Water treatment giant Ecolab Inc. sued its former marketing manager, Preston Alexander, and his new company, One Degree Medical, alleging Alexander stole trade secrets to set up a competing business in violation of his employment agreement and state and federal trade secrets laws.
In this case, both Ecolab and Alexander’s new company sell systems for managing the temperature of patients and body tissue during surgery. In other words, they were direct competitors. Ecolab claimed that the day before Alexander’s last day of employment with Ecolab that Alexander emailed confidential files that contained detailed product sales information to his personal Gmail address. The files contained highly-confidential and proprietary spreadsheets consisting of detailed data and compilations of data containing Ecolab’s sales histories, including detailed pricing information, customer information, customer purchase histories, and servicing information for Ecolab’s patient temperature management products.
After that, one of Ecolab’s former customers began purchasing patient temperature products from Alexander’s competing company. Notably, the emails Alexander had forwarded himself from his former employer contained Ecolab’s former customer’s (i) sales history with Ecolab; (ii) products it bought; (iii) how many products were bought; (iv) the price paid for those products; and (v) when the purchases were made. In other words, all the information Alexander would need to know the customer’s product needs and preferences and how to undercut Ecolab on the pricing.
Based on those facts, Ecolab filed suit in Georgia federal court and sought immediate return of its confidential business and customer information and requested damages for breach of contract and trade secret misappropriation. Ecolab had sought to preclude Alexander from starting a competing business and to protect its trade secrets through an employment agreement with Alexander. Ecolab subsequently filed a motion for preliminary injunction and the parties agreed to a consent order under which Alexander and his new company agreed to cease using, accessing, or disclosing Ecolab’s confidential, proprietary, trade secret information and permit a forensic examination of its electronic networks and cloud-based data.
This lawsuit provides important legal considerations for companies and employers regarding the importance of protecting intellectual property rights like trade secrets and what may happen when those rights are violated. It also highlights common claims and issues companies face when employees leave the business and why it is so critical that companies take appropriate measures to identify its intellectual property, implement protective policies, and draft business and employment contracts with an eye toward protecting its intellectual property.
Here are some steps businesses can take to protect their trade secrets:
- Identify and define the company’s intellectual property and trade secrets;
- Include definition of the company’s intellectual property and trade secrets in employment agreements, offer letters, and/or employee confidentiality agreements;
- Include non-compete provisions in employment agreements/offer letters and ensure they are compliant with the state law in which the employee resides to ensure enforceability;
- Include other contractual restrictions on the use of company information and the solicitation of customers in employment agreements;
- Conduct exit interviews with departing employees and remind them of their continuing contractual obligations to the company;
- Prepare written reminders to departing employees regarding their continuing contractual obligations to the company;
- Include non-compete, trade secret and intellectual property contractual restrictions in any separation or severance agreement, if any;
- Provide proper notice in an employee handbook and monitor employee email communications and mobile thumb drive use as those two methods are the two most used by employees to misappropriate confidential business information; and
- In the event of litigation involving misappropriation of business information, investigate and preserve digital evidence immediately, as the “digital fingerprints” will make or break a trade secret misappropriation case.
About the Authors:
Aimee Gibbs is a Member in the firm’s Ann Arbor office and she can be reached at 734-623-1653 or firstname.lastname@example.org.
Martin Holmes is a Member in the firm’s Nashville office and he can be reached at 615-620-1717 or email@example.com.