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If you are a regular reader of this blog, you know that litigating a trade secrets case in the Business Court can be tough. Last year, the Court barred a plaintiff from engaging in any discovery at all until it identified its allegedly misappropriated trade secrets with sufficient particularity. And the Court has frequently dismissed trade secrets claims altogether because they weren't pled with the necessary degree of particularity.
Judge Bledsoe made it even tougher for trade secrets plaintiffs earlier this month, in SciGrip, Inc. v. Osae, 2015 NCBC 86 [subscribers can access an enhanced version of this opinion: lexis.com | Lexis Advance]. SciGrip develops and produces "acrylic-based structural adhesives that are used in the marine and other industries to bond fiberglass and other material together." Op. ¶2.
SciGrip sued its former employee, Osae, for allegedly disclosing its trade secrets to his new employer, Engineered Bonding Solutions, LLC ("EBS"), a direct competitor of SciGrip. Osae obtained a 25% membership interest in the EBS LLC as a part of his employment.
SciGrip sought to obtain information regarding EBS' manufacturing processes from Osae. Osae had that information, which he said involved EBS' trade secrets, on his computer. Osae said that the computer was owned by EBS and that he couldn't be forced to disclose EBS' trade secret information.
You are probably thinking that since Osae had possession of the documents (on the computer he was using), that he has the "possession, custody, or control" of the material which was the subject of the discovery requests and that he should be forced to provide it. Those are the "magic words" of Rule 34 of the NC Rules of Civil Procedure, after all.
Plaintiff Couldn't Force Production Of A Non-Party's Trade Secret Information From Its Employee
But Judge Bledsoe said that this discovery request "present[ed] a highly unique scenario.," and held that:
[h]ere, Plaintiffs seek to discover trade secret and proprietary information of their direct competitor solely through one of its employees. Typically, when a company alleges trade secret violations by an employee who has departed and begun employment with a competitor, the competitor is either joined as a party in the lawsuit or, if the competitor is a non-party, the company seeks discovery of the competitor's documents from the competitor itself through a third-party subpoena under Rule 45.
Op. ¶17. The Judge observed that "obtaining trade secret information from a non-party competitor is preferable under Rule 45 because Rule 45 affords greater protections to non-parties. Op. ¶19. It is certainly true that Rule 45 provides some protection to a person responding to a subpoena. Among other things, the Court can compensate the person unduly burdened by the subpoena for lost earnings and for reasonable attorney's fees. Rule 45(c)(1).
The ultimate holding of the Court was that:
the Court declines to compel production of trade secret and proprietary information of a non-party competitor where the plaintiff seeks such information through an employee's possession of a company laptop and the non-party competitor has refused to submit to North Carolina jurisdiction.
Why wasn't Osae's possession of the trade secret information enough to force him to produce it? Judge Bledsoe said the following:
[i]]n a workforce where employees have access to a multitude of company documents through any number of portable electronic devices, the traditional line between possession and access has been blurred.
But don't forget that the party claiming to have trade secrets must make "efforts that are reasonable under the circumstances to maintain its secrecy." N.C. Gen. Stat. sec. 66-152(3)(b). So don't advise your clients that they can maintain trade secret protection if they make thumb drives or laptops containing their trade secrets indiscriminately available to their workforce.
Plaintiff's Arguments That It Could Compel Production Of The Trade Secret Information Due To Osae's Status As An Agent And As An LLC Member Also Failed
Plaintiff made what seemed like a very good argument that Osae was the agent of EBS and that he therefore had the authority to turn over EBS' trade secret information. Judge Bledsoe disagreed, saying that "this Court has found no authority compelling an agent to turn over his principal's confidential trade secret information." Op. ¶23.
And what about Osae's membership interest in EBS? Wasn't that status sufficient to give him the authority to produce EBS' information? Judge Bledsoe said no, citing again the lack of authority empowering him to do so:
Plaintiffs have not pointed to any North Carolina or persuasive authority finding that a person's status as an agent, employee, minority shareholder, or part owner of a company equates to 'possession, custody, or control' of the company's confidential or proprietary documents for purposes of discovery.
SciGrip had not made EBS a co-defendant with Osae because EBS disputed that it was subject to jurisdiction in North Carolina. SciGrip has gone ahead and sued EBS in EBS' home state of Florida, however, and has already served EBS with a subpoena there.
In the event that "all reasonable efforts to obtain the documents from EBS fail," the Court said that SciGrip could renew its motion.
How Concerned Should You Be About This Decision?
I don't read this decision to impede discovery from employees of a plaintiff's competitor. It is literally limited to trade secret material on a laptop owned by an out-of-state entity which is not subject to jurisdiction in North Carolina. I don't think that you will face that situation very often.
Read other articles on the North Carolina Business Litigation Report, a blog by Mack Sperling for lawyers focusing on issues of North Carolina business law and the day-to-day practice of business litigation in North Carolina courts.
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