Introduction to the Minnesota Uniform Trade Secrets Act:
The Minnesota Uniform Trade Secrets Act ("MUTSA") "carries forward, explains, and clarifies many of the rules of the common law of trade secrets." Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 898 (Minn. 1983).
The MUTSA allows for the protection of certain kinds of information defined as a trade secret by creating a cause of action for misappropriation. Id. at 897. "Misappropriation" is the "improper acquisition, disclosure, or use of a 'trade secret.'" NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F.Supp.2d 1039, 1043 (D. Minn. 2001) (citing Minn. Stat. § 325C.01, subd. 3(ii)(B)(II)).
Definition of "Trade Secret":
Under the MUTSA, a "trade secret" is information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Minn. Stat. § 325C.01, subd. 5; see also Electro-Craft Corp., 332 N.W.2d at 899.
To the extent that it is not supplanted by the MUTSA, courts will still apply the four-part test for determining what information is a protected trade secret set out by the Minnesota Supreme Court:
(1) the matter involved is not generally known or readily ascertainable;
(2) it provides a demonstrable competitive advantage;
(3) it was gained at expense of plaintiff-owner; and
(4) plaintiff-owner intended to keep it confidential.
Allright Parking of Minnesota, Inc. v. Hoskin, No. C1-92-1843, 1993 Minn. App. LEXIS 570, at *8-9 (Minn. Ct. App. May 18, 1993) (citing Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81 (1979)); see also Jostens, Inc. v. Nat’l Computer Sys., 318 N.W.2d 691 (Minn. 1982). The statutory definition of a trade secret does not eliminate the third common law element (that the information be developed at the plaintiff’s expense), but renders it a possible element of proof that the information provides a competitive advantage. Electro-Craft, 332 N.W.2d at 901 n.12.
In summary, to make out a claim of misappropriation of a trade secret in Minnesota, a plaintiff must show that:
(1) a trade secret existed;
(2) the defendant acquired the trade secret through a confidential relationship; and
(3) the defendant used or disclosed the trade secret.
Jostens, Inc. v. National Computer Sys., Inc., 318 N.W.2d 691, 701 (Minn. 1982); see also NewLeaf Designs, L.L.C. v. BestBins Corp., 168 F. Supp. 2d 1039, 1043 (D. Minn. 2001); Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 897 (Minn. 1983).
Burden of Proving Trade Secrets Status:
In any action for protection of trade secrets it is necessary for the plaintiff to show with specificity that its trade secrets in fact exist. Eutectic Welding Alloys Corp. v. West, 160 N.W.2d 566, 570 (Minn. 1968); The Menter Co. v. Brock, 180 N.W. 553, 555 (Minn. 1920).
Just Claiming Trade Secrets Protection is Not Enough:
Simply claiming that something is a trade secret does not make it so. See Strategic Directions Group, Inc. v. Bristol-Meyers Squibb Co., 293 F.3d 1062, 1065 (8th Cir. 2002) (noting that although a novel or unique combination of known elements may in some cases constitute a trade secret, the simple assertion that a trade secret resides in some combination of otherwise known data is insufficient). The mere fact that a confidential label has been attached to information is not of itself sufficient to elevate ordinary sales information to trade secret stature. See Eutectic Welding Alloys Corp. v. West, 160 N.W.2d 566, 570 (Minn. 1968). In Hypred S.A. v. Pochard, Civ. No. 04-2773, 2004 U.S. Dist. LEXIS 11293, at *14–15 (D. Minn. June 18, 2004), the court held that plaintiffs had failed to establish that vaguely-described information such as its product formulation and manufacturing secrets constituted a trade secret, as "[t]he identification of a trade secret requires more than categorizing information as a 'formula' or 'secret.'" Id. By the same token, an injunction against an employee based on a claim of misappropriation is inappropriate if plaintiff fails "to identify specific trade secrets and instead produces long lists of general areas of information which contain unidentified trade secrets." IBM v. Seagate Technology, Inc., 941 F. Supp. 98, 100 (D. Minn. 1992).
Information Must Be Unique or Not Known or Readily Ascertainable:
To show the existence of trade secrets, a plaintiff must show that the information is unique or not readily known or ascertainable. IBM v. Seagate Technology, Inc., 941 F. Supp. 98, 100 (D. Minn. 1992). The subject of a trade secret must be secret and must not be of public knowledge or generally known in the trade or business. Kewanee Oil Co v. Bicron Corp., 416 U.S. 470, 475 (1974).
