As companies have pivoted to remote-working, it is increasingly important to pay attention to the risks of videoconferencing, particularly when trade secrets are involved. In a recent case, the Delaware Chancery Court ruled that Plaintiffs did not take reasonable steps to protect their trade secrets because they did not implement appropriate privacy measures on their Zoom calls.
Smash Franchise Partners, LLC and Smash My Trash (“Smash”) is a mobile trash compacting business that sells Smash-branded franchises to entrepreneurs. Smash filed a lawsuit alleging misappropriation of trade secrets, among other claims, and sought a preliminary injunction to shut down Defendant Dumpster Devil, LLC, a company that was formed by an individual who had expressed interest in a Smash franchise, but ultimately decided to start his own business. Smash argued that its trade secrets consisted of the information detailing how Smash operates, its proactive model, routes, and pricing, design, and performance of equipment. However, this information was the same information shared with potential franchisees over Zoom. The Zoom program was designed to teach potential franchisees about the Smash business and encourage them to purchase a franchise. And while Smash did require potential franchisees to sign an NDA at a certain point in the process, they did not always follow that procedure and their lax security on Zoom calls was fatal to their requested preliminary injunction.
While Defendants had clearly engaged in some deceptive acts (by feigning interest in a franchise to learn about Smash’s business while also setting up their competing business), the court held that Smash did not take reasonable steps to protect its trade secrets by disclosing the information on Zoom calls without adequate precautions. The court noted specific ways in which Smash failed to reasonably protect is trade secrets:
- Smash freely gave out Zoom call information to anyone who expressed interest;
- Smash used the same Zoom meeting code for all of its meetings;
- Smash did not require participants to enter a password;
- Smash did not use a waiting room to screen participants;
- Smash did not always follow their procedure of taking roll call; and
- Smash did not always require participants to sign an NDA.
Accordingly, the court ruled that Smash had not established a reasonable likelihood of success on the merits of trade secrets misappropriation sufficient to grant a preliminary injunction shutting down the business. (The court did grant a limited injunction prohibiting several false and misleading statements Defendants had been making in advertising).
As Zoom calls and other videoconferencing tools are becoming a mainstay in the work environment, this case serves as a cautionary tale to all businesses. Businesses should enact clear process and procedure (and make sure they are followed) to ensure their trade secrets remain protected.