There is perhaps nothing more irritating than someone saying “I told you so.” And yet, it must be done.
People think of a shadowy foreign company smuggling sophisticated plans for the next iPhone out of the country. But the typical trade secrets lawsuit is more mundane. Given the fact that a “customer list” can be a trade secret, an employer can sue for misappropriation of trade secrets just about every time a low level sales employee leaves the company with the names and numbers of her customers on her smartphone.
A few weeks later, the first court opinion citing the Defend Trade Secrets Act came out of the Northern District of California. Litigators everywhere relished the chance to see how courts would apply this sweeping new federal statute that promised to move complex trade secrets lawsuits from provincial state courts to the lofty halls of the federal judiciary, where the majestic courtrooms look like a set from JFK rather than Night Court.
Curiosity raged. Would it be a case of foreign intrigue, cyber-hacking, and sophisticated corporate espionage in Cupertino? Would the judge use the controversial new ex parte seizure remedy to have federal marshals swoop in to intercept a shadowy Jason Bourne-like character riding a motorcycle over the Golden Gate Bridge—the wrong way—smuggling a tiny USB drive hidden in a fake shaving cream can?
Actually, what was notable about Henry Schein, Inc. v. Cook, the first court opinion I’m aware of that cites the Defend Trade Secrets Act, was how ordinary it was. This was a typical “soft” trade secrets case involving allegations that a sales employee took confidential customer information from the company to a competitor.
The employer’s business—and I don’t mean this as an insult—could not have been more ordinary: “marketing, distributing, and selling medical, dental and veterinary supplies and equipment, and other healthcare products, to medical, dental, and veterinary practitioners, and other healthcare professionals and organizations.”
Veterinary supplies! It’s good to know that Congress acted just in time to make sure the nation’s top-secret veterinary and dental technology does not fall into the wrong hands.
The basic facts were also fairly ordinary:
- Henry Schein, Inc. (HSI) hired Cook to work in sales.
- Cook signed a confidentiality agreement that required her to hold “in strictest confidence” any confidential information “concerning the products, processes, services, business, suppliers, and customers of HSI.”
- Cook resigned from HSI and—get this—went to work for one of HSI’s competitors.
- Shortly before leaving, Cook allegedly forwarded confidential files to her personal email and saved company files on her laptop.
- Shortly after resigning, Cook allegedly accessed the HSI computer system using a web-based iPad app and her company credentials.
The relief HSI sought was also typical. HSI did not invoke the ex parte seizure provisions of the Defend Trade Secrets Act. Instead, it filed a typical application for TRO to bar Cook from using or disclosing confidential information or soliciting customers assigned to her while she was an HSI employee, which the court granted in large part.
What were the trade secrets that required this extraordinary relief? Again, the alleged trade secrets could not have been more ordinary:
- “several comprehensive, confidential HSI customer practice reports that were produced using HSI’s proprietary software”
- “numerous additional customer-related reports, including an equipment inventory report, price quotations for prospective customers, and equipment proposals on which HSI was working”
- “information related to HSI’s customers, products, margins, profit percentages, credit profiles, preferences and markets, particularly with respect to the customers assigned to her”
- “Customer information such as sales history and customer needs and preferences”
Don’t get me wrong. I’m not belittling this kind of typical case. I have represented clients in trade secrets cases involving “boring” industries like wholesale lumber and home and auto insurance. Even if the case wouldn’t make an exciting John Grisham novel, it is usually a very serious matter for the participants.
My point is that this first case citing the Defend Trade Secrets Act tends to support my view that the need for a federal trade secret cause of action in federal court was probably overstated, especially considering 48 states already had some version of the Uniform Trade Secrets Act.
At the same time, I think the new federal statute will probably not do much harm. As Henry Schein illustrates, the types of trade secrets cases that will be filed probably won’t change much. What will change is where they get filed, i.e. more of them will be in federal court.
You may object that I’m attaching too much significance to one little federal district court opinion, and you would have a point. Henry Schein, Inc. v. Cook is just one case, and it may tell us very little about what federal litigation under the Defend Trade Secrets Act is going to look like.
But I will make this prediction. A year from now when we look back at the cases filed in federal court under the Defend Trade Secrets Act, many more of them will be ordinary “customer list” cases like Henry Schein than complex schemes involving sophisticated secret technology. It will turn out that the first case applying the Defend Trade Secrets Act was the typical case. (Narrator from the future: this turned out to be true.)
And then it will be even more annoying when I say, “I hate to say I told you so . . .”
Zach Wolfe is a Texas trial lawyer who handles non-compete and trade secret litigation at his firm Fleckman & McGlynn, PLLC. Thomson Reuters named him a 2020 Texas Super Lawyer® for Business Litigation.
These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.
 Henry Schein, Inc. v. Cook, 191 F.Supp.3d 1072 (N.D. Cal. 2016).