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Mr. Weber

Hospitality Law

Take Steps to Protect Your Trade Secrets

Hold Them Close or Let Them Go

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

Taking measures to protect your hospitality organization's trade secrets before filing or defending against a lawsuit may significantly increase your organization's chances of obtaining a favorable result in any lawsuit related to the misappropriation of trade secrets. While there are many ways to protect information, hospitality organizations need to be educated on what the law applicable to them considers to be "reasonable" steps that provide the secrecy that is required under the circumstances. This article explores how some courts have interpreted what is reasonable or adequate protection of information such that the information may qualify as a trade secret.

A hospitality organization may operate in one location or around the globe. Whether information qualifies as a trade secret depends on the applicable law. In the United States, almost all states have adopted the Uniform Trade Secrets Act ("UTSA") - a model meant to conform the rules of the states. Hospitality hot spots such as Florida and Nevada, which have adopted law from the UTSA, have statutes in place that define a trade secret as (1) information, (2) that derives independent economic value, and (3) "is the subject of efforts that are reasonable under the circumstances to maintain its secrecy." New York, another hospitality hotspot, has not adopted the UTSA. Instead, New York case law sets forth factors to be considered in determining if information is a trade secret, including, among others, the value of the information, the amount of money expended in developing the information, and the extent of measures taken to protect the information's secrecy.

In addition to state law, in May 2016, President Obama signed the Defend Trade Secrets Act ("DTSA") into federal law. The DTSA creates a federal cause of action for misappropriation of trade secrets. 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."

While many factors are considered to determine if certain information is a trade secret, one key and common factor under the law of Florida, Nevada, New York, and the DTSA, is whether the secrecy of the information is protected. More specifically, Florida and Nevada law requires that a trade secret be "the subject of efforts that are reasonable under the circumstances to maintain its secrecy." Similarly, New York law considers the extent of measures taken to guard the secrecy of the information. And, the DTSA provides that information is a trade secret only if "the owner thereof has taken reasonable measures to keep such information secret." The question from a hospitality organization looking to protect its trade secrets thus becomes: what is reasonable protection under the law? The answer to this question will depend on the factual circumstances of each case. Nonetheless, there are some general guidelines that hospitality organizations should consider.

Hospitality organizations should consider using confidentiality agreements and other restrictive covenants to protect their trade secrets. Factors such as 1) who an organization requires to sign a confidentiality agreement; 2) what does the confidentiality agreement say regarding any trade secrets; and 3) how the organization uses the confidentiality agreement or other restrictive covenants in practice, may influence whether a court finds such an agreement reasonably or adequately protects a trade secret. For example, in the case LIBERTY AMERICAN INS. v. WestPoint Underwriters, 199 F. Supp. 2d 1271 (M.D. Fla. 2001), the court considered whether the plaintiff took reasonable precautions to protect its proprietary software from competitors. In support of its finding that the plaintiff took reasonable efforts to maintain its secrecy, the court stated that "Plaintiff Liberty American requires key employees with access to the software to sign confidentiality agreements," as well as taking other protective measures. In contrast, the court found that certain other information, that the plaintiff contended was trade secrets, was not reasonably protected because there were no contractual confidentiality protections for it and the plaintiff shared the information with others.

A confidentiality agreement may be required to explicitly state that the information to be protected is a trade secret. In the case LEEDOM MANAGEMENT GROUP, INC. v. Perlmutter, Case No.: 11-cv-2108, (M.D. Fla. February 15, 2012), the court considered a claim by the plaintiff that an individual misappropriated confidential data, including its client list. In finding that the plaintiff took steps to protect the confidentiality of its trade secrets, the court found as persuasive the contents of an offer letter that the individual signed upon commencing her employment. The court found that the letter was "an express agreement with the aim of protecting Plaintiffs' confidential data" because the letter stated that the individual recognized that certain information was proprietary in nature and trade secrets.

By way of contrast, a Georgia court recently found information was not a trade secret because the information was not identified as confidential and the confidentiality agreement used did not expressly mention the information in question. The court stated that the information was not a trade secret because the party seeking to protect the alleged trade secret did not "present any evidence that it: (1) labeled the [information] confidential or otherwise communicated the confidentiality of the [information] directly to its employees; (2) directed its employees to maintain the secrecy of the file other than through a general confidentiality agreement that did not expressly mention the [information]; or (3) tracked the use of [information]."

