Opinion

Open (Trade) Secrets

Can you still claim your trade secrets were stolen if your security was sloppy?

By William Cook

June 01, 2004 — CSO — Time was, a company could feel that their trade secrets were reasonably safe if they were stored in a password-protected computer system. Most courts agreed. However, a court opinion rendered in 2002 in Arkansas found that one company's sloppy password controls left its most-prized information vulnerable.

The case of Weigh Systems South v. Mark's Scales & Equipment involved two former Weigh employeesa manager who started a competing firm, Mark's Scales & Equipment, and a service technician who joined him at the new company. Weigh alleged that its former employees stole proprietary information on their way out the door.

Weigh filed a complaint seeking damages and injunctive relief, alleging that the former employees and Mark's Scales violated the Arkansas Trade Secrets Act. Weigh asserted that its former employees had misappropriated its customer and vendor lists, pricing information, software, service agreement inventory checklist and marketing plansall of which constituted trade secrets. Looks pretty good for Weigh so far...right?

The key question was, Is such information protectable as trade secrets? The court identified several factors material to its determination of whether information is a trade secret. These factors include: 1. the extent to which the information is known outside the business; 2. the extent to which the information is known by employees and others involved in the business; 3. what measures were taken by the company to guard the secrecy of the information; 4. the value of the information to the company and to its competitors; 5. how much effort or money the company expended in developing the information; and 6. the ease or difficulty with which the information could be acquired or duplicated by others. The evidence presented in court was not favorable to Weigh's case.

Weigh conceded that some or all of its customer lists and vendors appear in public directories or are available on the Internet. The testimony at trial established that Weigh's marketing plan was established by visiting trade shows and talking with customers about upcoming projects.
The court also found fault with Weigh's security practices. The court observed that when Weigh technicians installed Weigh software, they were supposed to change the default password to one that only Weigh employees knew, but they did not always follow this procedure. The testimony further established that it was not uncommon for employees of Weigh to provide customers with the Weigh password. There was also testimony that a computer bug existed in Weigh's software that allowed customers to gain access to the program without using any password, and that Weigh did not swiftly act to correct the bug.
The value of the information, to both competitors and to the company, was also difficult to determine. Weigh did not provide evidence as to the value of its vendor list, pricing information and so on. Instead Weigh contended that this information had been developed over time and was essential to making quotes on jobs and installing equipment.