Mr. Weber

Hospitality Law

Your Hospitality Industry Trade Secrets May be at Risk

By Steven D. Weber, Founder, Weber Law, P.A.

The hospitality industry may be able to protect their trade secrets using newly enacted federal legislation. The Defend Trade Secrets Act of 2016 (the "DTSA") was signed into law on May 11, 2016. The DTSA creates a federal cause of action for an owner of a trade secret that is misappropriated if the trade secret "is related to a product or service used in, or intended for use in, interstate or foreign commerce." The DTSA also provides a powerful new remedy of allowing ex parte applications for an order allowing the seizure of property necessary to prevent the dissemination of the trade secret that is the subject of the action.

Under the DTSA, a "trade secret" encompasses a wide variety of forms and types of information but only if "(A) the owner thereof has taken reasonable measures to keep such information secret; and (B) 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." Pursuant to the DTSA, prohibited "misappropriation" includes both the acquisition of a trade secret by improper means and the trade secret's disclosure by a person who knew at the time of disclosure that the knowledge of the trade secret was "derived from or through a person who owed a duty to the person seeking relief to maintain the secrecy of the trade secret," or other circumstances. The protections, secrecy measures, and access limitations that a trade secret owner puts in place may determine the rights and remedies afforded them under the DTSA.

The hospitality industry may also be able to take advantage of state law rights and remedies related to trade secrets. The Uniform Trade Secrets Act ("UTSA") was intended to make uniform the state law regarding theft of trade secrets. One hospitality hot spot, the state of Florida, adopted the UTSA as the Florida Uniform Trade Secrets Act ("FUTSA"). FUTSA provides damages and other relief related to the misappropriation of trade secrets.

Under FUTSA, a trade secret may be (i) information, (2) that derives independent economic value from not being generally known or ascertainable and (3) is the subject of reasonable efforts to maintain its secrecy. For example, in the case Premier Lab Supply, Inc. v. Chemplex Indus., Inc., 10 So. 3d 202, 206 (Fla. 4th DCA 2009), a Florida appellate court found that a thin film spooling machine was properly a trade secret because, inter alia, evidence was presented "that the design of machine is very specific and involves many calculations", "without access to the machine one would be unable to obtain the required measurements" necessary to reproduce it, the "machine was kept in a separate room away from the public", and that "only certain individuals who operated the machine were authorized to enter" the room where the machine was stored. Notably, there, the lack of a confidentiality agreement did not defeat the argument that the machine was a trade secret - however, this will not always be the case. Accordingly, the protection a company provides to its hospitality trade secrets could determine whether they are in fact found to be trade secrets.

The need to protect hospitality trade secrets is not merely a hypothetical concern. There are numerous cases that relate to allegations of misappropriation of hospitality trade secrets. In 2009, Starwood Hotels & Resorts Worldwide, Inc. ("Starwood") sued Hilton Hotels Corporation n/k/a Hilton Worldwide ("Hilton") and certain individuals alleging that Hilton induced those individuals to leave Starwood and work for Hilton, and that Hilton, the individuals, and others, "stole hundreds of thousands of electronic files and documents constituting confidential and proprietary Starwood information and/or trade secrets [] for use by Hilton across all of Hilton's luxury and lifestyle brands in direct competition with Starwood." See Amended Complaint ¶¶ 7, 9, DE 31, Starwood Hotels & Resorts Worldwide, Inc. v. Hilton Hotels Corporation N/K/A Hilton Worldwide, No. 09 Civ. 3862 (S.D.N.Y). Starwood plead a claim of misappropriation of trade secrets (among other claims) and alleged that through the actions of Hilton and the individuals, they knowingly misappropriated and used, or aided and abetted the misappropriation and misuse of, Starwood's trade secrets.

Although it appears that the parties reached a settlement, a key issue in the case would have been whether the protection that Starwood provided to the information at issue was sufficient to find that the information constituted a trade secret. In Starwood's complaint, it alleged that the individual defendants signed employment agreements, including a "Non-Solicitation, Confidentiality and Intellectual Property Agreement." Starwood also alleged that the individuals signed agreements that were "subject to 'all Starwood policies, procedures and directives as they currently exist or as they may be adopted or changed from time to time,' which included Starwood's Code of Business Conduct," which required, among other things, that each employee protect and keep confidential certain non-public information. Starwood further alleged that its data is maintained on secure servers and hard drives, that remote access is permitted only upon proper certification, that employees may not access Starwood's systems through computers not properly certified by Starwood's IT staff, and that employees are not permitted to forward confidential materials to outside systems, "including their own homes or personal e-mail accounts." While the court did not determine whether Starwood's measures are adequate, this case is a good example of the steps that a company may be required to take to protect its hospitality trade secret information.

