Proprietary Techniques vs. Employee Rights: The Struggle to Balance Competing Interests

November 25, 2018

IP Watchdog

It’s football season, so of course we should be talking about beer. Specifically, beer secrets. For fourteen years James Clark had an enviable job at Anheuser-Busch, where he had access to the brewer’s confidential recipes. For unexplained reasons he resigned. Instead of joining a competitor, he went to see a lawyer about planning a class action against his former employer for “intentionally overstating the alcohol content” of the company’s “malt beverages.”

Building his case would be a problem, however, without a copy of something mysteriously called “Page 13.” Having neglected to take this document with him when he left, he contacted a friend still working at Anheuser-Busch, who readily passed it on, even though it was obviously top secret. Apparently alerted to the disclosure, the company demanded that Mr. Clark certify, as required by his contract, that he had not used or disclosed any confidential information. He refused, and a few days later the class action lawsuit was filed. A week after that, Anheuser-Busch sued him for misappropriation of its secrets for making beer.

There are multiple ways we could now turn with this story. There’s the history of beer, which goes back over five thousand years, beginning with a wet and presumed ruined grain cellar that fermented into a happy ending. There’s the difference between corporate and craft beers. And then there’s the high cost of lawyers relative to beer.

But instead we’ll focus on civil procedure. Mr. Clark filed a motion to dismiss the company’s lawsuit, in effect suing them for suing him. This turnabout is called an “anti-SLAPP” motion, based on a California statute enacted in 1992. The law, which stands for Strategic Litigation Against Public Participation, was intended to punish those who file frivolous, but expensive, suits for the sole purpose of intimidating and silencing critics. A legitimate goal, you might say, since it protects freedom of speech. But then the First Amendment also guarantees the right to petition the government, including by filing litigation. So the legislature crafted a long, carefully worded set of instructions to judges, expecting that this would strike the right balance between competing interests.

But as happens so often, a higher law – that of unintended consequences – intervened. It turned out that far too many legitimate lawsuits were being shut down. So the legislature added a new law to cut back on the original. And then it layered on another a few years later, so that in addition to anti-SLAPP motions, we now have “SLAPPbacks” through which the frustrated plaintiff can recover its damages and fees against an over enthusiastic SLAPP-er.

Mr. Clark’s case has wound its way twice to the Ninth Circuit Court of Appeals, which is now considering whether Anheuser-Busch opposed his motion with sufficiently strong evidence that it actually had trade secrets for making beer.

In the meantime, Texas followed the lead of California and enacted its own anti-SLAPP law, called the Texas Citizens Participation Act. It applied to any lawsuit that seemed to target not just a person’s free speech, but also their constitutional right of association. In one notable case, a high-end restoration shop called Elite Auto Body sued former employees who formed a competing company, allegedly taking with them “proprietary client forms, such as payment sheets and vehicle check lists,” and unfairly using confidential information to recruit other employees. These allegations, the defendants argued, invoked their right of association among themselves and to speak freely during their recruiting.

The trial court denied the anti-SLAPP motion, but the appellate court reversed, holding that the TCPA applies in any action that involves “communications,” and that it requires the plaintiff to prove the substance of its claims – the misuse of its proprietary information – by “clear and specific evidence.” Here, the former employer, with no opportunity to take discovery, fell short. The action was dismissed and the plaintiff ordered to pay the defendants’ attorneys fees.

Cases like these are a reflection of the struggle in trade secret law to balance legitimate competing interests. For every employer that has invested in developing proprietary techniques to improve its business, there are employees that have accumulated skills on the job and would like to use them elsewhere. When they leave, the risk of disclosure or misuse may be high, but as a society we not only want to protect investment in innovation, but we also value a freely mobile workforce.

When I arrived at law school in 1970, the Freedom of Information Act was only a few years old. It was supposed to increase public understanding of the workings of government by providing access to records. But the vast majority of requests for information come not from ordinary individuals, but from lawyers representing the competitors of companies who have been required to file confidential information with agencies. Those agencies need the information to do their job, and FOIA has arguably made some companies reluctant to share data with the government.

Tensions abound in the courtroom too. We need a place to resolve disputes over trade secrets; but how can we do that when the courts are supposed to be open to the public? In cases of broad interest, like regulated industries, what should we be doing to protect the public’s right to know through media access? And what about trade secret injunctions? It’s not just departing employees or whistleblowers that need protection from overreach; sometimes the public does too. In one case a judge had to consider whether to shut down an ambulance service that was operating unfairly but was also relied on by a hospital.

Judges frequently have to weigh in the balance diametrically opposed but valid interests. Although this is true in many other areas, it seems woven into the fabric of trade secret law. We should be thankful that our independent judiciary does such a good job dealing with these conflicts and finding thoughtful, fair resolutions.

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