A Short Primer on Tennessee’s Trade Secrets Law

September 26, 2012 by

In recent postings, we have discussed cases involving claims that a former employee wrongfully used the employer’s confidential information and trade secrets.  In TNA Entertainment, LLC v. Wittenstein and World Wrestling Entertainment, Inc., Davidson County Chancery Court, Docket No. 12-746-III, the employer alleged that its former employee used confidential information concerning wrestling talent to gain an unfair competitive advantage.  In Veit v. Event Logistics, Inc., Davidson County Chancery Court Docket No. 12-945-III, the former employee sued her former employer to determine whether her skills as an events coordinator and the identity of customers of event planning services were trade secrets under a separation agreement.

These cases are based on the principle that an employee has a general duty to not disclose confidential information or trade secrets belonging to her former employer.  In many cases, this general duty is memorialized by a written agreement which may include a non-compete agreement, though a contract is not required to protect trade secrets.  If the former employee violates her general duty and contractual obligations, the former employer may seek damages against her.

In Tennessee, the protection of trade secrets has been codified in the Uniform Trade Secrets Act (“UTSA”) found at Tenn. Code Ann. §§ 47-25-1701 et seq.  Under the UTSA, an employer may sue a former employee for the misappropriation and disclosure of trade secrets.

A “trade secret” is information in any form which gives a business a competitive advantage over other businesses which do not have that information.  Trade secrets include technical and nontechnical information, financial data, patterns, compilations, programs, devices, methods, techniques, processes, or plans that have economic value due to the fact that they are secret.  Confidential information is often treated as trade secrets.  One of the best known examples of a trade secret is the formula for Coke.  In TNA Entertainment, LLC, the trade secret at issue was contractual information related to wrestling talent.  In Veit, the trade secrets at issue were event coordinating skills and customer information.

An employee violates the UTSA when he discloses his employer’s trade secrets which he acquired by improper means (theft, bribery, or misrepresentation) or in violation of his duty to maintain its secrecy.  A new employer may also violate the UTSA if it uses the former employer’s trade secret which was improperly acquired or disclosed by the former employee.  Such an allegation was made in TNA Entertainment, LLC.

The UTSA gives an employer broad remedies if its former employee and the new employer acquires and uses its trade secrets.  These include injunctive relief, a court order requiring the return of and prohibiting the use of the former employer’s trade secrets.  In some cases, the court may award the former employer its actual damages and damages for unjust enrichment received by the defendants.  Punitive damages up to twice the award for actual damages and unjust enrichment along with attorney fees may be awarded in cases of willful and malicious misappropriation of trade secrets.

Tennessee law recognizes the need for fair competition in the marketplace.  However, it also recognizes and prohibits unfair competition arising out of the wrongful acquisition and use of trade secrets.  If you would like additional information on trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

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The Court’s Broad Power To Enjoin Trade Secret Violations Can Be Costly

July 18, 2012 by

On June 27, 2012, we reported that TNA Entertainment, LLC (“TNA”), a local professional wrestling promotion company, sued its former employee, Brian Wittenstein, and a direct competitor, World Wrestling Entertainment, Inc. (“WWE”), for unlawfully using TNA’s trade secrets to unfairly compete against TNA.  (TNA Entertainment, LLC v. Wittenstein and World Wrestling Entertainment, Inc., Davidson County Chancery Court, Docket No. 12-746-III.)  The alleged trade secrets included information about TNA’s contracts with wrestling talent.  TNA alleged that WWE used TNA’s trade secrets to solicit wrestling talent already under contract with TNA.

In addition to the damages it claims to have suffered, TNA also requested that the Court enter a temporary restraining order (“TRO”) to prohibit WWE and Wittenstein from continuing to use TNA’s trade secrets.  Under Tennessee law, a Court may restrain an offending party from engaging in certain conduct when the injured party shows it will suffer immediate and irreparable harm.  TROs generally last for a short period of time, but may be extended if there is good cause to do so.  The Court may also issue a temporary injunction which can last during the life of the lawsuit.

On May 24, 2012, the Court in TNA Entertainment issued a comprehensive, far reaching TRO which could have had adverse effects on WWE’s business.  The restraining order prohibited WWE and Wittenstein from doing the following:

  1. Breaching or attempting to breach Wittenstein’s Separation Agreement with TNA, including disclosing, transmitting, or otherwise using TNA’s confidential, trade secret, and proprietary information;
  2. Retaining and failing to return TNA’s confidential, trade secret, and proprietary information or property in any form;
  3. Destroying, deleting, erasing, modifying, or otherwise failing to preserve TNA’s confidential, trade secret, and proprietary information;
  4. Soliciting or contracting wrestling talent identified in TNA’s confidential information or taken by Wittenstein; and
  5. Interfering with TNA’s contracts and prospective business relationships which WWE learned through TNA’s confidential, trade secret, and proprietary information.

In addition, the Court specifically required WWE and Wittenstein to not destroy or alter and to provide access information to any computers or similar devices which WWE and Wittenstein used in storing, transmitting, or receiving TNA’s confidential information and trade secrets.  The purpose of this requirement is to allow TNA to inspect WWE and Wittenstein’s computers for use of TNA’s confidential information and trade secrets.

As a condition to entering the Restraining Order, TNA was required to post a $30,000 bond.

The May 24, 2012 TRO was later dissolved as to WWE.  After a hearing, the Court determined that WWE posed no threat of immediate or irreparable harm to TNA and had already returned TNA’s property.  WWE also committed to not solicit TNA’s wrestling talent and to preserve its computers and other devices for inspection at a later date.

While the TRO seems to have had little effect on WWE, because WWE had already taken corrective action with respect to TNA’s confidential information and trade secrets, in other cases such a comprehensive TRO and/or temporary injunction could prove to be costly.  A new employer could suffer loss of business, damages for interfering with a competitor’s contracts, significant costs for litigation, and loss of reputation.  As we said earlier, employers should always be aware of and protect themselves against potential liability when hiring an employee who may possess a former employer’s confidential trade secrets. If you have any questions for your business on trade secrets or liabilities when hiring an employee, don’t hesitate to contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

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