If a confidentiality agreement or other restrictive covenant is in place, a hospitality organization should use it to protect its trade secrets in a consistent manner. In the case Viable Resources, Inc., v. Karen Belyea, Case No.: 16-cv-2669 (JSS) (M.D. Fla. December 1, 2016), the court found that the plaintiff did not take reasonable steps to protect certain information that the plaintiff alleged was trade secrets. The court there found that the plaintiff maintains "customer lists, customer goodwill, and pricing information that may properly be considered trade secret information that [the plaintiff] attempts to protect through the use of employment contracts and restrictive covenants." However, the court found that the plaintiff "selectively enforced its non-compete agreements," for example, depending "on whether the departing employee sought employment that could benefit [the plaintiff]." Because the court found that the plaintiff "guarded its trade secrets less vigorously when a departing employee sought to use information or skills to" the plaintiff's benefit, the court found that plaintiff did not reasonably protect its information.

While a confidentiality agreement may be a good starting point, additional steps to secure the secrecy of the information may be required, such as, for example, physical and/or electronic access restrictions to the trade secrets. In the LIBERTY AMERICAN INS. v. WestPoint Underwriters case mentioned above, the court noted that in conjunction with confidentiality agreements, the plaintiff "takes reasonable efforts to maintain its secrecy by restricting access of its computer system to its programmers and to third parties who have licensing agreements with Plaintiff Liberty American." More detail regarding access restrictions and security measures that a court found to be reasonable were revealed in the case VAS AERO SERVICES, LLC v. Arroyo, 860 F. Supp. 2d 1349 (S.D. Fla. 2012). In that case, VAS AERO SERVICES, LLC ("VAS") argued that the defendant misappropriated documents involving VAS and Boeing that constituted trade secrets.

In rejecting the defendant's argument that Boeing and VAS did not make reasonable efforts to maintain the secrecy of the documents, the court noted that "VAS and Boeing each implemented substantial security procedures to protect the dissemination of this information, including, but not limited to: (1) installing multi-tiered password protections; (2) limiting access to the Kent Facility to individuals who obtained a security clearance; (3) only permitting a few key employees access to these documents; (4) only permitting access to the databases through VAS's intranet or through its VPN; (5) requiring individuals to have badges to enter the Kent Facility; and (6) mandating key employees who are authorized to view the VAS-Boeing Agreements to choose complex passwords, and, change those passwords every ninety (90) days."

Moreover, and, in line with the confidentiality agreement examples mentioned above, the court found that VAS required its employees to comply with numerous confidentiality policies, and the court noted that "within each document VAS and Boeing included a non-disclosure provision that requires either party to obtain prior written approval before the information is released." While the extent of the measures described in the VAS AERO SERVICES, LLC v. Arroyo case may not be appropriate, or even cost effective, in every case, they provide an example of what one court found was reasonable under the circumstances to demonstrate that a party reasonably protected its trade secrets.

Whether a hospitality industry company has taken reasonable measures to protect its information sufficiently for it to qualify as a trade secret is a fact specific inquiry and will depend on the applicable laws. However, taking measures to protect that information in compliance with the law before any trade secrets are misappropriated may significantly increase your hospitality organization's chances for success in any trade secrets related lawsuit.

References:

(1) Fla. Stat. § 688.002(4)(a)-(b); Nev. Rev. Stat. § 600A.30(5)(a)-(b).
(2) Ashland Mgt. v. Janien, 82 N.Y.2d 395, 407 (N.Y. 1993).
(3) 18 U.S.C. § 1839(3).
(4) Fla. Stat. § 688.002(4)(b); Nev. Rev. Stat. § 600A.30(5)(b).
(5) Ashland Mgt. v. Janien, 82 N.Y.2d 395, 407 (N.Y. 1993).
(6) 18 U.S.C. § 1839(3)(A).
(7) LIBERTY AMERICAN INS. v. WestPoint Underwriters, 199 F. Supp. 2d 1271, 1284 (M.D. Fla. 2001). Id. at 1287.
(8) 8LEEDOM MANAGEMENT GROUP, INC. v. Perlmutter, Case No.: 11-cv-2108, (M.D. Fla. February 15, 2012).
(9) HCC INSURANCE HOLDINGS, INC. v. Flowers, Case No.: 15-cv-3262(WSD), (N.D. GA February 22, 2017) Id.
(10)Viable Resources, Inc., v. Karen Belyea, Case No.: 16-cv-2669 (JSS) (M.D. Fla. December 1, 2016). Ibid.
Ibid.
(11) *LIBERTY AMERICAN INS. v. WestPoint Underwriters
, 199 F. Supp. 2d 1271, 1284 (M.D. Fla. 2001). VAS AERO SERVICES, LLC v. Arroyo, 860 F. Supp. 2d 1349, 1359-1360 (S.D. Fla. 2012).
Ibid. at 1359.

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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