A trade secret misappropriation lawsuit was filed on March 3, 2018 (Bankers Life and Casualty Co. v Knox) against two former employees. The suit, among other issues, raises two points important to individuals looking to start a new business and for business owners interested in protecting their company’s competitive interests.
The plaintiff, Bankers Life, provides seniors with various insurance and financial products. The defendants are two former high-ranking managers (Knox and Prior). They worked in Bankers Life’s Lansing and Ann Arbor offices. It claims while employed, both Knox and Prior were working together to: (a) recruit others in their office to join them in leaving for a competitor and (b) they download policyholder information to use once they joined the competitor.
Bankers Life asserted this downloading of policyholder information violated the individual Defendants’ contractual agreements with it, the Federal Defend Trade Secrets Act, and the Michigan Uniform Trade Secrets Act. However, the lawsuit filed in Michigan federal court is limited to the request for emergency injunctive relief to retrieve misappropriated policyholder information and attorneys’ fees and costs for such retrieval. Bankers Life is pursuing a separate arbitration claim against the defendants for breaches of fiduciary duty and breach of contractual prohibitions against inducing employees and agents to leave Bankers Life.
Starting or Joining a Competing Business – Beware of Digital fingerprints
I’ve represented clients in pursuing or defending against trade secret misappropriation claims since 2001. Based on this experience, one of the first areas of investigation is whether there are any “digital fingerprints” to evaluate in relation to the misappropriation. On this topic, assume any files, databases, emails, client lists, CRMs, etc. that were alleged to have been misappropriated will leave digital evidence. This is true whether the misappropriation involved copying, downloading, thumb drives, file transfers, or forwarded emails.
For instance, in the Bankers Life case, it attached to the complaint various reports. It claimed that the reports showed defendants downloaded policyholder information shortly before they departed. There may be competing explanations for why company information was accessed. But the first step in supporting your narrative should be to understand the digital landscape.
Protecting Your Company’s Competitive Interests – Arbitration, Courts, or Both?
Another point this case raises is the use of arbitration or courts in resolving disputes. Here, Bankers Life had agreements that called for arbitration. However, and this is not uncommon, the arbitration provisions carved out proceedings for injunctive relief. So, as is the case here, you end up pursuing parallel claims that originate from overlapping facts.
First, pursue claims in court and in arbitration multiplies costs, e.g., filing fees, court/arbitration submissions, hearings, etc. There may be compelling reasons to incur dual costs or not. But before doing so, companies should evaluate whether it makes sense.
In this regard, in my professional experience arbitration has lost some advantages over court proceedings. And both sides in typical trade secret dispute are better served with a more precise and tailored resolution procedure than simply throwing the entire dispute into arbitration or relying exclusively on court proceedings.
Second, imprecisely drafted contracts can cause disputes over what is subject to arbitration, e.g., suit for the return of company property versus claim for arbitration of “any and all” disputes between the parties. And a judge may simply kick the entire matter into arbitration for resolution if there are contractual ambiguities. So make there are no surprises lurking in your company’s agreements when it comes to dispute resolutions involving arbitration or court proceedings.
For more information about protecting or defending against trade secret claims, contact attorney Jason Shinn. Since 2001 he has collaborated with business owners to create policies and procedures for protecting company confidential information. He has also litigated in federal and Michigan courts misappropriation claims under Michigan and the Federal Defend Trade Secrets Act. Mr. Shinn also frequently writes about trade secret issues important to business owners.