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Archive for October 6th, 2010

Bradshaw v. Alpha Packaging, Inc., No. CA09-1141.

Facts

Alpha Packaging, Inc. (“Alpha Packaging”), manufactures and sells packing and shipping supplies. In January 2006, Alpha Packaging formed Edge Marketing division (“Edge Marketing”), which was devoted to point-of-purchase (“POP”) design and sales. Luke Bradshaw was hired as division president, and Bill Davis, Andrew Powviriya, and Ed Wonnacott were hired as at-will employees. Each of the four employees signed a “Confidentiality and Proprietary Information Agreement” that precluded the employees from using or disclosing the company’s trade secrets, confidential information, or other proprietary data to benefit themselves or others. The agreement’s definition of “trade secrets” included customer lists and pricing data.

Edge Marketing generated appreciable revenue in 2006 and was forecasted to do well in 2007. In April or May 2007, however, the four employees began planning to leave Edge Marketing and form their own POP marketing and design firm, A.W. Bravis Agency (“Bravis”). The employees submitted their resignation letters in May. Once the employees had left, Alpha Packaging learned that (1) there were no invoices for ongoing jobs in May, even though there had been considerable billing for the previous months; (2) the employees had enlisted an Edge Marketing client, Novus Products, LLC (“Novus Products”), as the financial backer for their new firm; (3) the employees obtained new computers and cell phones for their new firm, courtesy of Novus Products, while on Edge Marketing time; (4) one of the employees forwarded all Edge Marketing cell phones to the new firm’s cell phones; and (5) the employees had deleted all information from their Edge Marketing computers including customer artwork, invoices, and price quotes. Alpha Packaging attempted to bring in new personnel to continue the business at Edge Marketing. However, the plan was not feasible, in part, because of the loss of computer data.

Later, Alpha Packaging retrieved from one of the hard drives a business plan that Bradshaw had prepared for the new venture in early May 2007. The plan included an eighteen-month history of Edge Marketing sales, as well as client names, projects, project dates, sales invoice amounts, and net profits for each project. By June 2007, Bravis began invoicing clients. The company’s projects included some that had begun at Edge Marketing in April or May 2007.

On August 1, 2007, Alpha Packaging sued Bravis, Novus Products, and the four employees for misappropriation of trade secrets, conversion, breach of the confidentiality agreement, violation of the Arkansas Deceptive Trade Practices Act, fraud, and unjust enrichment. At trial, the jury awarded Alpha Packaging $185,000 in compensatory damages and $7,500 in punitive damages.

Appeal

Bravis, Novus Products, and the four employees argued on appeal that customer lists and account information were not trade secrets. The Arkansas Court of Appeals listed the six factors for determining whether information qualifies as a trade secret: (1) the extent the information is known outside the business; (2) the extent the information is known by employees involved in the business; (3) the extent of measures taken to guard the secrecy of the information; (4) the value of the information to the business and its competitors; (5) the amount of effort or money expended in developing the information; and (6) the ease or difficulty with which the information could properly be obtained by others. The court noted that the customer lists and account information at issue qualified as trade secrets and stated the following:

[T]he economic advantage to Bravis acquiring Edge’s pricing and profit data is apparent. The new company was able to get up to speed in a matter of weeks on the shoulders of that knowledge, virtually closing down a competitor in the process.

The court held that the jury has substantial evidence on which to find Bravis, Novus Products, and the four employees liable for theft of trade secrets and, consequently, affirmed the decision.

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