Trade secrets are valuable business assets protected under both federal and state laws. Trade secrets are any sort of information — like a formula, process, business method, spreadsheet, data compilation or list — that has economic value from not being generally known and that is subject to reasonable efforts to keep the information secret. In general, courts do not require a company to expend great and expansive efforts to keep a trade secret confidential. “Reasonable” is the key word.

That being said, if a court finds that a company has made no efforts to maintain the secrecy of information, then the court will reject misappropriation of trade secret claims. For example, if a company broadcasts trade secrets during teleconferences without any sort of cybersecurity, or even taking attendance, using an online app like Zoom, any information shared will lose its status as a trade secret. This is the legal result of a case recently decided in Delaware. See Smash Franchise Partners, LLC v. Smash My Trash, LLC, Case No. 2020-0302-JTL (Del. Chan. August 13, 2020). The case involved competing companies that provide trash compacting services. The companies bring compacting equipment and “smash down” a client’s trash in its own dumpsters. This allows the client to put more trash into each dumpster load and, thereby, to save fees paid to the waste management company that provides the dumpster and hauls away the waste.

The plaintiff in the case, Smash Franchise Partners (“SFP”), marketed its product and service idea for potential franchisees. In its marketing efforts, SFP engaged in numerous Zoom teleconferences with its potential franchisees. During the Zoom conferences, SFP shared extensive information about how SFP operated its business, its method for compacting trash, its main customers and much more. Eventually, one of the potential franchisees decided to set up a competing business, Smash My Trash, LLC, and this led to litigation between the two companies.

One legal claim asserted by the plaintiff was a claim for trade secret misappropriation. The defendant, Smash My Trash, defended by arguing that SFP failed to make “reasonable efforts” to maintain the secrecy of the information. In particular, Smash My Trash argued that the Zoom teleconference calls were basically open to the public and, consequently, any information discussed during those teleconferences was “public” information. The defendant noted the following facts:

• SFP freely gave out the Zoom call-in information and “meeting code” to anyone who expressed interest in a franchise and completed an introductory call
• SFP used the same Zoom “meeting code” for all of the teleconferences
• Anyone possessing the code could join the teleconferences
• Anyone with the code could easily share it with third parties
• SFP did not police or monitor whether the code was shared with third parties
• SFP did not “take attendance” or otherwise monitor who was participating in the teleconference calls
• Participants were supposed to sign non-disclosure agreements, but SPF did not verify that participants had, in fact, signed the agreements
• SFP did not require the use of a distinct password for the teleconferences
• SFP did not use any sort of “waiting room” feature to screen participants
• Upon review of the records, at least 20 unidentified participants participated in various conference calls

Based on these facts, the court agreed with the defendant. The court held that, under these facts, any and all information exchanged during the Zoom teleconferences could not be deemed “trade secrets” because SFP did not take reasonable steps to protect the secrecy of the information.

Legal lesson: Be very careful with the use of teleconferencing to share information that might be legally protectable trade secrets. As a practical matter, it may be best to avoid sharing confidential information via teleconferencing. But if information must be shared, various and multiple security protocols must be used, participants must be screened and it must be verified that non-disclosure agreements are signed.

If you have questions about protecting your trade secrets or if you need to initiate trade secret litigation, contact the trade secret lawyers at Revision Legal at 231-714-0100.

The Reasonable Measures Requirement Under Federal and State Law

Both the federal Defend Trade Secrets Act, 18 U.S.C. § 1836 et seq., and state versions of the Uniform Trade Secrets Act require that the owner of a trade secret take reasonable measures to maintain secrecy. Reasonableness is evaluated in light of all circumstances—the nature of the information, the cost of protective measures, industry norms, and the practical constraints of the owner’s business. Courts do not expect a hermetic seal, but they do require evidence of a genuine effort to preserve confidentiality.

The Smash Franchise Partners decision is instructive because it applied this standard to the specific facts of teleconference-based business development. The court did not hold that Zoom calls are inherently incompatible with trade secret protection. Rather, it held that conducting Zoom calls without any access controls, attendee verification, recording restrictions, or confidentiality instructions forfeited whatever trade secret status the shared information might otherwise have had.

Teleconference Security: What Courts Look For

Courts examining trade secret claims arising from virtual meetings look at several concrete factors: whether the host required attendees to register or provide identifying information before receiving call credentials; whether the meeting was password-protected or restricted to a known list of invitees; whether participants were required to sign a nondisclosure agreement before the call; whether the host distributed an agenda identifying the session as containing proprietary information; and whether recordings were stored securely with restricted access.

In Smash Franchise Partners, the record showed that call-in credentials were freely distributed to anyone who expressed general interest in a franchise, no NDA was required, attendance was not verified, and no confidentiality reminders were given. The court treated the combination of these omissions as dispositive. Any one of them, corrected, might not have saved the claim; taken together, however, their absence demonstrated a systemic indifference to secrecy.

Nondisclosure Agreements: Scope and Enforcement

A well-drafted NDA is the single most reliable tool for establishing that shared information was treated as confidential. For franchise development, vendor negotiations, investor presentations, and similar contexts where sensitive business information is shared with persons outside the organization, an NDA should be obtained before any disclosure. The NDA should specifically identify the categories of information covered, state the duration of the confidentiality obligation, and include a remedies clause authorizing injunctive relief in the event of a breach.

Courts have also recognized that routine oral reminders at the beginning of a meeting, if documented, can support a reasonable-measures finding. A practice of opening every external call by stating that the meeting contains proprietary business information shared in confidence is a low-cost measure that, if followed consistently, creates a useful record.

Remote Work and Teleconference Governance Best Practices

• Use password-protected or waiting-room-enabled virtual meeting platforms for any session where proprietary information will be discussed.
• Require pre-meeting NDAs for all external participants, and retain signed copies with time-stamped metadata.
• Designate a meeting host responsible for verifying attendee identities before the call begins.
• Disable screen-sharing, recording, and chat features for external participants unless specifically needed.
• Label all presentation materials shared during the call as Confidential—Not for Distribution.
• Document in writing—through email summary or meeting minutes—that the session contained trade secret information and the names of all participants.

If your business shares proprietary information in external meetings and you want to ensure those measures are sufficient to protect trade secret status—or if a former business partner has misused information shared in a virtual session—contact the trade secret lawyers at Revision Legal at 231-714-0100.