Employee Confidentiality Agreement Not Broad Enough to Sustain Employer's Trade Secret Claims Against Former Employee: D. Kan. | Practical Law

Employee Confidentiality Agreement Not Broad Enough to Sustain Employer's Trade Secret Claims Against Former Employee: D. Kan. | Practical Law

In Tank Connection, LLC v. Haight, the US District Court for the District of Kansas granted summary judgment in favor of Haight, plaintiff Tank Connection, LLC's former employee, ruling, among other things, that Tank did not have a claim against Haight for breach of the parties' employee confidentiality agreement because Haight did not disclose to his new employer the company information he copied and retained during his employment by the plaintiff.

Employee Confidentiality Agreement Not Broad Enough to Sustain Employer's Trade Secret Claims Against Former Employee: D. Kan.

by Practical Law Intellectual Property & Technology
Published on 10 Feb 2016 • USA (National/Federal)
In Tank Connection, LLC v. Haight, the US District Court for the District of Kansas granted summary judgment in favor of Haight, plaintiff Tank Connection, LLC's former employee, ruling, among other things, that Tank did not have a claim against Haight for breach of the parties' employee confidentiality agreement because Haight did not disclose to his new employer the company information he copied and retained during his employment by the plaintiff.
On February 8, 2016, in Tank Connection, LLC v. Haight, the US District Court for the District of Kansas granted summary judgment in favor of John Haight, a former employee of the plaintiff, Tank Connection, LLC, ruling, among other things, that Tank did not have a breach of contract claim against Haight under the parties' confidentiality agreement. In so ruling, the court specifically noted that, although there was substantial evidence that Haight downloaded and retained several confidential company files shortly before resigning from Tank, he did not breach his confidentiality agreement with the company because the agreement only prohibited these files' unauthorized disclosure ( (Feb. 8, 2016)).
This case involved a series of claims brought by Tank—a company that designs, manufactures, installs, and services above-ground storage tanks—against its former employee, Haight in connection with Haight's accessing the company's servers and allegedly harvesting data from Tank shortly before leaving the company. Specifically, Tank asserted the following claims:
  • Breach of contract, arguing that Haight had breached the non-disclosure agreement he had signed with Tank promising to observe with the strictest secrecy all proprietary information he was exposed to and that he would not disclose the information to third parties without the company's consent.
  • Violation of the Kansas Uniform Trade Secrets Act (KUTSA), arguing that Haight misappropriated trade secrets when he copied pricing and design programs from Tank in the weeks immediately preceding his resignation and employment by Tank's competitor.
  • Breach of a common law duty of loyalty, arguing that Haight's retention of its price and design programs was such a breach.
  • Violation of the federal Computer Fraud and Abuse Act (CFAA), arguing that Haight knowingly and intentionally accessed a protected computer without authorization or exceeded his authorization by accessing and taking trade secret and confidential information (18 U.S.C. §1030).
Haight moved for summary judgment dismissing Tank's claims and, after weighing each of the claims, the court granted the motion, ruling that:
  • The breach of contract claim is precluded because:
    • the parties' non-disclosure agreement only prohibited unauthorized disclosure, not unauthorized copying or retention of the employer's confidential information; and
    • Tank did not cite evidence reasonably suggesting that Haight disclosed the information.
  • The KUTSA claim also fails because:
    • KUTSA requires that the employer plead and prove damages or unjust enrichment, and in this case Haight's downloading or retention of the company's files—without disclosing the information—did not result in any damages;
    • Tank's costs in retaining forensic experts to review Haight's actions were not losses caused by the employee's alleged trade secret misappropriation and were not compensable damages under the KUTSA because Tank would have incurred these costs even if the investigation absolved Haight of any wrongdoing; and
    • Tank was not entitled to an injunction preventing Haight's future disclosure of information because such an injunction would be overbroad and not justified in the absence of a non-compete agreement.
  • The lack of evidence that Tank sustained actual damages as a result of Haight's actions also supported dismissal of Tank's breach of the duty of loyalty claim.
  • The CFAA must also be dismissed because Haight, as a Tank employee, was authorized to access the information at the time he did so and he did not exceed the scope of his authorization. Adopting a narrow interpretation of the CFAA's "exceeds authorized access" standard, the court ruled that Haight's subjective intent in accessing the information is not relevant to deciding whether he exceeded the scope of his authorized access to the company's electronically stored information.
The district court's ruling provides practical lessons to employers to ensure that their confidentiality agreements with employees and contractors include not only non-disclosure provisions but also:
  • Terms prohibiting unauthorized copying and retention of employer information.
  • Terms prohibiting unauthorized use and limiting authorized use to use solely for the purpose of performing the employee's duties to the employer.
  • Terms obligating departing employees to return all employer materials and information to the employer.
  • Covenants not to compete.
Including such provisions will help ensure that employers have a breach of contract claim for a former employee's misuse of the employer's proprietary and confidential information even if there is no evidence of the information's unauthorized disclosure.