Define Trade Secrets Before and During Litigation
In business as in life, it never hurts to be clear on what each party brings to a relationship and what those things are really worth. A series of decisions in Synygy v. ZS Associates, No. 07-3536 (E.D. Pa. March 3, 2015), highlight the critical importance of defining an enterprise's trade secret information when using that information to run the business as well as when a dispute breaks out and litigation ensues.
Plaintiff Synygy Inc. provided incentive compensation program services to Novo Nordisk Inc. under a service contract. In late 2005, Novo terminated its contract with Synygy and entered into a new service agreement with Synygy's rival, ZS Associates Inc. During the proposal process and in transition from Synygy to ZS, Novo provided ZS with sample reports that Synygy had provided to Novo when providing services. Synygy sued, alleging, among other claims, that in the transfer of these reports, ZS and Novo misappropriated Synygy's trade secret information. As litigants in trade secret matters often do, the parties fought running skirmishes about whether Synygy had adequately identified the trade secrets it alleged ZS and Novo had taken.
In 2013, that struggle came to a head after fact discovery concluded when defendants moved to compel Synygy to specifically identify the trade secrets that it contended Novo and ZS allegedly misappropriated. In interrogatory responses and in deposition testimony, Synygy claimed that its software macros, reports, and report design philosophies, processes, and the practices embodied in the reports constituted its trade secrets and had been taken. At the same time, Synygy noted that with discovery continuing, it could not determine the full extent of the trade secrets that had been misappropriated before the defendants produced documents.
Drawing on decisions from federal courts in New York and Illinois, the Synygy court found that because fact discovery had been completed, the defendants "should not be required to 'guess' what Synygy's trade secrets are," especially considering that Synygy argued there was a "limited universe" of trade secrets at issue. Thus, the court ordered Synygy to supplement its interrogatory answers "setting forth with reasonable particularity the trade secrets that Synygy claims were misappropriated." The court found that it would not be unduly burdensome for Synygy to "be sufficiently specific so as to allow defendants to identify allegedly misappropriated trade secrets contained in documents produced in this action."
The court's decision is notable for several reasons. It is one of only a handful of decisions in the Third Circuit requiring further definition on the scope of a trade secret claim during discovery. Here, the timing of the court's order requiring Synygy to lay out the particulars of its claim gave it significant time and opportunity to develop its theory through its own investigation and analysis as well as through discovery of the defendants' information—all before the parties completed expert discovery. The Synygy court adopted the reasonable particularity standard used in other jurisdictions that requires a greater degree of detail so that accused misappropriators can identify supposedly stolen trade secrets and defend themselves and so the court can analyze the claim. The decision also shows how trade secret claimants risk frustrating courts with broad claims and maintaining those claims too long. Here, it worked out for Synygy. Others may not get the time Synygy did.
The scope of Synygy's claim took center stage again on the defendants' summary judgment motions. Synygy continued to maintain trade secret claims for "all aspects of the design" of incentive compensation and management reports it generated for Novo, including "the text, formatting, graphics, design, organization, calculations, formulas, selection and arrangement of information" as well as an interactive "what-if calculator" and software macro codes. The defendants seized on this sweeping definition to argue that the claim failed because Synygy still had not identified the supposedly stolen trade secrets with particularity.
In analyzing the defendants' motion, the court first pointed out the plaintiff's burden to "show the existence of a trade secret with 'reasonable degree of precision and specificity'" to enable a fact-finder "to separate the trade secret from matters of general knowledge in the trade or special knowledge of persons skilled in the trade." The court concluded that Synygy's assertion that its trade secrets "included all of the information Synygy produces" except for data belonging to its client was too broad to survive and not a sufficient claim definition. But, the court found that responses supplied pursuant to its 2013 order narrowed the trade secret claim enabling Synygy to take it to a jury.
Having concluded that Synygy had met this threshold burden, the court put Synygy's list of claimed trade secrets through a rigorous examination, element by element. Ultimately, the court concluded that some of Synygy's trade secrets failed because not all of the identified information qualified. For example, the court rejected claims of trade secret protection for individual design elements that had been disclosed in published works by Synygy's CEO as well as in sample reports distributed in Synygy's marketing campaigns. At the same time, the court found questions of fact on: whether the combined works expressed in certain reports created for Synygy's client were secret; and whether Synygy took reasonable efforts to maintain secrecy over those reports.
The court then examined whether there were genuine issues of fact as to the economic value of each item of information and whether either defendant had misappropriated the information at issue. Because the defendants stipulated that Novo had sent ZS certain of Synygy's reports, the question became whether in sending ZS the reports in native format, Novo improperly disclosed or ZS improperly acquired trade secret information. Both questions therefore centered on Novo's obligation pursuant to its contracts with Synygy: whether Synygy agreed to hold the reports generated by Synygy in confidence and whether ZS had reason to know that it acquired the reports from or through a person then under a duty to maintain Synygy's secrecy. Once again, the defined scope of what information Synygy valued and shared with Novo became the focus. As to both defendants, the court found that issues of fact remained for determination by a jury with the court finding the contract terms and ZS's treatment of the Synygy reports particularly significant.
In multiple respects, the court's detailed analysis shows why it is so important that parties clearly understand the information they bring to a business relationship and how significant each party considers that information. On the one hand, Synygy's claim failed to the extent it was based on information it had already made public. On the other hand, strong contractual terms identified a range of information that its client could not share with a third party. Careful treatment of the information before, during and after the relationship matters.
On a final note, the Synygy decision collects case law on trade secret issues from around the country. Although it is apparently stalled in Congress, some continue to advocate for a federal trade secret statute including a private right of action. The authority employed in the Synygy decision demonstrates how the Uniform Trade Secret Act has created a body of law on the subject that can thoroughly address the substantive issues without a federal statute. Still, jurisdictional issues exist, and it remains to be seen whether other courts will continue to embrace authority from other jurisdictions to the same extent as the Synygy court.
Reprinted with permission from the May 12, 2015, edition of The Legal Intelligencer © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit http://www.almreprints.com/.