Analyzing a Trade Secret Case in Kansas: Marvelous Manufacturer and the Capable Chemist
| Publication year | 2014 |
| Pages | 29 |
| Citation | Vol. 83 No. 3 Pg. 29 |
Tony Rupp and Jeff Hurt
[29]
I. Introduction
Marvelous Manufacturer is a Kansas chemical company that sells proven products based on formulas that have been part of Marvelous’ business for years. Karen has been a capable chemist for Marvelous for three years. She has access to the formulas and has modified and improved some of them. She knows some of the formulas from memory. She has signed a “confidentiality” agreement forbidding disclosure of Marvelous’ formulas to third parties without permission. However, she has not signed a noncompetition agreement.
In a pitiful economy, poor Karen has not had a pay raise. Fearsome Competitor is looking for a competent chemist to upgrade its formulas to compete with Marvelous. Fearsome pays better than Marvelous, and Karen sees this as a tremendous opportunity to advance her career and pursue her livelihood. She applies for and accepts a position with Fearsome.
Management at Marvelous is miffed. Marvelous suspects Karen to have pilfered copies of the formulas. Even if she hasn’t, Marvelous is alarmed that the knowledge she has of those formulas is potentially damaging and gives Fearsome an unfair advantage in the marketplace.
Marvelous comes to Lucky Lawyer for guidance. Lucky is mindful of the Kansas Uniform Trade Secrets Act (KUTSA)[1] and knows that he needs to determine whether there is a potential claim for misappropriation of a trade secret. Lucky recognizes the tug-of-war between Marvelous’ interest in maintaining the secrecy of information that may be the subject of extensive investment and that “loses its value when published to the world at large, ”[2] and Karen’s interest in pursuing her livelihood.[3] Lucky determines that a crucial question is whether a “trade secret” has been “misappropriated” by Karen.
II. What is a “Trade Secret?”
Lucky knows “trade secret” is a term of art that is often incorrectly used to describe any information a party wants to keep confidential. While at a minimum, a “trade secret” must be treated confidentially by the party claiming statutory protection, such confidential treatment isn’t enough. There are other requirements. What is and is not a trade secret requires a fact-intensive analysis of the factors set forth in the KUTSA as construed by the courts. However, the plaintiff must come forward with “some showing that the information alleged to be a trade secret meets the definition.”[4] Accordingly, if Marvelous is to pursue a claim it is critical for Lucky to assemble evidence that establishes that there are actual trade secrets that have been taken.
Under K.S.A. 60-3320(4), trade secret protection may apply to 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 reasonably 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 Progressive Products Inc. v. Swartz, [5] the court said that the KUTSA operates in conjunction with patent law “to protect developers and legitimate users of new commercial ideas and technology. A key difference between a trade secret and a patent is that the latter is open to public inspection, while the former is maintained in secrecy.”[6] The court went on to state,
[T]rade secret law creates a property right that is defined by the extent to which the owner of the secret protects that interest from disclosure to others. In doing so, the law allows a trade secret owner to reap the fruits of its labor and protects the owner’s moral entitlement to these fruits. Trade secret law encourages the development and exploitation of lesser or different inventions that might be accorded protection under the patent laws, but which still play an important part in technological and scientific advancement. Without trade secret protection, organized scientific and technological research could become fragmented, and society as a whole could suffer. By restricting [30] the acquisition, use, and disclosure of another’s valuable, proprietary information by improper means, trade secret law minimizes the inevitable cost to the basic decency of society when one steals from another, in doing so, trade secret law recognizes the importance of good faith and honest, fair dealing in the commercial world.[7]
If Marvelous is going to pursue a trade secret claim, Lucky must identify with specificity what trade secrets have been misappropriated.[8] A common misperception is that all “confidential” information is “trade secret” information. It is not. KUTSA does not protect information that is merely confidential. To be entitled to KUTSA protection, the information must go beyond merely being confidential, and must meet the statutory definition of “trade secret.”
In Wolfe Electric Inc. v. Duckworth, [9] the court deemed jury instructions to be erroneous when those instructions allowed for the recovery of damages under KUTSA when the instructions grouped “trade secrets and confidential information” together. The court stated:
We begin our analysis by agreeing with defendants that KUTSA only prohibits misappropriation of ‘trade secrets.’ It does not mention ‘confidential information.’ Accordingly, remedies concerning non-trade secrets, e.g., mere confidential information, cannot be obtained through a KUTSA cause of action.
There are a few general conclusions that can be fairly drawn from the KUTSA cases.
A. Specificity
It is not good enough for a plaintiff to “simply persist in the blunderbuss statement that ‘Everything you got from us was a trade secret.’”[10] Lucky needs to determine specifically what Marvelous believes Karen took with her. Simply pleading the statutory language is not sufficient to avoid summary judgment in a trade secrets case.[11] The plaintiff has the burden to “define its trade secrets with the precision and particularity necessary to separate it from the general skill and knowledge possessed by others.”[12] Like the plaintiff in Paradigm, Lucky can likely satisfy this requirement by identifying Marvelous’ chemical processes by name and listing the specific task completed by each process. He is not required to disclose any of the details of the processes themselves.[13]
B. Customers and Customer Lists
Customers themselves are not trade secrets.[14] Customer lists are not trade secrets when they contain public information that could be easily compiled by third parties. However, when the customer list, while using public information as a source, is the result of a great deal of time, effort, and expense and is treated as confidential information, it may be entitled to trade secret protection.[15] Whether a customer list is a trade secret is a fact-intensive inquiry which is highly dependent upon the contents of the list.[16]
C. Duty to Maintain Secrecy
“Kansas law does not require the holder of a trade secret to maintain its complete secrecy. Rather, Kansas law requires merely that the holder of a trade secret exercise reasonable efforts under the circumstances to maintain its secrecy.”[17] Certainly, keeping confidential information under lock and key may be reasonable under the circumstances, but one not need establish the multiple layers of protection presumably used to protect the formula to Coca-Cola. Reasonable efforts may include: prohibiting disclosure of one’s confidential information by business partners through non-disclosure agreements, [18] requiring employees to sign confidentiality agreements applicable to the subject information, [19] limiting internal use and disclosure to certain employees, [20] limiting the internal and external distribution or access to print or electronic copies of confidential information, [21] and taking steps to prevent business invitees from observing confidential components and processes.[22]
Lucky should find the Progressive case instructive in this regard. Progressive’s principals had, over many...
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