Another dispute regarding hospitality trade secrets arose in the case Atmosphere Hospitality Management, LLC, v. Curtullo, et al.., No. 5:13-CV-05040-KES, (D.S.D). In an order dated January 12, 2015, the court there set forth allegations that plaintiff Atmosphere Hospitality Management, LLC ("Atmosphere") entered into agreements with certain defendants that gave those defendants the right to operate a hotel in Rapid City, South Dakota, under Atmosphere's brand, 'Adoba', and gave management of the hotel to Atmosphere. Litigation ensued after certain defendants allegedly terminated the agreements and claimed the right to continue using the Adoba brand. Atmosphere filed a complaint alleging misappropriation of its trade secrets, and other claims, and later Atmosphere sought a protective order preventing disclosure of three documents that they deemed to be proprietary: "Adoba's Brand Standards for 2012, Adoba's business plan, and Adoba's Brand Standards for 2013."

Noting the importance of protecting proprietary business information, the court undertook an analysis of whether a protective order was warranted for trade secret information. During a hearing, the court stated that one of Atmosphere's agents testified that prior to disclosing documents such as the three at issue to a party, Atmosphere required the party to sign a confidentiality agreement. The court stated that if that party were to make further disclosure of the information to others, Atmosphere required those others to sign a confidentiality statement. The court found that Atmosphere established good cause for issuance of a protective order because "[Atmosphere's] 'Adoba' concept is the creation of an ecologically 'green' hotel, from the design of the hotel itself, to the services provided", "[h]ow [Atmosphere] accomplishes this and who [Atmosphere's] partners and competitors are, all constitute sensitive proprietary information", and the "record indicates that [Atmosphere] has, in the past, taken appropriate steps to protect this information." Whether the party took steps to protect its information was thus an important consideration in the analysis of whether the information at issue was entitled to protection as a trade secret.

The possibility that trade secrets could be misappropriated should be at the top of any hospitality company's mind. While some may assume that executives and employees working at the corporate headquarters may present the greatest risk of misappropriation, a company must take protective measures beyond those walls. E-mail, text message, other communication applications, and smart phones all present a risk of misappropriation of trade secrets. Given the emphasis on the hospitality experience offered to consumers, even low level employees on the front line of a hotel may have the opportunity to misappropriate a company's hospitality trade secrets. Front line employees may receive special training or instructions that are instrumental in implementing the very experience that was thought up at headquarters and heavily protected there - but not at the specific hotel.

As a result, protecting against the misappropriation of proprietary information by employees such as those who manage and operate the concierge desk, the reception area, and housekeeping functions may be only the beginning of an effective plan to protect trade secrets in compliance with the applicable law. In some cases, failure to institute adequate protections at those locations may impact the ability to obtain relief or the relief you obtain. The person misappropriating the information may only be located in a certain location and without establishing protections at that location, understanding how to obtain jurisdiction over those persons, understanding how the local courts interpret the law of trade secrets, and understanding what protections must be implemented to take full advantage of the legal protections offered by the law, a hospitality company may not be able to obtain a remedy for trade secret misappropriation.

Hospitality brands should take steps to protect their trade secrets because protecting them and properly responding to misappropriation can mean the difference between obtaining relief and not. Although not a complete list, hospitality brands should consider, in conjunction with other necessary steps:

  • Gaining a basic understanding of federal and state laws that protect trade secrets and complying with their relevant requirements, such as, in the DTSA, the notice requirements necessary for an employer to be awarded exemplary damages and attorneys' fees and costs in a civil action.

  • Adopting concrete procedures for securing information that may be trade secrets, such as requiring relevant employees to sign confidentiality agreements.

  • Adopting a plan if trade secrets are misappropriated.

  • Identifying and keeping track of those persons who have access to information that may be entitled to trade secret protection.

  • Understanding your competition, your product, and your level of risk based on the competition.

Steven Weber, founder of Weber Law, P.A., began in New York as an attorney for one of the world’s largest public law offices. Mr. Weber‘s clients ranged from elected officials to government agencies with budgets of over $1 billion. After transitioning to private practice with law firms in New York and Florida, he successfully aided individuals, management of private companies, and even other counsel through numerous public and private scenarios. Mr. Weber ultimately founded Weber Law to provide clients with exceptional levels of legal services and customer service. He has received the highest rating possible from Martindale Hubbell and has been named a Rising Star by Florida Super Lawyers. Mr. Weber can be contacted at 305-377-8788 or sweber@weberlawpa.com Please visit http://www.weberlawpa.com for more information. Extended Bio...

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