Employees with high-ranking positions are leaving jobs for better opportunities elsewhere with more and more frequency in Missouri. And, as a result, employers are making claims against these former employees for the misappropriation of trade secrets, whether or not the former employer has executed a confidentiality and/or non-compete agreement. If you are either making such a claim against a former employee or defending against one against a former employer, its incumbent upon you to understand the basics of the law in Missouri regarding the misappropriation of trade secrets.
Missouri is one of the many states that follows the Uniform Trade Secrets Act, which the Missouri legislature adopted in 1995,[1] and which provides generally that misappropriation of trade secretes may occur in any of three forms: improper acquisition, disclosure or use. See, also BP Chemicals Ltd. v. Jiangsu Sopo Corp., 285 F. 3d 677, 682 (8th Cir. 2002).[2] The MUTSA identifies two types of “misappropriation.” “Acquisition” and “disclosure and use” are defined as follows:
- Acquisition of a trade secret of a person by another person who knows or has reason to know that the trade secret was acquired by improper means; or
- Disclosure or use of a trade secret of a person without express or implied consent by another person who:
- Used improper means to acquire knowledge of the trade secret; or
- Before a material change of position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake; or
- At the time of disclosure or use, knew or had reason to know that knowledge of the trade secret was:
- Derived from or through a person who had utilized improper means to acquire it;
- Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
- Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.[3]
In H&R Block Eastern Tax Services, Inc. v. Enchura, 122 F. Supp. 2d 1067, 1074 (W.D. Mo. 2000), the U.S. District Court for the Western District of Missouri defined misappropriation as follows:
“Misappropriation” is statutorily defined and occurs in two ways. The first is when one acquires a trade secret through “improper means,” that is through such means as theft, bribery or inducing one to breach a duty of secrecy… The second example of misappropriation occurs when one disclosing a trade secret without consent, inter alia, knew or had reason to know that the secret was “[a]cquired under circumstances giving rise to a duty to maintain its secrecy or limit its use.”
Consequently, there are theft-type claims that require the acquisition of a trade secret through improper means, and disclosure-type claims that require the disclosure of a trade secret without consent. But, before determining whether a trade secret has been misappropriated pursuant to either of these type claims, it is necessary to understand what constitutes a trade secret under Missouri law.
The MUTSA defines a “trade secret” as “information, including but not limited to, technical or nontechnical data, a formula, pattern, compilation, program, device, method, technique, or process, that: (a) “[D]erives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (b) [I]s the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”[4] But, this statutory definition does little to define what constitutes a protectable trade secret under Missouri law. Missouri Courts have filled this void in the context of the enforceability of non-compete agreements.
Only the protection of trade secrets and customer contacts is enforceable under Missouri law with respect to non-compete agreements, each of which has been clearly defined by Courts in Missouri. Missouri law in this regard follows the “modern rule,” summarized in Herbert Morris, Ltd. v. Saxelby,[5] as follows:
“He (employer) is undoubtedly entitled to have his interest in his trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers by solicitation, or such other means enticed away from him. But freedom from all competition per se apart from both these things, however lucrative it might be to him, he is not protected against. He must be prepared to encounter that even at the hands of a former employee.”
Healthcare Services of the Ozarks, Inc. v. Copeland, 198 S.W. 3d 604, 610 – 611 (Mo. banc 2006). Moreover, the employer has the burden to prove the reasonableness of the non-compete agreement. Whelan Sec. Co. v. Kinnebrew, 379 S.W. 3d, 835, 842 (Mo. banc 2012).
First, “[a] ‘trade secret’ can be ‘any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.’” Sigma-Aldrich Corp. v. Vilkin, 451 S.W. 3d 767, 773-74 (Mo. Ct. App. 2014). “Missouri Courts have found the following factors should be considered in determine whether given information is a trade secret: (1) the extent to which the information is known outside of his business; (2) the extent to which it is known by employees and others involved in his business; (3) the extent of measures taken by him to guard the secrecy of the information; (4) the value of information to him and to his competitors; (5) the amount of effort or money expended by him in developing the information; (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.” Copeland, 198 S.W. 3d at 610 – 611. “The burden of proof rests upon an employer to substantiate its asserted interest in its trade secrets.” Mo-Kan Central Recovery Co. v. Hedenkamp, 671 S.W. 2d 396, 400 (Mo. Ct. App. 1984). And, “[e]vidence of purported ‘trade secrets’ must be more than general assertions but must be sufficiently specific to allow a determination by the court.” Id. “Matters of public knowledge or information that are generally known within a given industry cannot be appropriated as a trade secret.” Sigma-Aldrich, 451 S.W. 3d at 774. Lastly, “[t]he protection does not extend to knowledge that is a natural product of the employment or known throughout the industry.” Id.
Second, as set forth above, only the protection of trade secrets and customer contacts is enforceable under Missouri law. Under Missouri law, “[c]ustomer contacts has been defined as essentially the influence an employee acquires over his employer’s customers through personal contact.” Copeland, 198 S.W. 3d at 611. “The quality, frequency, and duration of an employee’s exposure to an employer’s customers are crucial in determining the covenant’s reasonableness.” Id. “The purpose of a non-compete agreement is to keep the covenanting employee out of a situation in which he might be able to make use of contacts with customers to his former employer’s disadvantage.” Id.
Consequently, the dispute as to whether an employee has violated the provisions of the MUTSA upon leaving his former employer for a new job is multi-layered in Missouri. Does the employer have a protectable trade secret under Missouri law? Has the former employer taken measures to guard its secrecy? And regarding customer contacts, are they old or are they prospective? Did the former employee have the quality, frequency and duration of customer contacts that s/he could influence the former employer’s old customers to leave him? Did the former employer acquire the trade secret by improper means? Or did s/he disclose it without consent? Is the former employer attempting to enforce a confidentiality and/or non-compete agreement? If so, was there adequate consideration such that it is enforceable?
If you need assistance, you may wish to consult with experienced trade secret counsel at Cosgrove Law Group.
[1]The Missouri Uniform Trade Secrets Act (“MUTSA”), §§ 417.450 through 417. 467 R.S.MO. (2011).
[2] See, also 14 Uniform Laws Annotated 434 (West 1990) explaining that misappropriation exists when either a person’s acquisition of a trade secret, disclosure of a trade secret to others, or use of a trade secret is improper.
[3] § 417.453(2) R.S.MO. (2011).
[4] § 417.453(4) R.S.MO. (2011).
[5] [1916] 1 A.C. 688, 702.