Employer Must Treat the Information as Secret:
The employer must treat the information as secret in order to protect it as a "trade secret." Electro-Craft Corp v. Controlled Motion, Inc., 332 N.W.2d 890 (Minn. 1983) (suggesting that "the employer cannot complain of the employee's use of information if the employer has never treated information as secret"); see also Gordon Employment, Inc. v. Jewell, 356 N.W.2d 738 (Minn. Ct. App. 1984). Even if an employee has signed a confidentiality agreement, unless the employer produces evidence that it tried to protect the information from discovery by outsiders or that it informed employees of the confidential nature of the information, the employer has failed in its burden of showing the existence of trade secrets. Ring Computer Sys. v. ParaData Computer Networks, Inc., No. C4-90-889, 1990 Minn. App. LEXIS 922, at *7 (Minn. Ct. App. Sept. 10, 1990).
The Importance of Confidentiality Agreements:
The existence of a trade secret is not negated merely because an employee or other person has acquired the trade secret without express or specific notice that it is a trade secret if, under all the circumstances, the employee or other person knows or has reason to know that the owner intends or expects the secrecy of the type of information comprising the trade secret to be maintained. Minn. Stat. § 325C.01, subd. 5.
Having said that, employers should utilize employee confidentiality and non-disclosure agreements in order to best protect their trade secrets. In some cases, failure to implement such agreements was fatal to the employer's trade secrets claim. In Allright Parking, Inc. v. Hoskin, C1-92-1843, 1993 Minn. App. LEXIS 570, at *8 (Minn. Ct. App. May 18, 1993), for example, the Minnesota Court of Appeals found no misappropriation of business method information such as the amount the company paid for parking lot rental or the revenue generated from each lot, because the former employee did not have a confidentiality agreement.
In some cases, customer lists including customer names, addresses, and phone numbers, as well as customer transactions, financial histories, and other records, may qualify as trade secrets. See Restatement (Second) of Torts § 757(b) (recognizing customer lists as trade secrets); Cherne Industrial v. Grounds & Assocs., 278 N.W.2d 81, 89-91 (Minn. 1979) (holding that "the presence of an alternate means of obtaining the names of consulting engineers . . . without more, is not sufficient to establish that the information is generally ascertainable" and thus not protected trade secret information); Fury, No. 95-1032 at 8 ("The court is convinced that the customer lists and financial information concerning investments that the clients had made with American Express constitute trade secrets.").
In other cases, customer lists will not satisfy the statutory definition of "trade secrets." Information that is "readily ascertainable by proper means over the course of time without efforts beyond those ordinarily exerted by salesmen in developing customers" will not be protected as trade secrets. Fleming Sales Co. v. Bailey, 611 F. Supp. 507, 513-14 (N.D. Ill. 1985) (quotation and footnote omitted). While courts in Minnesota have held that customer lists can be trade secrets, they will not find generally ascertainable information protectable, nor will they hold for employers who have failed to take reasonable steps to protect customer information. For these reasons, trade secrets protection might not exist for customer lists, as held by the courts in several cases:
- NewLeaf Designs, L.L.C. v. BestBins Corp.,168 F. Supp.2d 1039, 1043–44 (D. Minn. 2001) (holding that plaintiff failed to show that customer lists constitute trade secrets under Minnesota law);
- Lasermaster Corp. v. Sentinel Imaging, 931 F.Supp. 628, 637-38 (D. Minn. 1996) (holding that a customer list that contained key contact information and identity for each customer did not constitute a protectable trade secret);
- Associated Med. Ins. Agents, L.L.C. v. G.E. Med. Protective Co., No. A03-1373, 2004 Minn. App. LEXIS 298, at *10 (Minn. Ct. App. Mar. 30, 2004) ("Information as to customers, including knowledge of contact persons, prior purchasing history, and product and service requirements does not constitute [a] trade secret under the Uniform Trade Secrets Act.") (citing Lasermaster, 931 F.Supp. at 637);
- Adcom Express, Inc. v. EPK, Inc., No. C6-95-2128, 1996 Minn. App. LEXIS 615), at *16–17 (Minn. Ct. App. May 15, 1996) (holding that customer lists were not trade secrets because the information was not unknown to others and the owner did not attempt to keep the lists a secret);
- Widmark v. Northrup King Co., 530 N.W.2d 588, 592 (Minn. Ct. App. 1995) (holding identity of dealer's customers was not trade secret because identities could be ascertained from purchase orders placed by dealer);
- Crown Holding Corp. v. Larson, 410 N.W.2d 373, 375 (Minn. Ct. App. 1987) (holding customer list not a trade secret because readily ascertainable and not kept confidential).
