The U.S. Court of Appeals for the Eleventh Circuit considered the oft-litigated issue of what constitutes reasonable efforts to maintain secrecy of a claimed trade secret in Yellowfin Yachts v. Barker Boatworks, a case involving claims against a former executive turned competitor. The Eleventh Circuit found implied confidentiality of customer information that an employee was allowed to store on his cellphone and laptop insufficient to claim a trade secret.
Yellowfin Yachts, a boat manufacturer, sued its former vice president of sales and the competing company he founded, Barker Boatworks, for trade secret misappropriation, among other claims. Yellowfin claimed misappropriation of two trade secrets after Barker downloaded "hundreds" of files upon his departure from Yellowfin: (1) the sources of its boat materials and components, including its contractual terms with each source; and (2) customer information, including names, contact information and order specifications. The district court granted summary judgment to the defendants on both categories of information and the Eleventh Circuit affirmed.
In affirming the lower court decision, the Eleventh Circuit bypassed whether the customer information could qualify as a trade secret and affirmed the district court's ruling on the ground that Yellowfin failed to reasonably protect the information. Defending its secrecy efforts before the district court, Yellowfin maintained that it password-protected the information on a server that was only accessible to Yellowfin's executives and verbally told its employees that the information should not be shared outside the company; however, to facilitate round-the-clock, "white-glove" customer service, the company permitted—and encouraged—Barker to store customer information on his cellphone, which it paid for. Barker was also allowed to store customer information on his personal laptop for use at trade shows. When he left Yellowfin, the company did not instruct him to return or delete the information, and, critically, while Barker's proposed employment agreement included a confidentiality provision, he never executed it.
The Eleventh Circuit rejected Yellowfin's reliance on these measures and an "implicit understanding" with Barker, communicated through verbal warnings, that the customer information was confidential. The court found "mere verbal statements" combined with "no instruction... as to how to secure the information on his cellphone or personal laptop" insufficient to claim a trade secret, admonishing that "Yellowfin effectively abandoned all oversight in the security" of the information. It thus agreed with the district court that no reasonable jury could find that Yellowfin took reasonable efforts to maintain the secrecy of the information for which it claimed trade secret protection.
Given the realities of increased use of personal devices for work, the Yellowfin decision highlights the importance of implementing formal safeguards, such as written use policies, employee training, periodic reminders and employee confidentiality agreements that explicitly address restrictions on access to and storage of the company's valuable information by employees on their devices.
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