (b)(3)(A). The injunction in the Panera v. Nettles case, however, was based on interpretations of state law and the non-compete agreement signed by Nettles, rather than on the DTSA. The court also raised questions regarding Nettles’ handling of Panera materials on his personal laptop, suggesting that at least some of Panera’s concerns and evidence related to misappropriation of data as opposed to just the possibility that Mr. Nettles would use knowledge he had gained while under Panera’s employ. This case also settled before these issues were fully explored.
Even before the DTSA became law, the Economic Espionage Act of 1996, 18 U.S.C. § 1831, et. seq. (EEA), criminalized economic espionage and theft of trade secrets. One significant federal prosecution involved the alleged stealing of trade secrets relating to titanium dioxide production. This may not seem to be related to food or beverages, but in fact the product is “a white pigment extracted from ore and used in a wide variety of products, from paint to the filling in Oreo cookies.”3 The prosecution secured convictions against a U.S. citizen who worked with various Chinese entities and former DuPont employees to develop titanium dioxide production facilities in China, allegedly using DuPont trade secrets. Much debate occurred about whether certain information was secret (and protected as a trade secret) or publicly available (and not protected). On at least the charges of attempt and conspiracy to steal trade secrets, however, “the government need not prove the existence of actual trade secrets and that Defendant knew that the information in question was a trade secret,” but instead “must prove that Defendant firmly believed that certain information constituted trade secrets.”4 Thus, “a conviction [on conspiracy charges] may be upheld even where the object of the crime was not a legal possibility” because what defendants thought were trade secrets were actually not protectable as such.5
These and other cases identify three themes to help those operating in the food and beverage sector seeking to protect trade secrets and avoid disputes.
Theme #1: Almost anything can be protected as a trade secret, provided it is in fact secret.
The DTSA protects “all forms and types of financial, business, scientific, technical, economic, or engineering information,” if the owner “has taken reasonable measures to keep such information secret” and “the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
This can include protection for:
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Processes for making products
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Strategic plans
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Pricing information
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Subscriber information
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Media contact lists / TV show ideas
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Recipes
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Technology used to enhance restaurant guest experience
The key is that the company undertakes reasonable measures to keep the information secret. What constitutes reasonable measures will vary from case to case.
Theme #2: Innovation is good. Competition is good. Theft is bad.
Trade secret law serves to protect “standards of commercial morality” and encourage invention and innovation while maintaining “the public interest in having free and open competition in the manufacture and sale of unpatented goods.”6
In other words, competition is good for the public at large. It is expected that a company will monitor its competitors. Even reverse engineering—by buying a competitor’s product, taking it apart, analyzing it, and trying to re-create it—is fair and not a trade secret violation (although patent laws may come into play). But attempting to re-create a competitive product by using “improper means,” such as hacking or other theft or deception to secure information about the product that is not publicly available, is actionable as trade secret misappropriation.
Theme #3: An employee moving to a competitor presents challenges for all concerned.
There is a public interest in employers being free to hire whom they please and in employees being free to work for whom they please.
But there is also a public interest in upholding the inviolability of trade secrets and enforceability of confidentiality agreements.
These two public interests can be at odds with one another. Companies seeking to protect trade secrets should develop agreements for key personnel, paying close attention to parameters that are necessary to make the agreements enforceable under the applicable state laws. Companies seeking to hire employees from competitors should develop intake procedures to ensure that any agreements are complied with and that files and data belonging to the competitor do not come along with the new employee.
Three themes = Two steps toward an effective trade secret policy.
While companies in the food and beverage sector often have legal counsel with responsibilities specific to social media, trademarks, patents, employment, labeling and advertising, distribution, etc., rarely is there a counsel designated as having responsibility for protecting or monitoring the company’s trade secrets. Such an appointment is step one.
For step two, an audit of the company’s trade secrets, relevant policies, and agreements may well be in order. Such an audit could include (a) identifying any potential trade secrets and (b) securing or amending nondisclosure and non-compete agreements as needed, keeping in mind that new whistleblower protections in the DTSA require notice to employees and contractors in relevant agreements as follows:
An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a Federal, State, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law. An individual shall not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. An individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.
Particularly where trademark, copyright, or patent protection is or may not be available, relying on trade secret protection can be a viable strategy, as the Dalmatia and Panera cases demonstrate. Rarely can such a strategy work without careful advance planning and ongoing monitoring of the policies, procedures, and agreements necessary to lay the foundation for trade secret protection to be effective. In both cases, for example, Dalmatia and Panera had agreements in place that were helpful to their cause.
1Dalmatia Import Group, Inc. v. FoodMatch, Inc., 16-cv-02767 (E.D. Pa. 2017).
2Panera, LLC v. Nettles, 4:16-cv-1181-JAR (E.D. Mo. August 3, 2016) (TRO issued preventing Nettles, the former vice president of architecture in Panera’s information technology department, from commencing employment with Papa John’s).
3 U.S. v. Liew, 856 F. 3d 585 (9th Cir. 2017) (affirming in part and reversing in part conviction on various trade secret claims).
4 Id. at 600 (citing U.S. v. Nosal, 844 F.3d 1024 (9th Cir. 2016)).
5Id.
6 2 Melvin F. Jager, Trade Secrets Law § IL.03 at IL-12.
