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Employees Can Be Liable for Data Theft Regardless of Use

By Robert T. Denny, Litigation News Contributing Editor – February 5, 2014

 

An employee downloading company information or emailing it to a personal email account prior to an anticipated termination may be liable for misappropriation under the Uniform Trade Secrets Act. An allegation of improper downloading was sufficient to withstand a motion to dismiss even if the trade secret was not improperly used. Marsteller v. ECS Federal, Inc..


The Marsteller Case
As alleged in the case, ECS Federal Inc. (ECS), a government contractor, informed one of its executives in November 2011 that her employment would be terminated by year-end. When she started her employment years earlier, the employee allegedly signed a proprietary information agreement that provided that she would “hold in strictest confidence” proprietary company information. It also stated that when her employment terminated she would return all confidential and proprietary information to ECS.


ECS alleged that when it informed the executive of her pending termination, she connected an external storage device to her computer and downloaded “highly sensitive and confidential information” on two separate occasions. She purportedly emailed proprietary and confidential information to her personal email account. ECS contended that she later used the downloaded information for the benefit of her new employer, another government contractor.


The employee filed suit against ECS in the U.S. District Court for the Eastern District of Virginia, claiming wrongful termination and discrimination among other claims. ECS counterclaimed, including an allegation that the employee violated Virginia’s Uniform Trade Secrets Act (VUTSA).


The Uniform Trade Secrets Act
To establish a claim under VUTSA, a claimant must establish that the information in question constitutes a trade secret and that the opposing party misappropriated it. Misappropriation can occur in two separate circumstances: (1) through improper acquisition of a trade secret, or (2) through disclosure or use of a trade secret.


Improper acquisition occurs when an individual acquires another’s trade secret and “knows or has reason to know that the trade secret was acquired by improper means.” Improper means includes “theft, bribery, misrepresentation, use of a computer or computer network without authority, breach of a duty or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means.” The VUTSA definition of improper means is largely the same as that set forth in the Uniform Trade Secrets Act but adds the provision “use of a computer or computer network without authority.”


The Employer’s Claim
ECS alleged that by downloading and emailing company information, the employee acquired company trade secrets by improper means since these actions exceeded her authority. The employee filed a motion to dismiss the counterclaim, arguing that the information she allegedly obtained were not trade secrets and that there were insufficient allegations that she “used the trade secret information.”


The court denied the motion. The court first determined there were sufficient allegations that the downloaded data were trade secrets. The court then recognized that improper use or disclosure was not necessary to establish a violation of VUTSA. The court found that allegations of improper acquisition alone can be sufficient and that ECS’s allegations in this case were enough to defeat the motion to dismiss. At the same time, the court also reasoned the employer’s allegations of use or disclosure were plausible.


Widespread Applicability
Even though Virginia’s statute is unusual in expressly allowing a claim for misappropriation when a computer network is used without authority, the result reached by the court is probably not unique to Virginia. “Another court in another state without that provision could have found a potential violation,” notes C. Pierce Campbell, Florence, SC, cochair of the ABA Section of Litigation’s Business Torts and Unfair Competition Litigation Committee. The standard language found in the Uniform Trade Secrets Act may be sufficient for most courts to find either “a theft of information or espionage using electronic means or one of the other categories that could be stretched enough to bring it under the Act,” suggests Campbell. “While Virginia may be ahead of the curve with its updated language, many states will catch up to Virginia in this regard as technology changes,” he adds.


Regardless of whether a similar result would be reached in other states, employers and employees should both exercise caution when an employment relationship comes to a close. “Employers need to be very clear about what is and is not acceptable behavior and have policies in place that reflect that,” notes Elizabeth S. Fenton, West Conshohocken, PA, cochair of the Section of Litigation’s Business Torts and Unfair Competition Litigation Committee.


Employers should “develop policies to systematically and periodically remind employees of their responsibilities under such policies, particularly at the time an employee is terminated or provides notice that the conclusion of employment is approaching,” adds Campbell. On the other hand, “employees need to be aware of their employer’s policies so when the employment relationship is terminated, they do not inadvertently run afoul of their agreement with the employer,” suggests Fenton.


This decision highlights that employers and employees should exercise caution when terminating the employment relationship. Employers should ensure adequate policies are in place to protect their trade secrets, and employees should exercise caution to ensure their actions comport with such policies.


Keywords: trade secrets, employment, termination, computers, Uniform Trade Secrets Act


 
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