I haven’t done a statistical analysis, but I’m willing to bet it’s true: sanctions – a judicial order that one side pay the other side’s attorneys’ fees and/or expenses, among other things – are awarded more frequently in employee-theft-of-trade-secret cases than in most other kinds of cases. Why?
I think it’s in their nature. Frequently they can be boiled down to the Saturday Night Live version of the question made famous by Senator Howard Baker during the Watergate hearings: “What files did the employee have and when did s/he stop having them?” Your trade secrets and proprietary information live in those electronic files. When you have to sue a former employee for theft of your intellectual property, you’ll demand that the employee identify and produce all of your files in his/her possession. When that employee-defendant fails to do so, s/he begins paving the road to sanctions. Two recent examples illustrate this point:
In Stryker Corporation v. Ridgeway, Stryker sued a former salesman for, among other things, leaking confidential information. Stryker eventually moved to compel discovery responses. After a two-hour hearing on the motion, the magistrate judge found that the former employee’s nondisclosures violated his discovery obligations. Eventually the court-ordered forensic examination of the employee’s electronic storage devices and emails yielded 188,000 documents that were arguably relevant. The magistrate judge invited Stryker to petition for the fees and costs it incurred in obtaining that order.
Another example is our $20 million-plus-sanctions trade secrets victory referenced in earlier posts. The judge sanctioned the defendant for scrubbing its server and key computers mid-trial. The judge also sanctioned the defendant’s law firm for failing to disclose that, at the outset of the case, the firm took possession of various electronic devices of our client’s former employee, who collaborated with the defendant in misappropriating our client’s trade secrets.
What is the moral of these and similar stories? Employers who are involved in such cases, as either plaintiffs or defendants, should be cognizant of the temptations that confront an employee who may have an employer’s or former employer’s proprietary information in his or her possession. Those temptations include refusing to disclose possession of that information or, worse, destroying it. These are temptations to be resisted. Refusing to disclose discoverable information may lead to a financial penalty in addition to an order to produce. Anyone contemplating destroying such files needs to know that doing so is destruction of evidence. An organization trying to “un-possess” another company’s trade secrets has good faith, smart ways to do so. Using an evidence elimination tool to attempt to destroy the evidence that the organization ever possessed those trade secrets is not one of them. Such situations generally require the assistance of skilled IT professionals, in consultation with counsel, to remove the trade secrets from access to the company while not obstructing, or appearing to obstruct, justice. Click here to review our earlier posts on the metadata series.
Smart employers and their counsel should alert employees to these temptations and the potential damage they pose to the business. People at all levels of organizations need to understand both their responsibilities as custodians of electronically stored information and the serious ramifications of acting unethically and foolishly when they realize they, their subordinates, or their co-workers possess materials they should not have.
We’ll continue to share insights as sanctions continue to be awarded in such cases and discuss how these cases affect employers and their training and management of employees.
On a related note, my colleague, Doug Proxmire, and I will be presenting a webinar, “The $20 Million Trade Secret: What Employers Must Know About Protecting Critical Company Information,” on March 15, 2016, from 1:00 p.m. to 2:15 p.m. ET. For more information, please contact us.