Trade secret suits remind businesses to consistently safeguard confidential information

In the realm of trade secret law, an ounce of protection is worth a pound of cure. Remove that protection, and a company may suffer a severe headache in the form of fact-intensive litigation. Dueling trade secret lawsuits brought by Quibi Holdings, LLC and a parent company to the company known as Eko serve as a stark reminder of this adage.

This month, interactive-video companies Quibi and Eko, fired off mirror-image patent-infringement and trade secret-misappropriation lawsuits, respectively. The companies seek to establish competing rights to Quibi's Turnstyle technology, which allows viewers to switch between two video perspectives of a scene in real time by rotating a mobile phone between landscape and portrait modes.

Eko accuses two Quibi employees of stealing Eko's trade secrets while working at former employer Snap, Inc., maker of the Snapchat social-media platform. Eko also alleges that its CEO and co-founder, Yoni Bloch, disclosed its technology to Quibi founder and chairman of the board, Jeffrey Katzenberg during one or more meetings, and that Quibi then used that technology to develop Turnstyle. Eko first learned of the alleged misconduct, it says, shortly thereafter, when Quibi presented its platform at the January 2020 Consumer Electronics Show in Las Vegas. Eko also claims that Quibi improperly patented Eko's technology in early February, and that Quibi infringes Eko's own patent rights on the technology.

These competitor lawsuits come as Quibi prepares to launch its subscription-based app to consumers on April 6, and after it has raised $1.75 billion of pre-launch financing from backers such as Alibaba Group, The Walt Disney Company, NBCUniversal, Sony Pictures Entertainment, Viacom, and WarnerMedia.

Quibi and Eko's dispute follows a procession of recent lawsuits where one company alleges that its former employees stole trade secret technology and brought it to a competing employer who turned it into a product. Recently settled litigation between Uber and Google's Waymo, involving self-driving-vehicle technology, also followed this pattern. That suit cost Uber about $245 million in shares, as well as a public apology letter by Uber's CEO to Google's parent company, Alphabet. In view of this litigation trend and the colossal amounts of money it can cost companies, this article provides some tips and best practices for companies managing and protecting their trade secrets.

The facts of Quibi and Eko's dispute should remind companies who could appear on either side of a trade secret dispute to document and track their trade secrets. Companies can protect trade secret technology in several ways, depending on the business's specific needs and resources. Storing trade secret materials securely and sharing them on a need-to-know basis only (both inside and outside the company) are common and reasonable steps toward maintaining the secrecy of sensitive and confidential information. Ensuring that all employees and third parties are reasonably apprised of their confidentiality obligations is also an important step. This is typically done through the use of written confidentiality agreements or non-disclosure agreements. Although it is possible to rely on context and circumstances generally as giving rise to a duty to keep a trade secret, consistently requiring signed, written confidentiality agreements or NDAs, is an optimal practice before sharing confidential and sensitive information.

In the litigation between Quibi and Eko, it appears that the companies involved had several face-to-face meetings, and sometimes -- but not always -- required participants to sign an NDA before sharing confidential information. The former Snap employees are alleged to have signed NDAs while working at Snap, but Bloch, Eko's CEO, apparently did not require Katzenberg, Quibi's chairman, to sign an NDA before disclosing Eko's confidential technology. Quibi may attempt to use this inconsistency to its advantage by contending Eko failed to meet an element of its trade secret claim. Specifically, by failing to take reasonable efforts to safeguard its alleged trade secrets from public disclosure.

For similar reasons, companies should, in addition to requiring signed NDAs before disclosure, maintain detailed written documentation of what specific trade secrets are subject to NDA, to whom they were disclosed, and the safeguards taken in advance of disclosure. NDAs can be strengthened by providing a general list of the trade secrets by category (for example, "secrets involving video display technology," in the case of Quibi and Eko) while making it clear that this list is not all inclusive.

Companies using these practices and deploying these policies must then take reasonable efforts to ensure they are consistently followed. This can be done by reminding employees of their confidentiality obligations, especially before a particular upcoming disclosure event (such as a pitch, responding to a request for information, or an initial meeting with a potential vendor, customer, or partner). Conversely, companies asked to sign a confidentiality agreement should consider whether the agreement serves a useful business purpose or is too broad. The act of signing an NDA can suggest that trade secrets were disclosed, even if none were. Resist signing NDAs until it is clear that trade secrets will be disclosed, what those secrets relate to, and how knowing them might reasonably benefit the business. For example, if two potential rivals agree to exchange information pursuant to an NDA, and then each goes on to finalize its competitive technologies, the preceding NDA and related exchange could give rise to claims of trade secret misappropriation that otherwise could have been avoided.

Beyond NDAs, there are many other best practices companies can adopt to document trade secrets. These include (1) requiring employees to agree in writing at the outset of employment that they will not disclose confidential information obtained through prior employment (as Eko accuses the former Snap employees of doing); (2) requiring employees to sign an employee handbook and agreements that specifically define what constitutes company-confidential information, how employees must safeguard that information (for example, by not downloading it to personal devices), and how such information may or may not be used (for example, only for the company's benefit); (3) carefully documenting each employee's individual contribution to any innovations (for example, by requiring employees to keep lab notebooks); and (4) if accused of trade secret misappropriation by a competitor, promptly requesting that the competitor identify in detail what trade secrets were allegedly misappropriated, when, how, and by whom, and by promptly investigating the basis for such accusations.

These and other recommended best practices may seem obvious in hindsight, but require deliberation, thoughtfulness, and execution at the outset. An ounce of prevention is easily worth a pound of cure in the trade secret context. Companies should consult trade secret and patent counsel for additional best practices specific to their own businesses and circumstances. 

This article provides general information of interest to readers, and is not to be taken as legal advice provided by the authors or their firm.