As we have previously posted, proper trade secret identification is often a key issue for parties bringing or defending against trade secret misappropriation claims. The precise standard of identification varies across jurisdictions and continues to evolve, but trade secret identification often functions as a gating issue early in a case. A recent decision from the Third Circuit serves as reminder that failure to properly identify purported trade secrets may not just be fatal to a party’s claim, but may render a preliminary injunction unenforceable.
The dispute in Mallet & Co. Inc. v. Lacayo, 16 F.4th 364 (3d Cir. 2021) arose in the context of the “ferociously competitive market for baking supplies,” particularly “release agents” used in industrial baking to ensure that baked goods easily release from baking pans. According to plaintiff Mallet & Co. Inc. (“Mallet”), two veteran employees left Mallet to join its newest competitor, Bundy Baking Solutions (“Bundy”), and took with them hundreds of Mallet documents containing product formulas, technical data, and customer information. Within months of joining Bundy, and before Bundy had even finished constructing a production facility, Bundy had developed a line of products that directly competed with Mallet’s products.
Mallet responded by asserting multiple claims against both former employees and Bundy, including trade secret misappropriation, and moved to enjoin the defendants from engaging in any competitive conduct. The lower court held a hearing at which it took testimony from multiple witnesses and admitted over a hundred exhibits, and ultimately granted an injunction. As part of its findings of fact, the lower court identified thirteen broad categories of Mallet’s protected information, including “formulas,” “manuals,” “ingredients,” “customer purchase orders,” and “internal discussions of customers’ preferences and complaints.” The order enjoined the defendants from “using Mallet’s confidential, proprietary and/or trade secret information in any respect” but did not explain what, exactly, constituted Mallet’s alleged trade secrets.
On appeal, the Third Circuit found that the thirteen broad categories of protected information identified by the lower court did not meet the applicable trade secret identification standard, which requires an identification with “sufficient particularity to separate it from matters of general knowledge in the trade or of special knowledge of those persons who are skilled in the trade, and to permit the defendant to ascertain at least the boundaries within which the secret lies.” By the same token, the court also held that the lower court’s order enjoining the defendants from engaging in competitive behavior was necessarily improper because it was predicated on an insufficient trade secret identification, and therefore failed to state the basis for the order or clearly describe what conduct the defendants were prohibited from engaging in.
In addition to clarifying the role of trade secret identification in obtaining a preliminary injunction, the Third Circuit provided the lower court, Mallet, and prospective trade secret misappropriation claimants with guideposts for proper trade secret identification. First, identifying broad categories of business and technical information as trade secrets will not suffice because such categories will likely contain a mix of trade secret and non-trade secret information. Second, an identification is likely insufficient if it is so broad that it includes publicly available information or known industry knowledge. And third, plaintiffs should identify the particular characteristics of technical formulas that give them competitive value, which may serve to separate protectable trade secrets from publicly-available information. Trade secret misappropriation claimants should keep these lessons in mind, even at the earliest stages of a litigation.