November 1999
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November 1999 |
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Classifieds
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The "Blueoval" Blues:
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Everyone is proclaiming that the Internet is transforming our society and its culture. Indeed, the September 20, 1999, edition of Newsweek dedicated the majority of its printed space to a special report entitled "e-life: How the Internet is Changing America." The law is only beginning to come to grips with the ways in which the Internet affects individuals and companies. However, there can be little doubt that in-house counsel and outside counsel alike, to protect their clients, must be attentive to developments in the law with regards to the Internet. A September 7, 1999, decision of a United States District Court judge in Michigan underscores the impact of the Internet and the need to prepare for coming changes before they happen. Robert Lane, doing business as Warner Publications, publishes information about Ford Motor Company and its products at blueovalnews.com. At one point, Lane had access to a Ford Web site including press releases with Ford's blessing. In the fall of 1998, when Lane was operating under the domain name fordworldnews.com, Ford objected to Lane's use of the name "Ford" in his domain name and blocked his access to the site including Ford's press releases. In a precursor to events to follow, Lane responded with a letter dated October 30, 1998, advising Ford that he possessed confidential photographs of Ford products purportedly provided to him by a Ford employee. Then, just four days later, on November 3, Lane sent another letter threatening to publish material on his Web site "that Ford would find 'disturbing.'" In both the October 30 and November 3 letters, Lane threatened to encourage Ford employees to disclose confidential information. Ford and Lane met, and Lane agreed to obtain Ford's approval prior to posting any Ford documents on the Internet.1 The next summer, Lane decided to ignore that agreement. On July 13, 1999, he posted an article quoting from confidential documents relating to quality issues concerning the Ford Mustang Cobra engine. On July 27, he published a document entitled "Powertrain Council Strategy & Focus," an internal Ford memo containing Ford's strategies relating to fuel economy, vehicle emissions through the year 2010, and powertrain technology advances. He also published a Ford engineering blueprint and asserted that he planned to offer other blueprints for sale. When Ford threatened to take legal action against him, Lane posted approximately 40 documents on his site, "including materials with high competitive sensitivity."2 Ford filed a motion for and was granted a Temporary Restraining Order (TRO) restraining Lane, inter alia, from "using, copying, or disclosing any internal document of Ford Motor Company."3 The court ordered Lane to show cause why the TRO should not be entered as a preliminary injunction. Judge Nancy G. Edmunds denied Ford's motion for a preliminary injunction, despite her acknowledgement that Lane was "likely to have violated the Michigan Uniform Trade Secrets Act."4 After lamenting that the law is "only beginning to grapple with the impact" of the Internet and calling the case "a clash between our commitment to the freedom of speech and the press, and our dedication to the protection of commercial innovation and intellectual property," Judge Edmunds held that an injunction restraining Lane's publication of Ford's "trade secrets would constitute an invalid prior restraint of free speech in violation of the First Amendment."5 |
 Jonathan Redgrave is a principal with Gray, Plant Mooty, Mooty & Bennett, P.A., and is chair of the firm's Products Liability and General Litigation practice group.  Brian McMahon is an associate with Gray, Plant Mooty, Mooty & Bennett, P.A., practicing in the litigation department. |
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"The lengths to
which a company must go to make clear to its employees or others
with whom it does business that an item is a trade secret will
depend on the type of information or the item sought to be protected." |
The Fallout The Ford decision highlights how important it is that companies ensure they have taken every possible precaution to protect their trade secrets. The more disturbing aspect of the Ford decision, though, is that there is no indication Ford did not do so. The court found that Ford "closely guard[s] its strategic, marketing, and product development plans."6 Its employees signed confidentiality agreements; most of the documents at issue in the case were marked indicating their privileged nature; and Ford informed Lane that the documents were confidential. Ford also told Lane that Ford employees were bound by a confidentiality agreement so that, with respect to some of the documents, Lane knew that the Ford employees who gave the documents to him were breaching their duty to Ford.7 This did not prevent employees from disclosing Ford's secrets. Therefore, regardless of how safe a company thinks its trade secrets are, it should reexamine its policies and procedures to ensure everything possible has been done to communicate to its employees the importance of