May 22, 2015 Articles

Trade Secrets: What's the Price of Stealing Information?

Damages for misappropriation can be full refund of disloyal ex-employee's severance pay

By Walter Judge

When your trade secrets are stolen, you might sue the ex-employee who stole them, or the competing business that's now in possession of them—or both. What's an appropriate measure of damages when your trade secrets are stolen? It can be your lost profits caused by the misappropriation, if you can prove them. Or, it can be your competitor's unfair gain caused by his/her/its knowledge of your trade secrets—again, if you can prove them. What if the misappropriation is clear, but you can't prove that you suffered any lost profits or that there was any specific unfair gain by a competitor? What if, for whatever reason, you determine that the only appropriate legal target is the disloyal ex-employee, and you cannot prove any specific market harm caused by the misappropriation? Just because you cannot prove lost profits or any unfair gain by a competitor doesn't mean you haven't suffered damage by the misappropriation. One federal appeals court has determined that the appropriate measure of damages in such a case is a full refund by the ex-employee of her severance pay: $735,000.

In Hallmark Cards, Inc. v. Murley, 703 F.3d 456 (8th Cir. 2013), Murley was a top marketing executive at Hallmark with knowledge of and access to its confidential business information. In 2002 her position was eliminated and she was given a severance package including a $735,000 payment. As part of her severance agreement, Murley agreed not to use nor retain any information or documents of Hallmark, and not to work for a Hallmark competitor for eighteen months. In 2006, after her non-competition period was over, she began consulting for Recycled Paper Greetings (RPG). It was later discovered, and Murley admitted, that she disclosed confidential Hallmark information to RPG, but this was unknown to Hallmark at the time. In 2009, RPG was bought out by American Greetings. Before American Greetings closed on its purchase of RPG, it invited Hallmark to have a neutral third-party review RPG's records to ensure that there was no Hallmark confidential information in them. (The court opinion does not say why American Greetings made this gesture to Hallmark, but it may have been because American Greetings knew that a former top executive at Hallmark (Murley) had worked for RPG and didn't want any trouble from Hallmark after it purchased RPG.) The third-party reviewer found Hallmark documents in RPG's records and alerted Hallmark. Hallmark sued Murley for misappropriation of trade secrets. In the course of the lawsuit, Hallmark learned that in 2007, while Murley was consulting for RPG, an RPG executive had arranged to have Murley's hard drive examined, and that, just before that examination took place, Murley had deleted a number of Hallmark files from the drive.

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