BizTech Law Blog
Let's take a look at a common scenario. An employee named Ted leaves a company, let's say "Company A," and goes to work for another company in the same industry – "Company B." While employed by Company A, Ted worked on key projects and had access to and developed many new and creative concepts. When Ted joins Company B, he implements many of the new and creative concepts he helped develop while working for Company A. Company B later commercializes some of these concepts developed and brought over by Ted. Company A then sues Company B, claiming misappropriation of trade secrets. A trade secret, of course, is any information that has economic value because it is not generally known to the public and is subject to efforts to keep the information secret. This scenario is common - the characters in the real life saga of Mattel v MGA Entertainment are not.
The above scenario is what sparked a bonfire of court battles between Mattel Inc., the makers of the popular Barbie dolls and MGA Entertainment the makers of the pouty lip, hip hop clothed Bratz dolls (the modernized Barbie). Mattel first filed suit in 2004 claiming that its former employee was employed at Mattel when he conceived the concept of the Bratz dolls. The Bratz dolls were hugely successful beginning in 2001 and were a top seller. Mattel won the first trial in 2008 claiming the employee misappropriated the trade secrets from Mattel after leaving and joining MGA, where the Bratz dolls were commercialized. The jury sided with Mattel and awarded $100 million dollars. The verdict was appealed, overturned and remanded for retrial.
On retrial the jury, instead, decided the case in favor of MGA and rejected Mattel's arguments. MGA had counter-claimed arguing that Mattel did not develop the concept but instead used individuals, with phony business cards, to spy on MGA's unreleased product concepts and marketing plans at tradeshows and thereby stole its trade secrets. The judge awarded $85 million dollars to MGA. Each side had spent, separately, well over a $100 million dollars in legal fees.
The moral of the story: trade secret misappropriation cases are expensive and employers should identify what concepts employees are working on while employed, ensure that a confidential agreement is signed by employees before working on key creative or competitively commercial projects, and conduct exit interviews before the employee leaves the company.
In most situations a company's trade secrets or confidential information are developed by its employees. Roughly ninety percent of all inventions in the United States are made by people employed by an employer in furtherance of the employer's business interests. The law generally states that work performed by an employee and all other resulting confidential information is owned by the employer. Therefore, an employee is normally not free to use trade secret information that was developed by the employee for the employer after the employment relationship has ended (e.g. you can't take it with you to the new competing business).
If you have questions about trade secrets, the protection necessary to safeguard them or how to favorably retrieve information that has been misappropriated by a former employee, please feel free to call me at (517) 371-8103 or shoot me an email using the form below.