confidentiality. In addition, an action plan must be in place in case the company is presented with a situation like the one in which Ford found itself. Preventive Measures. To establish the existence of a trade secret under Minnesota law, one must show that (1) the information is not generally known or readily ascertainable; (2) the information derives independent economic value from secrecy; and (3) the owner has made reasonable efforts to maintain the secrecy of the information or item.8 The third element is often dispositive and is the one over which companies have the most control. "Reasonable efforts to maintain secrecy" involves some combination of physical security measures and confidentiality procedures designed to signal to employees and to others "that certain information is secret and should not be disclosed."9 The need for a clear, unambiguous approach that articulates to employees and third parties who see the information that it is confidential cannot be understated. Such an approach should not be limited to having these parties sign confidentiality agreements, as case law clearly shows that having an employee sign a confidentiality agreement is not always enough to establish that "reasonable efforts to maintain secrecy" have been made.10 To clearly signal to employees and others the secret nature of an item, companies should implement a policy on confidentiality that discusses and includes oral instructions on the need for confidentiality.11 The lengths to which a company must go to make clear to its employees or others with whom it does business that an item is a trade secret will depend on the type of information or the item sought to be protected. For items that are obviously trade secrets, such as a "secret formula," less need be done; for items that are not intuitively trade secrets, an employer should "let its employees know in no uncertain terms that the [item is] secret."12 Protecting trade secrets is not something that should be discussed at the beginning of a relationship and then forgotten. Instead, vigorous protection of trade secrets should become part of a company's culture because "trade secret protection … depends upon a continuing course of conduct which creates a confidential relationship … which creates a reciprocal duty in the employee to treat the information [as] confidential insofar as the employer has so treated it."13 It is unclear whether Ford undertook all of these measures. Whatever measures they took, however, were not enough to prevent an employee from disclosing its trade secrets. Therefore, as an added deterrent, companies should consider spelling out to employees and others doing business with a company that disclosing trade secrets could expose them to criminal liability,14 a contingency acknowledged by the judge in Ford. Counsel should consider whether a company's policy on confidentiality should include an edict that it will pursue this course against those who disclose its trade secrets. Planning for Litigation. A party may seek an injunction for "actual or threatened misappropriation of trade secrets."15 Misappropriation is the acquisition of a trade secret … by a person who knows or has reason to know that the trade secret was acquired by improper means; or disclosure or use of a trade secret of another without express or implied consent by a person who used improper means to acquire knowledge of the trade secret; or at the time of disclosure or use, knew or had reason to know that the discloser's or user's knowledge of the trade secret was derived from or through a person who had utilized improper means to acquire it; acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or before a material change of the discloser's or user's 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.16 To be entitled to an injunction, a plaintiff must both "identify [the] specific trade secrets" at risk of being revealed and demonstrate a "substantial threat of impending injury."17 Producing a long list of general areas of information containing unidentified trade secrets or merely showing the existence of trade secrets will not earn an injunction.18 Therefore, a holder of trade secrets should be prepared with a detailed list of its trade secrets. If a company's policy on confidentiality and communications identifying trade secrets are clear and current, these can be used to quickly identify specific trade secrets while also proving reasonable efforts were made to maintain secrecy. Careful records should also be kept of any contact or communications between a company and third parties (such as vendors) with respect to trade secrets that are shared for specific business reasons. If disclosure is threatened, documenting the threats of publication or exposure will help a company meet its burden of demonstrating "a substantial threat of impending injury." Finally, clients and lawyers who routinely face trade secret issues should discuss what to do in the event of a misappropriation of trade secrets. This may vary from semiformal discussions to full-blown litigation plans with draft complaints, affidavits, and motion papers ready to go at a moment's notice. Questions such as "where are our confidentiality policies?" "who can sign an affidavit discussing our policies and procedures?" or "who can estimate the potential loss or irreparable injury if this is stolen or misappropiated?" should be reviewed so that if the unfortunate occurs, you can act quickly. |
