Strengtening trade secret protectionsA company’s Federal Trade Secret Claim and Computer Fraud and Abuse Act claim were recently dismissed by a Michigan federal district judge. The dismissal was avoidable. But it also offers several key lessons for employers and employees when it comes to protecting and using confidential information.

The Trade Secret and Computer Fraud Litigation

The case, Ukranian Future Credit Union v Seikaly,  is somewhat convoluted. But the Cliff-note version is that the Ukrainian Future Credit Union sued its former employee, Lidia Shibanov, in Michigan State court. That suit alleged Shibanov improperly approved loan transactions.

While Shibanov was employed by the Credit Union, she emailed to her personal email address confidential Credit Union documents. In the state court litigation, the Credit Union argued Shibanov and her lawyers improperly obtained and used the confidential information. But the Michigan state court declined to protect that information as requested by the Credit Union.

The Credit Union then sued Shibanov and her attorneys in federal court. The federal suit asserted violations of the Computer Fraud Abuse Act (CFAA) and later tried to amend to add a claim under the federal Defend Trade Secret Act (DTSA).

Against this backdrop, the Michigan Federal Court dismissed the Credit Union’s suit and denied its request to amend to add a DTSA claim. The Court reasoned:

  • The Credit Union did not allege its former employee emailed confidential information to herself intending to defraud the Credit Union. This intent was required to state Computer Fraud and Abuse Act claim.
  • The Credit Union failed to assert the information emailed by the employee to herself qualified as “trade secret” as required under the Defend Trade Secrets Act.

On this last point, the Court rejected the Credit Union’s claim that two policies (Employee Fraud Policy and “ECommerce Policies and Procedures) showed it took reasonable steps to protect the secrecy of the alleged trade secret. These policies, as the Court noted, were not directed toward protecting confidentiality, but merely set forth general parameters for the operation of the Credit Union’s e-commerce and computer systems and general prohibitions against engaging in fraudulent acts.

Why this Matters to Employees and Employers

Again, this was a procedurally complicated case. But a few points are worth emphasizing for employers and employees:

  • First, no matter the reason, employees face litigation risks if they email or download information from an employer. We frequently encounter this issue in litigation between companies and their former employers. Just because there is a “smoking gun” email or document that favors your claims or defenses does not mean you have a right to take it.
  • Second, employers must make sure business reality matches up with litigation reality. In other words, if your company has not taken steps to meet the threshold requirements for a “trade secret,” i.e., maintaining the secrecy of information that is economically valuable, then a claim for trade secret misappropriation will not be successful.
  • Third, employers must evaluate how confidential information is protected. And careful scrutiny must be applied where such information consists of “trade secrets;” Simply having general policies about the use of technology or prohibited conduct means your company may forfeit down the road a trade secret claim.

For more information about federal or Michigan trade secret misappropriation and claims relating to these issues, contact attorney Jason Shinn. On behalf of his clients, Mr. Shinn has pursued and defended against these claims in Michigan and federal courts since 2001.