United States: "Sheer" Rejection - Eleventh Circuit Rejects Yellowfin Yacht's Trade Secret Claim

John Chapman III is a Partner in the Fort Lauderdale office

On Aug. 7, 2018, the Eleventh Circuit Court of Appeals  affirmed summary judgment in favor of Barker Boatworks, LLC, rejecting Yellowfin Yacht's Florida Uniform Trade Secret Act (FUTSA) claim. In its ruling, the court explained that a trial was not necessary because, among other things, Yellowfin failed to adequately protect its trade secrets by permitting an employee to access Yellowfin's confidential information on his personal laptop and cell phone. The decision is a warning to companies that want to protect their business information. They must not only ensure reasonable security measures are in place to protect trade secrets, but also should ensure that their security measures are not undone by an employee's use of  company information outside of the office or on personal equipment.

South Florida is famous for its beaches, miles of waterways, and luxury yachts. Marine-related industries generate an excess of $8 billion in economic impact annually in Florida alone. Those familiar with the industry will likely know of Yellowfin Yachts, a luxury yacht manufacturer headquartered in the state. Yellowfin is famous for their quality and distinctive sheer line and high, swept bow.

Yellowfin sued Barker Boatworks and its founder, Kevin Barker, for theft of trade secrets, among other claims. The allegations are common for trade secret litigation: Mr. Barker is a former Yellowfin employee, and Yellowfin alleged that he stole trade secret supplier and customer information and used that information to establish Barker Boatworks, a competing boat manufacturing business. Yellowfin argued that Barker used the stolen information and copied Yellowfin's style (known as trade dress), and their "unique swept sheer line." 

A federal district court rejected Yellowfin's FUTSA claims, granting summary judgment in favor of Barker. In denying Yellowfin's appeal, the Eleventh Circuit issued a lengthy opinion, complete with color images of the competing vessels. The Eleventh Circuit explained Yellowfin's place in the industry, and cited the accolades for its unique look and dramatic sheer line, but ultimately the court was not persuaded by Yellowfin's arguments. Although trade secret claims are generally fact-intensive, here the court found no reasonable jury could side with Yellowfin.

Yellowfin's customer information, which Yellowfin alleged Barker misappropriated, included contacts and ordering specifications. The district court denied trade secret protection for two reasons: first, the court held that boater registrations are public information and, therefore, the customer contact information is publically available; second, and perhaps most instructive, because Yellowfin permitted Barker to access the information on his cell phone and personal laptop, Yellowfin failed to adequately secure its information, thus waiving protection.

In affirming, the Eleventh Circuit addressed only the second finding by the district court, and affirmed on this ground. The court held that, even though Yellowfin had password protections and only 5% of the company could access the information, these measures were "useless" because Yellowfin permitted Barker to access the information on his personal devices, which were not protected. The court also noted that Barker refused to sign an employment agreement that contained confidentiality provisions, Yellowfin did not instruct Barker to secure the information on his personal devices, and when Barker left Yellowfin, it never requested Barker return or delete the information. The Eleventh Circuit also rejected Yellowfin's claim of an "implicit" agreement to keep the information confidential, finding that general verbal statements made by Yellowfin warning employees not to disclose the information was insufficient as a matter of law.

As to the supplier information, Yellowfin argued that its pricing was unique and provided it with a competitive edge. The supplier pricing was determined based on Yellowfin's purchasing volume and its relationship with the suppliers. Rejecting the claim, the Eleventh Circuit affirmed three important rulings made by the district court: (1) because the pricing was based on Yellowfin's purchasing volume, it had no independent economic value to the upstart Barker; (2) because the pricing was based on Yellowfin's unique relationships with suppliers, it had no economic value to Barker; and (3) because Barker learned Yellowfin's production costs in the ordinary course of working at Yellowfin, an injunction "could not practicably restrain Barker from using knowledge he gained while employed at Yellowfin." 

The decision leaves an important lesson learned. Many employees access electronic information for their work remotely, or on personal devices. They also print electronic information regularly. Any company with confidential information stored electronically should ensure that the company's security measures are not circumvented. This may include, among other things, the need to restrict access to information on personal devices, prohibit printing of certain information where feasible, and/or requiring password protections or other security measures on employee devices. Failure to take these measures could result in waiver of protection. Also, a company should always be wary when an employee refuses to sign a non-disclosure agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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