| Protection of Confidential Information |
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| Friday, 08 December 2006 | |
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The Wisconsin Supreme Court recently struck a blow for employers seeking to protect confidential business information. In Burbank Grease Services, LLC v. Sokolowski et al., 2006 WI 103 (2006), the Court reviewed and reversed in part a decision of the Court of Appeals (2005 WI App 28).
PROTECTION OF CONFIDENTIAL INFORMATION The Wisconsin Supreme Court recently struck a blow for employers seeking to protect confidential business information. In Burbank Grease Services, LLC v. Sokolowski et al., 2006 WI 103 (2006), the Court reviewed and reversed in part a decision of the Court of Appeals (2005 WI App 28). The Court of Appeals had held that confidential information which does not meet the statutory definition of a “trade secret” cannot be the subject of alternative civil claims such as breach of fiduciary duty. Burbank was in the business of collecting and processing used restaurant fry grease. A former employee (Sokolowski), who had never signed a noncompete or nondisclosure agreement, retained possession of certain hard copy and computer customer information when he left his employment with Burbank. He had used these customer records to perform some of his work for Burbank at his home. After he left Burbank he used this information to solicit customers for a business competing with Burbank. When Burbank became aware that Sokolowski was soliciting its customers, it commenced suit alleging, among other claims, that the use of the customer information was a misappropriation of Burbank's trade secrets and that Sokolowski had breached his fiduciary duty to Burbank. The trial court dismissed the suit on a motion for summary judgment and Burbank appealed. The Court of Appeals affirmed the trial court's decision. The Appellate Court noted that "trade secret" is a term of art, and that to qualify for trade secret protection information must be not generally known to and not readily ascertainable by others using proper means. The Court reviewed a number of prior Wisconsin cases that have held that customer lists are not generally able to qualify for trade secret protection because the information is available by means of inquiry from established sources such as telephone directories, trade associations, newspaper advertising and the like. In limited instances, a customer list may reach the level of a trade secret. Those instances would be where similar products or services are sold to a small, fixed group of purchasers. In such an intensely purchaser-oriented market, a customer list may constitute a trade secret. Here, Burbank's customer list of restaurants was easily obtainable in the marketplace so the list was not protectable as a trade secret. The most significant holding by the Court of Appeals was that Wisconsin's statutory trade secret law preempted any claim of breach of fiduciary duty, even in those instances where, as here, the information in question did not meet the definition of “trade secret” and thus did not qualify for trade secrets protection. In other words, the Court of Appeals held that where there is a claim that confidential information has been misused, trade secrets law is the only remedy, and if the materials do not meet the strict definition of a “trade secret,” the party claiming misuse cannot resort to other civil remedies like breach of loyalty, breach of fiduciary duty or violation of Wisconsin’s computer crimes statute. The Supreme Court granted leave to appeal, and in a 5-2 decision held that Wisconsin’s trade secrets law does not preclude all other civil remedies based on the misappropriation of confidential information, if the information does not meet the statutory definition of a “trade secret.” The Court specifically held that the trade secrets statute does not apply to contractual undertakings to keep information confidential, nor does it preclude tort claims not grounded on a “trade secret” as defined by the statute, such as a breach of an agent’s duty of loyalty. The effect of the decision is to permit claims alleging misuse of confidential information to be pleaded in the alternative, e.g. a claim for trade secrets protection as well as claims for breach of contract, breach of fiduciary duty and breach of a duty of loyalty. While the case is favorable for those seeking to protect confidential business information, it only serves to reemphasize the value of a properly drafted agreement specifically outlining an employee’s duty and responsibility to protect confidential information. It is now clear that a properly drafted agreement will afford additional remedies if the information does not qualify under the law as a “trade secret.” |