Trade Secret RisksNephron Pharmaceutical Corp. agreed to accept $7.9 million to settle its trade secret misappropriation lawsuit against its competitor U.S. Compounding Inc., its parent company Adamis Pharmaceuticals Corp., and former employees.

Why it Matters: 

For the defendant businesses, the case arose from actions that every company routinely faces – hiring employees. But the competitors could have avoided the lawsuit or slashed their monetary liability.

The Details:

Nephron sued the Defendants for claims under Defend Trade Secrets Act and related claims. For its lawsuit, Nephron alleged that its former employee (Hulsey) used multiple devices to download its data, including customer contacts, purchasing history, and pricing details, before leaving Nephron to work for U.S. Compounding.

And just after leaving, Hulsey emailed Nephron’s customer about her new position and details for providing the same medications through her new employer. Nephron asserted the information in this email used its trade secret information.  

Nephron also alleged a second former employee used confidential information in her new sales position with U.S. Compounding/Adamis. 

The Take-away:

Your company’s hiring procedures should explain that it respects competitors’ intellectual property rights. And employees will not be allowed to use any such property from a prior employer. Further, your offer letter or employment agreement should include a representation that the new hire will not use any intellectual property from any previous employer and is not subject to any contracts or obligations that would interfere with the offered position. 

Also, Nephron and its legal counsel put on a clinic for how to pursue trade secret misappropriation claims. From the start, they preserved evidence of the misappropriation, showed how that information qualified as a “trade secret,” and provided evidence for how the information was improperly used.

In contrast, plaintiffs and their attorneys don’t always show the same competence. For example, in two recent trade secret misappropriation lawsuits against our clients, we defeated both on motions. These dismissals exemplify the importance trade secret plaintiffs need for properly evaluating potential misappropriation issues and selecting legal counsel who can competently pursue them.

For example, in one of these dismissal orders, the Judge pointed out that the Plaintiff, Qualite Sports Lighting, failed to even provide evidence its information was a “trade secret.” And even if it had, Qualite failed to show any information was misappropriated.

Instead of properly addressing these basic deficiencies at the beginning of the case, the plaintiff likely expended over $200,000 in legal fees. That’s not a good investment – unless you are the plaintiff’s law firm. Here’s a copy of the Qualite Sports Lighting Order Dismissing its Trade Secret Claims.

For individuals, the lawsuit exemplifies what not to do when ending your employment to join a competitor. Specifically, you need to understand what post-employment conditions you have with an employer. Often such restrictions include noncompete, non-solicitation, and confidentiality requirements. Even if there are no written agreements, you may face liability for taking any information of your soon-to-be ex-employer. You should also assume there will be “digital fingerprints” on any information, email, database, or file that you download, forward, or otherwise copy. 

Use this link to contact Michigan attorney Jason Shinn if you have questions about this article or our history of successfully pursuing and defending trade secret claims. Since 2001, Mr. Shinn has represented companies and individuals over the issues discussed above and other employment matters under federal and Michigan employment laws.