Meena Alnajar is an IPilogue Senior Editor, IP Innovation Clinic Fellow, and a 2L JD Candidate at Osgoode Hall Law School.
It may be no secret that trade secrets contribute to a business’ economic value and confer a ‘competitive edge.’ However, when that secret is lost by insiders who had a duty of confidence, how can the law step in to help? On April 4, 2022, biomedical company Protégé Biomedical LLC (“Protégé”) received no recourse or remedy for a revealed trade secret. Protégé failed to persuade the US Court of Appeals for the Eighth Circuit to revive a trade secrets lawsuit against the consultant it had hired to find a buyer.
Trade secrets, unlike other intellectual property rights, are not registered nor publicly disclosed. Trade secrets require elements such as: value (economic/industrial), that it is kept secret, and that there are reasonable measures in place to keep it confidential. Once disclosed, the trade secret loses its necessary quality of confidence that makes it confidential and valuable to a business. Therefore, the most important element of a trade secret is that it is kept secret.
A statistical analysis of US trade secret litigation demonstrated that, in satisfying the court that ‘reasonable measures’ were taken, confidentiality agreements like non-disclosure agreements (“NDAs”) are most often a determining factor. NDAs are particularly useful where a company must disclose its trade secrets to fellow employees, which was the case for Protégé.
In 2017, Protégé, a biomedical company focused on blood-clotting products, entered into an agreement with the consulting firm Duff & Phelps to find a buyer. Duff & Phelps then contacted Doug Schillinger, a Managing Director at a private equity firm and a board member at Z-Medica, another medical company in the blood-clotting products space. Both Schillinger and Duff & Phelps (on behalf of Protégé) entered into an NDA. During a meeting for the potential deal between Z-Medica and Protégé, Protégé revealed some confidential information regarding its products to Schillinger, who then revealed the information to Z-Medica. Z-Medica then applied for a continuation of a patent that allegedly contained Protégé’s confidential information and pulled out of a potential deal.
Protégé sued Z-Medica, alleging that it stole trade secrets and violated NDAs. The parties there settled, but Protégé subsequently sued their consulting firm, Duff & Phelps, for breaching their contract in failing to prevent Protégé from disclosing its trade secrets. This suit was first dismissed by a Minnesota court. On appeal, the Court held that their contract only required Duff & Phelps to be responsible for its own conduct. Schillinger, on behalf of his private equity firm, signed the NDA, making him not liable for Z-Medica’s conduct and use of the trade secret. The Court found that Protégé disclosed its own secrets to Schillinger, so Protégé is responsible for revealing its own secrets. It is a classic case of claim construction and ambiguity in contractual agreements. This case serves as a reminder that when you ask someone to keep a secret, be very specific about whom you are asking, what the secrets are, and from whom they should be kept.
While trade secrets are valuable and protected by law, if the company itself is disclosing that information and is not careful to track who is not obligated to keep it a secret, then the company has not taken reasonable measures to keep it confidential. If a business does not act to protect trade secrets, courts may not help either.
