Mallet And Company Inc. v. Lacayo

Facts

P has been in the business of developing, manufacturing, and selling baking release agents as well as the equipment used to apply such agents. Developing a successful release agent is not as simple as knowing a few of its components. Most important are product performance, stability, application, cost, availability, and packaging. The efficacy of a release agent can greatly depend on the customer's product, pan condition, storage conditions, and machinery used to apply the agent. There are different kinds of release agents, each with unique properties that may be further tailored to maximize performance when used in the production of certain goods. Competitors in the release agent market often manufacture and sell identical or similar products. P contends that it has 'taken substantial time, research, and effort' to formulate and perfect its release agents. To safeguard P's competitive advantage, P has put in place several measures to protect its information, including nondisclosure and noncompetition agreements with its employees, restricted access to its lab and formulas, and password protection for its computer network. P considers the following information to be its 'confidential, proprietary, trade secret information': specific products sold to customers or purchased from suppliers; all information pertaining to Mallet's business with its customers and its suppliers; P's sales data and cost data; the body of knowledge about the development, production, and application of Ps release agents and equipment, including the tailoring of release agents and equipment for specific customer challenges; information about the internal business affairs of any customers, suppliers, distributors, agents and contractors doing business with P; pricing information; strategies; marketing information; and exclusive relationships with certain suppliers of release agent ingredients. P claims that 'the trade secret in question here is the overall body of knowledge that connects ... the development, production, application, and implementation of the release agent ... coupled with P's proprietary equipment, which goes hand in hand with [a] formulated solution.' P does not consider its 'product data sheets' to be trade secret information, since those specification sheets are 'produced and provided to consumers of its products[.]' Also, some ingredients in baking release agents - again, mineral oils, vegetable oils, and lecithin - have been common knowledge in the industry for more than thirty years, and the components for release agents are published in product data sheets, articles, and company websites, and are therefore public knowledge, though the precise ratios and processes for combining them are not. P acknowledges that 'there are numerous patents ... that have been published ... since at least the early 1900s that talk about the manufacturing and processes and formulations that can be used to create bakery release agents.' P concedes that the contents of patents and other information generally known in the industry about 'various ingredients for use in bak[ing] release agents' cannot be considered proprietary. P claims that formulas in patents may 'form a part of the examples of the patent' and still be 'part of a trade secret.' P claims that know-how is a trade secret. Lacayo (D) and Bowers (D), had substantial access to P's trade secrets. Lacayo's (D) job responsibilities spanned all aspects of P's release agent business, from product development and quality control to customer-specific applications and technical support. Through her director positions, she obtained extensive access to P's technical information. Lacayo (D) ran onsite tests for customers, troubleshooting issues, and recommending changes to improve product performance. She 'wrote and designed manuals, instructional programs, marketing materials, [and] presentations,' which she 'delivered ... to diverse audiences in English and Spanish.' Lacayo (D) executed a nondisclosure and noncompetition agreement. Lacayo (D) could 'not disclose any information regarding P's affairs' during or after her employment. She also agreed not to 'directly or indirectly' work for, 'engage in or be connected with, any business competitive with P's business' in any capacity for three years after her employment with P ended. Bowers (D) worked for P over a forty-year period in sales. Bowers (D) gained access to its trade secrets and worked with some of its most valued customers. He understood how to provide service to P's customers and was privy to information about P's sales strategies and the 'types of [product application equipment] P might use for some customers.' Bowers (D) worked closely with P's research lab to improve product performance and with its customers to test products and resolve complaints. Bowers (D) had entered into a nondisclosure agreement prohibiting him from disclosing or using P's trade secrets except in furtherance of P's interests. D is a privately held company with twenty-six facilities worldwide and a large customer base. D decided to launch a new subsidiary, Synova LLC (Synova), to sell baking release agents because several of D's customers wanted 'to see some alternatives brought to the [release agent] marketplace' and requested that D enter the market. D recruited Lacayo (D) and Bowers (D) while both were employed by P. D also approached Shane Zhou a former P employee. Lacayo (D) secretly interviewed and accepted a position with Synova on January 22, 2018. She remained employed with P until February 12, 2018. When she did finally announce that she was leaving P to take care of her mother. Three days before her interview with Synova, on January 19, 2018, Lacayo (D) copied 1,748 files onto a USB drive. She also emailed information, including screenshots of two formulas, from P's files to her private Gmail account. On February 28, 2018, when she was no longer employed with P, Lacayo (D) emailed herself a spreadsheet with technical data from P's research. P discovered her treachery and sent a cease-and-desist letter, demanding that she honor her obligation not to work for a competitor, immediately return all of P's data, and stop using or disclosing P's confidential information. Lacayo (D) claimed she had not shared the data and would destroy it. She continued to conceal that she was working for Synova, saying that she was 'taking some time off.' During discovery, large amounts of P’s data was found on her computer and forensic data revealed they were used at D. P claimed that her know-how was the key ingredient that would allow D to leapfrog into the marketplace. Bowers (D) also shared information with D while still employed with P. D got emails about P's customers, its pricing, its overall performance, and problems that customers were experiencing. Bowers (D) forwarded P's customer and product information to his wife's email account and wiped clean all of his electronic devices belonging to P. He admitted that if P had the opportunity to search his personal email account, it could find emails about Mallet's business dealings with customers, tech sheets, and pricing. After the new hires, over the next couple of months, D completed five successful product test runs with several of P's top customers, placing Synova in a position to gain immediate market penetration. D was able to make its competitive debut before the construction of its baking release agent production facility was fully completed. P filed this lawsuit for trade secret misappropriation under both federal and state law, inevitable disclosure, conversion, and unfair competition against the Defendants; breach of contract and breach of fiduciary duty against Lacayo (D) and Bowers (D); and tortious interference with contractual relations and aiding and abetting breach of fiduciary duty against D. P sought to preliminarily enjoin Ds from engaging in any competition against it. The court decided that P was entitled to injunctive relief on most of its claims. The Court then held there had been 'a misappropriation of P's trade secrets. The District Court ordered Ds enjoined from the following activities: 'using P's confidential, proprietary and/or trade secret information in any respect;' 'directly or indirectly formulating, manufacturing, distributing or selling products competitive to P products, including any release agents and related equipment;' 'working in the industry of release agents and associated equipment (in any capacity including, but not limited to, working as a marketer, agent, consultant, contractor or distributor) using Mallet's protectable information,' and 'directly or indirectly soliciting any P customers for marketing, testing or the sale of release agents, oils or equipment in any regard;' 'soliciting and/or unlawfully interfering with the business, employment or contractual relationship between P and its agents, employees and/or independent contractors who have access to P's confidential, proprietary and/or trade secret information;' 'directly or indirectly disseminating any marketing materials, client communications (written or verbal), or other documents comparing D products to any P products.' It also prohibited Lacayo (D) and Bowers (D) were prohibited from engaging in 'working, directly or indirectly, in any capacity (including, but not limited to, working as an employee, independent contractor, marketer, agent, or consultant), for D or any person or entity that is competitive with P;' 'contacting D's employees, officers, directors, leadership, consultants or any other persons in a fiduciary relationship with D and/or any parent, subsidiary or affiliate of D;' 'directly or indirectly contacting or soliciting P's customers.' The injunction did not define what constitutes a trade secret. Ds requested a bond in excess of $20 million and the court required $500,000. Ds appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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