First Circuit Reverses Trade Secret Misappropriation Verdict Even Though Employee Stole Company Information

On July 21, 2020, the First Circuit reversed a bench trial verdict for trade secret misappropriation after determining that the business reports at issue were not trade secrets. See TLS Mgmt. & Mktg. Servs., LLC v. Rodríguez-Toledo, 2020 WL 4187246 (1st Cir. July 21, 2020).

The plaintiff, TLS Management and Marketing Services, is a tax firm, and the defendant, Ricky Rodríguez, is a former employee of TLS. TLS accused Rodríguez of misappropriating its trade secrets by using various TLS strategy documents to provide services to former clients of TLS (now Rodríguez’s clients). TLS claimed that it had trade secret protection over a portion of a company report that provided tax recommendations based on regulatory and statutory analysis as well as a ‘tax arbitrage’ strategy used by TLS. Rodríguez allegedly downloaded these documents before his departure from TLS and allegedly used them to provide tax advice to former TLS clients. Based on this alleged behavior, TLS brought claims against Rodríguez for trade secret misappropriation and breach of his nondisclosure agreement.

The district court found that Rodríguez had misappropriated TLS’ trade secrets, but the First Circuit reversed. The First Circuit applied Puerto Rico’s trade secret law, which defines “trade secret” similarly to the Uniform Trade Secrets Act, requiring that a purported trade secret owner prove that its alleged trade secrets were distinct from general knowledge, not readily ascertainable, had independent value, and were subject to reasonable security measures. The Court determined that the alleged trade secrets failed to meet that definition, noting that “[t]o a large extent” the purported trade secrets “consisted of public knowledge.” Further, “TLS made no showing as to what aspects of the [reports] were public knowledge and which were not.” TLS also failed to show that the strategy document “was not readily ascertainable” and the Court noted that “[t]he general concept of ‘tax arbitrage’ based on Puerto Rico tax exemption laws was hardly secret.”

TIP: This is yet another example of a company that believed its employee stole its valuable information, but was unable to recover damages (after spending legal fees trying to do so) as a result of a lack of sophistication around how it protects and defines its commercially valuable secrets.