Monday, August 17, 2009

Third Circuit Clarifies Standard for Misappropriation of Confidential Information (Thomas & Betts v. Richards Manufacturing)

After many years of practicing in this area, it is surprising to me we don't have more court decisions like this.

Most employment agreements contain some sort of contractual commitment on the part of an employee not to disclose confidential information belonging to an employer. The contractual clauses are sort of "trade secret-lite" obligations. Where the focus of a trade secrets dispute is the type of information at issue, a claim involving breach of a confidentiality clause generally depends on what an employee has and what he has done with it. The nature of what was taken or retained is far less important than the fact it was retained at all.

In Thomas & Betts Corp. v. Richards Mfg. Co., the Third Circuit reversed a summary judgment order in favor of the defendants on a breach of confidentiality claim. The nature of the alleged misappropriated confidential information - customer data and technical product drawings - is fairly typical in an employment dispute. The individual defendant, Glenn Luzzi, admittedly retained documents after he parted ways with T&B.

On appeal, T&B dropped its claim that this information rose to the level of a trade secret. That admission is significant; it eliminates various damages theories, and in many states, the opportunity for punitive damages and fee-shifting.

But certain information which is not protected under the laws of trade secrets may still be confidential, and it is here where the District Court applied the wrong test. The Third Circuit remanded and ordered the court to consider the following factors when determining whether Luzzi breached his obligation of confidentiality:

(1) whether the information was generally available to the public;
(2) whether the defendant would have been aware of the information if not for his employment with T&B;
(3) whether the information gave the defendant a competitive advantage; and
(4) whether the defendant knew T&B had an interest in protecting the information to preserve its own competitive advantage.

The court did note that these factors were not elements of the underlying cause of action. New Jersey is not unlike many states, even though it has not adopted the Uniform Trade Secrets Act. Common law breach of confidentiality claims exist in most jurisdictions, and the Thomas & Betts decision no doubt will be influential in how courts assess these causes of action.


Court: United States Court of Appeals for the Third Circuit
Opinion Date: 7/30/09
Cite: Thomas & Betts Corp. v. Richards Mfg. Co., 2009 U.S. App. LEXIS 16837 (3d Cir. July 30, 2009)
Favors: Employer
Law: New Jersey

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