Ready, fire, aim. That’s how one commentator describes the mistake often made by many companies when they commence a trade secret lawsuit.
What he means is that companies rush to file a lawsuit for trade secret misappropriation when an employee quits and takes a prominent position with a competitor. Immediate action seems necessary to protect the company’s trade secrets and to prevent the former employee from using and exploiting the trade secrets. In their rush to file the lawsuit, however, companies often fail to analyze whether they truly have trade secrets and, if so, what their trade secrets are. This failure results in the company claiming that information is a “trade secret” when it really isn’t — typically because the information isn’t secret, either because it is known to the competition or because it is readily ascertainable by the competition. Because the company can’t identify a trade secret, the lawsuit fails, often after a signficant expense for fees and costs to prosecute the lawsuit. In effect, the company fires before it has taken aim.
There are many reported decisions demonstrating this mistake. Eric Ostroff of the Trade Secret Law blog, https://tradesecretslaw.wordpress.com/, used the phrase “Ready, fire, aim” to describe how companies file lawsuits before they consider the precise trade secret at issue. To illustrate this problem, Eric referenced a recent decision from the Sixth Circuit Court of Appeals, Dice Corp. v. Bold Tech, 2014 WL 260094 in which the Sixth Circuit found that the plaintiff had failed to explain how the allegedly misappropriated information was a trade secret.
Colorado courts have also witnessed this mistake. In an older case, Colorado Supply Company v. Stewart, for example, a company alleged that its customer lists, price lists and product formulas were trade trades. The Court of Appeals held, however, that the customer lists were not trade secrets because, among other things, the information had been developed by independent contractors and because the names could be obtained fairly easily from telephone directories and the like. The price lists were not trade secrets because they were “published” to customers, emaployees and contractors and because there were no fixed prices at which products were sold. In another case, Porter Industries v. Higgins, the Court of Appeals held that a company’s “pricing and bidding structure” was not a trade secret as it noted that there was no evidence to suggest that the information was a trade secret.
Employees subject to noncompetes should take note of these decisions. Employers sometimes have trade secrets and sometimes they don’t. Employers in Colorado sometimes claim they have trade secrets even though they are really seeking to discourage employees who aren’t managers or executives from leaving the company to take positions with competitors. These employers recognize that typically there are only two ways to enforce a noncompete against an employee: by showing that the employee is a manager or executive or by showing that the company had trade secrets that were disclosed to the employee. If the employee isn’t a manager, the employer must prove that it has trade secrets.