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Court in New York Says No Trade Secret Protection for Outdated Information Available on Internet

  • October 20, 2010

Outdated information on a financial services industry recruiter’s database is not protectable as a trade secret where the company did not take adequate safeguards to protect the information and the information was available on the Internet, a federal district court in New York has ruled. Sasqua Group, Inc. v. Courtney, 09-cv-528 (ADS)(ETB), 2010 U.S. Dist. LEXIS 93442 (E.D.N.Y. Aug. 2, 2010) (report and recommendation), adopted, 2010 U.S. LEXIS 98621 (E.D.N.Y. Sept. 7, 2010).  U.S. District Court Judge Arthur D. Spatt adopted, in its entirety, the report and recommendation of Magistrate Judge A. Kathleen Tomlinson.

Background and Procedural History

From 2000 to 2010, Lori Courtney worked for Sasqua Group, Inc., a financial services industry executive search firm, starting as an entry-level research consultant and ending as a managing director.  She left to open a competing business, her own executive search consulting firm, Artemis Consulting.

Sasqua and its President, Christopher Tors, later sued Courtney and Artemis Consulting, claiming the defendants misappropriated Sasqua’s trade secrets by using its database.  According to Sasqua, the database included contact information for executives at financial services firms in charge of hiring as well as information on financial services executives who might be looking for new employment. 

As the parties’ employment agreement did not contain a restrictive covenant that covered Courtney’s activities after leaving Sasqua’s employment, Sasqua had no choice but to proceed on a misappropriation of trade secrets theory.  Based on this theory, the company sought a preliminary injunction to enjoin the defendants from using, disclosing, or providing access to any of Sasqua’s confidential information and contacting or communicating with its client contacts.

The defendants argued that the information in the database was stale, stolen by the company from Tors’s prior employer and, in any event, not worthy of trade secret protection because the information was readily available from public sources, including the Internet.

Injunction Denied

Adopting Magistrate Judge Tomlinson’s report and recommendation, Judge Spatt held that the plaintiffs failed to demonstrate that the database was a protectable trade secret.  The Court agreed with the defendants that the database was outdated, the plaintiffs had failed to undertake adequate steps to safeguard it, and the information was not confidential or protectable since it could be easily replicated through a variety of public sources on the Internet, including LinkedIn, Facebook and Bloomberg.

Noting the “exponential proliferation of information available through the Internet,” the Magistrate Judge Tomlinson wrote: 

This information in Sasqua’s database concerning the needs of its clients, their preferences, hiring practices and business strategies … may well have been a protectable trade secret in the early years of Sasqua’s existence when greater time, energy and resources may have been necessary to acquire the level of detailed information to build and retain the business relationships at issue here …. However … access [to] such information in 2010 is a very different story.

The Court found persuasive Courtney’s testimony that she could obtain the same information through publicly available sources “if she had amnesia tomorrow” through routine Internet searches by starting with a search engine like Google and using LinkedIn, Facebook, Bloomberg, and other widely available resources to supplement that information.  Significantly, Courtney did not testify that this, in fact, was how she actually obtained recruiting information following her employment with Sasqua, only that it could be done this way.

Lessons Learned

First, confidential and trade secret information should be protected by, for example, password-protecting computers, locking physical file cabinets and file storage rooms, and avoiding unnecessary photocopying and duplication.

Second, absent a true business purpose, access to a proprietary database should be limited to those who need to know and not freely distributed, for instance, to temporary employees.

Third, departing employees must be required to return all company property immediately.  These include, without limitation, company-issued laptops and PDAs, and confidential information, databases and trade secret information, whether paper copies or on home computers and portable storage drives.

Fourth, employers should consider including appropriately tailored restrictive covenant agreements and other company policies that include non-disclosure of confidential information and trade secrets provisions, a requirement to return of company property, non-solicitation of employees and customers provisions, and a non-competition covenant.  (See Lack of Non-Compete Agreement May Deprive New York Employers of Real Protection.)  Employers should address in these agreements and company policies their expectations and employees’ obligations with respect to protecting data in the 21st century.  For instance, employers should express in their agreements and policy documents the extent to which post-employment solicitation proscribes the use of social media devices, such as LinkedIn or Facebook, to communicate with clients, prospective clients or others that employees have come into contact during their prior employment. 

Finally, employers should keep up with technology and update procedures for safeguarding and maintaining information.  The importance of this cannot be overstated as the boundaries between work and home has become less distinct and vast quantities of proprietary information can be stored and transported on devices no bigger than a coin.

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By taking appropriate safeguards, such as restrictive covenant agreements and access limitations, employers can do much to limit the risk of losing control of their proprietary information.

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