The Minnesota courts have also held that the identity and location of customers, whose patronage had been secured by the joint efforts of an employer and an employee, constitute neither a trade secret or confidential information, nor a property right that requires equitable protection. See Sanitary Farm Dairies, Inc. v. Wolf, 112 N.W.2d 42 (Minn. 1961) (affirming order denying employer's motion for temporary injunction to prevent former employee from entering into competitive business).
Like customer lists, vendor information may or may not constitute a trade secret depending on the specific facts of the case. In at least one case, knowledge of vendors acquired while working for an employer was not considered a trade secret. See, e.g., Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, n.7 (Minn. 1983). Many employers, however, consider vendor information to be a trade secret. Under appropriate circumstances, trade secrets protection may be afforded to vendor information.
Financial Information and Pricing:
In appropriate cases, the employer's financial and pricing information may constitute a trade secret. However, this is not universally true and a finding of trade secrets protection for financial information (like other information) is highly fact-specific. In United Wild Rice, Inc. v. Nelson, for example, the Minnesota Supreme Court reversed an injunction against a former employee after his employer alleged appropriation of plaintiff’s "financial condition, customer buying habits, contract terms, grades of rice, price information, [and] inventory amounts." 313 N.W.2d 628, 633 (Minn. 1982). Despite finding that evidence was introduced at trial that the information would give another marketer a competitive advantage over the employer, the court followed the Cherne test for determining which information is confidential or secret and found that a competitive advantage alone was an "insufficient basis on which to premise an injunction." Id. (citing Cherne Indus., Inc. v. Grounds & Assoc., Inc., 278 N.W.2d 81 (Minn. 1979). Because the plaintiff employer made pricing information available to all of its members, the court was unwilling to hold this information to be a trade secret. Id.
In order for information, including business methods, to be protected as a trade secret, it must have some novelty. "Mere variations on widely used processes cannot be trade secrets." Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 899 (Minn. 1983). In Fishing Concepts, Inc. v. Ross, the Minnesota federal district court held that the integration of commonly known business methods into a computer software program did not achieve the degree of novelty necessary to establish a trade secret. Civ. No. 4-82-560, 1985 U.S. Dist. LEXIS 19763, at *14 (D. Minn. May 16, 1985).
General Expertise v. Trade Secrets:
The law of trade secrets protects only secret information, not the individual talent or expertise of employees. Electro-Craft Corp. v. Controlled Motion, Inc., 332 N.W.2d 890, 900 (Minn. 1983); see also Dynamics Research Corp. v. Analytic Sciences Corp., 400 N.E.2d 1274, 1286 (Mass. App. Ct. 1980) (holding engineering management system really involved talent of consultants, not information, and so was not a trade secret).
The Minnesota Uniform Trade Secrets Act provides:
(a) Actual or threatened misappropriation may be enjoined. Upon application to the court, an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation.
(b) In exceptional circumstances, an injunction may condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable.
(c) In appropriate circumstances, affirmative acts to protect a trade secret may be compelled by court order.
Minn. Stat. 325C.02. "A trial court may issue an injunction against a party who has, in violation of an explicit agreement or a common law duty, wrongfully used confidential information or trade secrets obtained from his employer." Cherne Indus., Inc. v. Grounds & Assocs., Inc., 278 N.W.2d 81, 92 (Minn. 1979) (citations omitted); see also Saliterman v. Finney, 361 N.W.2d 175, 178 (Minn. Ct. App. 1985); Wyeth v. Natural Biologics, Case No. 03-3651 and No. 03-3652 (8th Cir. Jan. 24, 2005) ("Misappropriation of a trade secret constitutes irreparable harm that, under certain circumstances, warrants injunctive relief to prevent the misappropriator from selling or manufacturing the product embodying the secret.").
Recovery of Attorney's Fees:
The Minnesota Uniform Trade Secrets Act provides:
If (i) a claim of misappropriation is made in bad faith, (ii) a motion to terminate an injunction is made or resisted in bad faith, or (iii) willful and malicious misappropriation exists, the court may award reasonable attorney's fees to the prevailing party.
Minn. Stat. § 325C.04. In Wixon Jewelers, Inc. V. Aurora Jewelry Designs, No. C0-01-2149, 2002 Minn. App. LEXIS 708 (Minn. Ct. App. June 18, 2002), the Minnesota Court of Appeals reversed the imposition of attorney's fees for a violation of the MUTSA. The court determined that an award of attorney's fees may only be had where the party instituting the claim did so in "bad faith" knowing the claim to be "groundless." Id. at *6.
Statute of Limitations:
"An action for misappropriation must be brought within three years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered." Minn. Stat. § 325C.06; Wyeth v. Natural Biologics, Case No. 03-3651 and No. 03-3652 (8th Cir. Jan. 24, 2005) (citing and interpreting same).
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