Suing for secrets.

• Author: Field, Denis M.
• Position: CPA firm and banks' confidentiality agreements - Brief Article

In a necessary and long overdue practice development, KPMG Peat Marwick LLP has filed suit against three Connecticut banks to recover fees owed for tax advice provided to the banks. KPMG should be applauded for taking this important action to protect not just its practice, but the accounting profession.

After research, KPMG concluded that Connecticut unconstitutionally exempted interest on state bonds from its franchise tax, but taxed interest on federal bonds. KPMG believed that, by exempting the interest on state bonds, the state also exempted the interest on federal bonds. KPMG then took this research, and a strategy for obtaining refunds, to various banks, all of which signed contractual agreements with KPMG that contained confidentiality provisions. In these agreements, each bank agreed to pay a fee if it used the ideas presented by KPMG.

A number of banks successfully pursued the refund strategy and compensated KPMG appropriately. Three banks, however, used the strategy but refused to pay the agreed-on fee. The research and tax refund strategy developed by KPMG Peat Marwick is a form of intellectual property owned and exploited by the firm. Like trade secrets and secret processes, this intellectual property, needs to be protected and loses its value when in the public domain. By requesting that clients sign the confidentiality and fee agreements, KPMG took the appropriate step to preserve the...