Feb 25, 2022

Protecting Trade Secrets: A Cautionary Tale

By Ira J. Hammer, Esq.

Non-disclosure and non-competition agreements are useful tools to protect against the theft of trade secrets, provided that the description attached to the agreements contains sufficient detail to identify the trade secrets. Often, however, the description is not sufficiently detailed.

Mallet & Company, Inc. was a leader in the field of baking release agents. Although the ingredients used to create release agents were commonly known, different products have differing requirements for the release agent and thus there were many variants tailored to produce specific baked goods. To protect its formulas and know-how, Mallet employed non-disclosure and non-competition agreements, restricted access to its labs and formulae, and used password protection for its computer networks. It was not entitled to protect all of the information it used, however, as there were numerous published patents in the field that could not be considered trade secrets. Mallet described its trade secrets as:   

“specific products sold to customers or purchased from suppliers; all information pertaining to Mallet's business with its customers and its suppliers; Mallet's sales data and cost data; the body of knowledge about the development, production, and application of Mallet's release agents and equipment, including the tailoring of release agents and equipment for specific customer challenges; information about the internal business affairs of any customers, suppliers, distributors, agents and contractors doing business with Mallet; pricing information; strategies; marketing information; and exclusive relationships with certain suppliers of release agent ingredients.”

Mallet & Co. v Lacayo, 16 F.4th 364 (3rd Circ. 2021)

Thus, when Mallet found out that Lacayo, who had worked for more than 20 years in significant technical positions at Mallet, had not resigned to care for an elderly parent but rather had joined a new competitor, Synova, and that she was joined by Bowers, a forty-year employee whose positions included director of national accounts, it sought a preliminary injunction against Synova, Lacayo and Bowers to stop them from working for Synova. 

Mallet had evidence to make this an attractive case for an injunction. Lacayo had concealed the fact that she was going to work for a direct competitor. Lacayo had more than 1,000 documents on her Synova computer that traced their roots to Mallet. Lacayo was able to substantially speed up Synova’s development of release agent products with her knowledge. Bowers forwarded customer and product information from his Mallet computer to his wife’s email account and then wiped clean all of his electronic devices at Mallet, and admitted that if Mallet searched his personal email account, it would find many emails about Mallet’s dealings with Mallet’s customers. 

The District Court Judge determined that the Mallet information in question constituted protectable trade secrets and issued a very broad preliminary injunction.

The Third Circuit vacated the injunction and remanded the matter to the District Court because “the District Court did not identify with specificity the information it found to be Mallet’s trade secrets.” Id. While some information falling within the categories identified by the district court might well include trade secrets, the Third Circuit concluded that there was a fair probability that many categories and perhaps all of them also included information that did not qualify for trade secret protection. Moreover, the Third Circuit concluded that there was insufficient information in the record to make an informed decision as to whether Mallet was likely to prevail based on the record before it because the District Court simply enumerated thirteen broad categories of information as trade secrets without supporting detail. 

Mallet may still prevail, but it must present sufficient evidence to the district court to enable the district court to satisfy the requirement of specificity if it enters a new preliminary injunction. 

If you have not recently reviewed the description of your trade secrets and other proprietary information in your non-disclosure and non-competition agreements, this case stands as a reminder of the importance of taking the time to do so.

For more information, contact Ira J. Hammer at ijh@spsk.com or at (973) 631-7859.