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Further Review Even though the judge in the Ford case assumed Lane misappropriated Ford's trade secrets, and even though a "substantial threat" of impending injury to Ford was also implicitly acknowledged, Ford's motion for preliminary injunction was denied on the basis of the First Amendment argument. Because of the potential for substantial damage posed by Internet dissemination of trade secrets, companies and their counsel faced with a similar situation must be ready to argue -- quickly -- that the Ford case was wrongly decided. Of course, counsel for people disseminating information on the Internet may have a separate view on the issue and should be ready to defend the decision. An attack on the decision could have two prongs. First, counsel could argue that the First Amendment should not eviscerate the protections of trade secret law. Second, counsel could argue that the Ford decision was incorrectly decided as an improper broadening of the 6th Circuit's (not Internet-related) ruling in Procter & Gamble v. Banker's Trust,19 the case Judge Edmunds purportedly followed in reaching her decision in Ford. Counsel and clients alike should also consider whether new legislation or amendments to existing legislation are needed to address the changes brought by the Internet so that businesses are not faced with the uncertainty posed by the rapidly developing nature of "Internet law." The impact of the Internet on the substantive law of the country
will certainly develop over the next five to ten years. Unfortunately,
the changes brought by the Internet will more likely than not
come on a case-by-case basis and judges, with no clear precedent
to guide them, will surely reach opposite conclusions on similar
facts. Attorneys must recognize this uncertainty and help clients
plan to meet these changes and protect their interests. The "blueovalnews"
case provides a specific example of the impact and should provoke
meaningful discussion of how attorneys can help clients respond
to new challenges, whether through legislation to remove the
uncertainty or by preparing specific litigation plans and strategies
to address problems that may arise in the new e-world. 1 Ford Motor Co. v. Robert Lane, No. 99-74205, slip op. at 2-3 (E.D. Mich. Sept. 7, 1999). 8 Nordale, Inc. v. Samsco, Inc., 830 F.Supp. 1263, 1274 (D. Minn. 1993) aff'd 86 F.3d 1179 (citing Electro-Craft Corp. v. Controlled Motion, 332 N.W.2d 890, 899 (Minn. 1983) and Minn. Stat. §325C.01 subd. 5). 9 Electro-Craft, 332 N.W.2d at 902. 10 Id. at 901-02 (holding that a company's "minimal precautions" in screening its publications for confidential information and requiring employees to sign confidentiality agreements "were not enough" to meet the "reasonable efforts to maintain secrecy" standard). 11 Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738, 741 (Minn. App. 1984) (finding no misappropriation of trade secrets where there was "no policy on confidentiality;" "confidentiality was never discussed between employer and employee."); Nordale, 830 F.Supp. at 1274 (company did not provide party with which it did business with notice regarding the need to keep information confidential; that party's employees were not required to sign confidentiality agreements nor were instructions given on the need for confidentiality). 12 Electro-Craft, 332 N.W.2d at 902-03. 14 In Minnesota, one who "intentionally and without claim of right converts any article representing a trade secret, knowing it to be such, to the actor's own use or that of another person" is guilty of theft, Minn.Stat. §609.52 subd. 2(8)(1998), and may be sentenced "to imprisonment for not more than 10 years or to payment of a fine of not more than $20,000, or both … if the property stolen was an article representing a trade secret. Id. at subd 3(2). 15 Minn. Stat §325C.02(a) (1998). 16 Minn. Stat. §325C.01 subd.3 (1998). 17 International Business Mach. Corp. v. Seagate Technology, Inc., 941 F.Supp. 98 (D. Minn. 1992). 19 78 F.3d 219 (6th Cir. 1996). In Procter & Gamble, the Sixth Circuit denied a motion for a preliminary injunction filed by the parties to a lawsuit and allowed Business Week magazine to publish documents it had received in the course of its reporting on the suit. Framing the issue as a "classic case of a prior restraint," the court determined that Business Week's publication of the documents did not pose a "grave threat to a critical government interest or to a constitutional right." Id. at 225. An argument can be made distinguishing Procter & Gamble on the grounds that because government entities have passed statutes protecting trade secrets, there exists a "grave government interest" in sustaining the potency and validity of trade secrets. Secondly, an argument could be made that the owner of a trade secret has a property right to the information, and that failing to respect the validity of the secret poses a "grave threat to [the owner's] constitutional right" not to have property taken without just compensation.
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"Protecting trade secrets is
not something that should be discussed at the beginning of a
relationship and then forgotten." |
