A Superior Court decision in Massachusetts sets new grounds for companies endeavoring to keep their trade secrets safe. The key point in this case is that in order to keep trade secrets safe, companies must actually demonstrate an effort to do so. Such information must be appropriately kept safe from independent contractors. If not, companies risk legally losing their trade secrets.
In the case of C.R.T.R. v Lao, C.R.T.R was suing for misappropriation of trade secrets. C.R.T.R was an “e-waste” company that recycled non-working electronics. Jimmy Lao became one of C.R.T.R’s 20 buyers back in 2007 and sold his shares to buyers in Asia. Eventually, Lao began negotiations in the hopes of purchasing C.R.T.R. through his own company, Honour Crown Asia. During the negotiations, Jimmy Lao’s nephew, Kenneth Lao, began working as an independent contractor for C.R.T.R, as well as working for Honour Crown Asia, as known by C.R.T.R. When negotiations between Jimmy Lao and C.R.T.R. fell through, Kenneth resigned from his position and took C.R.T.R’s company lists, accounting information, and other confidential information with him.
As a result, Kenneth was sued for misappropriation of trade secrets, while Jimmy Lao and Honour Crown Asia were sued for “unfair and deceptive business practices.” Summary judgment, on both counts, was granted by the court after discovery, as requested by the defendants. The court explained that C.R.T.R. did not take the appropriate steps to protect its trade secrets, knowing that Kenneth Lao was simultaneously working for Honour Crown Asia while working for its company. C.R.T.R. never had Kenneth sign a confidentiality agreement. Nor did it maintain a confidentiality policy regarding its information, which employees are required to follow. As for Jimmy Lao and Honour Crown Asia, summary judgement was granted on the grounds that, “C.R.T.R. had not presented any evidence that the defendants’ conduct was immoral, unethical, oppressive or unscrupulous.”
This case serves as a great reminder to all employers that being lax on confidentiality policies and agreements can be quite costly. When working with our employer clients, we always advise they protect their trade secrets by keeping such policies on the matter up to date, as well as protecting their confidential information through agreements that last through and after a contract of an independent contractor. By demonstrating proactive efforts in protecting your trade secrets, you will more likely be able to uphold such efforts in a court of law.