At this point in my career, I have litigated numerous trade secret cases and seen probably 100 cease & desist letter related to alleged misappropriation of trade secrets. This post focuses solely on those cease and desist letters.
On a handful of occasions, the letters provide actual specifics. Example: We have reason to believe you misappropriated the Top Secret Database during the parties’ negotiations in June of 2015. That right there is a legitimate allegation. If I’m representing the recipient of that letter, I immediately have a number of questions: What was the Top Secret Database? How did they have access to it? Did they in fact misappropriate it? Was the information in the database, in fact, secret? The answers to the questions will dictate strategy.
But the vast majority of trade secret cease and desist letters don’t include anything like the example offered above. Instead, the vast majority of these cease and desist letter take the following format:
The attorney accuses the recipient (let’s use the term defendant) of misappropriating trade secrets. The attorney makes this allegation in vague, loose language. Here is an example from an actual letter that one of my clients received:
“We have recently learned that you have stolen the Company’s Confidential, Proprietary and Trade Secret Information, as defined in Section 812.081 (c ) of the Florida Statutes.”
The letter then goes on to quote the statute:
“Trade secret means the whole or any portion or phase of any formula, pattern device, combination of devices or compilation of information which is for use, or is used, in the operation of a business and which provides the business an advantage…”
I won’t reproduce the entire quote here, but the would-be plaintiff in this matter dedicated more than half a page to reproducing the statute verbatim.
Then the Company turned to the meat of its allegations: “The Company has proof that you unlawfully obtained an extensive amount of the Company’s Proprietary and Trade Secret Information and that you have used the Company’s information in connection with your new business. We believe that your actions violate several Florida Statutes and possibly the United States Code, in addition to your contractual obligations with the Company.”
You know what’s missing here? In spite of all of the Company’s references to trade secrets, confidential information, the Florida Statutes and federal law, the Company has failed to identify even one potential trade secret that was misappropriated. Basically, this is the Company saying, “We think you stole some trade secrets but we have no idea what you might have taken and we have no evidence of any misappropriation.”
The letter goes on to make some standard, boilerplate demands that the defendant immediately cease and desist using the trade secrets. Now, for the kicker: The Company then demands that the defendant identify all Company information in his position, return hard copies of any such information and agree to immediately destroy electronic copies of any such information. Translation: We have no idea if you have any of our information. So this is basically a fishing expedition. Please tell us if you misappropriated our trade secrets so we can have some factual allegations to put into a lawsuit.
Trade Secrets Cease & Desist Letter: The Correct Response
So what is an appropriate response to a letter like this? Upon receiving such a letter, lots of people would (1) laugh because the allegations are boilerplate nonsense and (2) be inclined to ignore the letter because the Company really doesn’t have evidence of anything. But that is the wrong approach. Here’s why:
Frivolous trade secret cases are incredibly common. The fact that the Company does not have any hard evidence of misappropriation will not stop them from filing a lawsuit. As an example, see American Registry v. Hanaw, 2013 WL 6332971 (M.D. Fla. Dec. 5, 2013). In this case, the plaintiff American Registry sued a former employee who had left the company and started his own venture. They also sued his new company and his new business partner. The employee did not have a non-compete agreement. But American Registry nonetheless wanted to find a way to prevent him from competing. So they opted to file a trade secret case. If you review the complaint in that case, you will see that American Registry never once identified any specific trade secrets, never identified the means of misappropriation and never identified the circumstances surrounding the misappropriation. Instead, American Registry basically alleged that Hanaw and his new company stole all of their confidential information and trade secrets. The complaint literally alleges that Hanaw stole the company’s “trade secrets” and then defines those trade secrets as including everything: business methods, software, system architecture, customer lists, financial data, etc. This is a common tactic in frivolous trade secret cases. If the plaintiff doesn’t have any evidence regarding misappropriation of specific trade secrets, they just say everything was stolen.
The problem is that whether a case is legitimate or frivolous, it still costs money to defend. Even a frivolous case like this will cost $50,000 to $100,000 to resolve. And yes, at the end of the case, it may be possible to recover some or all of those attorney’s fees. That’s exactly what we did in American Registry. We won the case and got an order awarding us most of the attorney’s fees. But in the meantime, a litigant has to front those attorneys fees, deal with the general disruption of being involved in litigation and possibly worse. Litigation could chill certain various deals or joint ventures.
Bottom line: Even when you receive a cease and desist letter related to misappropriation of trade secrets and the letter seems generic and laughable, take it seriously. If you ignore such a letter, you run the risk that the Company will construe your silence as weakness and escalate the matter further. You also lose an opportunity to push the other side into backing down prior to litigation. Instead, use this as an opportunity to respond, lay out your case and convince the other side that litigation is unwise.
About
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.
