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Tennessee Federal Court Enjoins Misuse of Employer’s Trade Secrets

Misappropriation of trade secrets claims often turn on whether the information that was taken is truly a “trade secret.”  In considering whether information is a trade secret, courts consider a number of factors, including the extent to which it is public knowledge, measures taken to preserve its secrecy, the value to its owner and competitors, resources expended in developing the information, and the ease for someone else to acquire the information.  Employers often ask courts for a quick ruling before trial in the form of a “preliminary injunction” to preclude a former employee from misappropriating trade secrets.  Courts consider the following factors in determining whether to issue a preliminary injunction: the likelihood of success on the merits at trial, whether the employer faces irreparable harm in the absence of an injunction, the burden to the defendants in issuing an injunction, and any public harm.  Recently, an East Tennessee federal district court issued a preliminary injunction enjoining a person from using information he stole from his former employer to further his competing business.      

Facts:

Billy Maples served as general manager for Knox Trailers, which operates a trailer sales and repair business in Knoxville.  In that role, Maples had access to the company’s “Southware” software database through which it stored a wide variety of digital information customized to its business, including customer and vendor information, pricing information, and customized reports.  In late 2019, Maples, who was not subject to a noncompete agreement, began exploring plans to open a competing trailer repair business known as Titan Trailers.  In February 2020, Maples, while still employed by Knox Trailers, downloaded information from Southware’s databases onto a thumb drive.  Thereafter, he asked Stephen Powell to use the downloaded information to set up a database for Titan Trailers.  Two weeks later, Maples resigned from Knox Trailers.  A week later, Maples texted Powell that, in setting up Southware’s database, “don’t set anything up from Southware that is captive to Knox Trailer pricing or history of sales or ordering if that’s possible.”

After becoming suspicious of Maples’ activities, Knox Trailers brought suit against Maples, Titan Trailers, Powell, and others in March 2020, accusing them of misappropriation of trade secrets and other wrongdoing.  In late 2020, during the course of discovery, Knox Trailers learned of the existence of the thumb drive and a series of incriminating text messages between Maples and Powell.  Consequently, Knox Trailers asked the federal district court to issue a preliminary injunction to preclude the defendants from using any information that was stored on Knox Trailers’ databases.  Maples testified that his intent was, not to use any confidential information, but instead to “save time over manual inputting” of data and to avoid purchasing the software directly from Southware.

Holding:

The court determined that Knox Trailers met its burden of demonstrating that preliminary injunctive relief was warranted.  First, the court found that Knox Trailers was very likely to succeed at trial in proving that the defendants misused its trade secrets.  Rejecting the defendants’ argument that the downloaded information did not qualify as trade secrets because it was publicly available, the court noted the “vastness of information” included in Knox Trailers’ databases, “as well as the customization of their systems to allow for the interaction and analysis of that information.”  It further found that, “[t]hough a single piece of data, such as a customer name or an old invoice, may be available to others within the field, the entire collection of data is not publicly available, and the independent duplication of the system and collection of the data from independent sources would be painstaking and expensive.”

The court also determined that Knox Trailers took measures to protect the secrecy of the information, including making it password-protected.  There was no question that the information on the databases was valuable, and Knox Trailers presented evidence that it expended at least $350,000 developing and maintaining that information over time.  Upon finding that it was likely that the defendants misappropriated Knox Trailers’ trade secrets, the court had little difficulty concluding that the company faced irreparable harm in the absence of an injunction and that this harm outweighed any harm (which was not articulated) by the defendants.  Specifically, “damages resulting from the loss of goodwill, customer relations, and fair competition are difficult to calculate.”  Thus, the court ruled that the defendants were precluding from making use of any information derived from the databases at least through the time of trial. Knox Trailers, Inc. v. Clark, 2021 WL 2043188 (E.D. Tenn. May 21, 2021).

Bottom Line:

Developing proof necessary to convince a court to issue a preliminary injunction is a tall order, but in this instance Knox Trailers had Maples dead to right.  It never looks good when an employee secretly downloads information shortly before his or her departure.  Here, Maples got busted and his excuse that the stolen information did not amount to trade secrets rang hollow.  Indeed, if the information was not valuable and could have easily been duplicated through the public domain, then why did Maples go to the bother of downloading it?  And why didn’t he tell anyone from Knox Trailer what he was doing if he didn’t think what he was doing was wrong?  This case is important in reinforcing the well-established principle that, even if an employer’s individualize information, in a vacuum, may be publicly available, the compilation of it over time can cause it to reach trade secrets status when considering the totality of the circumstances.

This case is unusual insofar as it took Knox Trailers several months through the discovery process to realize what Maples had done.  When employers become suspicious of a former employee’s wrongdoing, one of the best first measures that can be performed is an immediate forensics examination of the former employee’s computer(s).  It’s unclear what transpired here, but it’s possible that Knox Trailers scrubbed Maples’ company hard drive shortly after he left, such that no forensics examination could be performed.  Knox Trailers was fortunate to have learned of Maples’ malfeasance during the discovery process, but that took a long time, and it likely sustained irreparable harm in the meantime.  As for Maples and the other defendants, they appear to be in a world of trouble . . .