Business Litigation Blog: Does Voluntary Disclosure of a Trade Secret Result in a Per Se Loss of Protection?
By Christopher T. Teodosio on March 4, 2021
Voluntary disclosure of a trade secret to a former employee, when accompanied by an oral limitation of use, does not result in a per se loss of protection.
In reversing the Montgomery County Court of Common Pleas decision, the Second District Court of Appeals recently found that it was a question of fact as to whether a former board member of a company could face liability for trade secret misappropriation where the trade secret was voluntarily disclosed to him, and he did not sign a written non-disclosure agreement, because the disclosure of the trade secret was coupled with an oral agreement to limit the use of the information.
In Rhododendron Holdings, LLC v. Harris, 2021-Ohio-147 (2nd Dist. 2021), the Chief Executive Officer of NovoSource disclosed the design-history files for a joint replacement product to a member of its Board of Directors in order to “help him pursue a post-NovoSource life.” Id. at ¶ 9. The former board member was not a signatory to any non-disclosure agreement at the time of disclosure. According to the CEO, he provided the design-history files under the condition that any product developed by the board member “could not be identical to a NovoSource Product,” but he did not send the board member these restrictions in writing. Id. Thereafter, the former board member obtained FDA approval for products that were nearly identical to NovoSource’s products.
One of the important issues before the Court on appeal was whether the design history files retained trade-secret protection when the former board member was restricted or limited in his use of them. The Court looked to R.C. 1331.61(B)(2)(b) for guidance, “which identifies the circumstances under which a trade secret might be misappropriated through improper ‘use.’” Id. at ¶ 31. Pertinent to the Rhododendron case, the definition of “misappropriation” of a trade secret includes a person who “at the time of disclosure or use, knew or had reason to know that the knowledge of the trade secret that the person acquired was derived from or through a person who had utilized improper means to acquire it, was acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use...” See R.C. 1333.61(D)(2)(b).
The Court found that the former board member “still could be liable for trade-secret misappropriation under R.C. 1331.61(B)(2)(b) if his use of the trade secret was without [the CEO’s] express or implied consent and [the board member] knew or had reason to know that he had acquired the information under circumstances obligating him to limit his use of the information.” Id. at ¶ 34. The Second District, therefore, reversed the Montgomery County Court of Common Pleas decision that the former board member did not misappropriate trade secrets as a matter of law.
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