Opinion ID: 1747999
Heading Depth: 1
Heading Rank: 2

Heading: Trade-Secret Protection.

Text: Having concluded that a postemployment confidentiality agreement is not an absolute requirement in all instances for trade-secret protection, we now consider whether the trial court was right to rule in favor of ConAgra on its motion for judgment notwithstanding the verdict, albeit for the wrong reason. See Norman v. Norman, 347 Ark. 682, 66 S.W.3d 635 (2002); Ouachita Trek & Dev. Co. v. Rowe, 341 Ark. 456, 17 S.W.3d 491 (2000); Malone v. Malone, 338 Ark. 20, 991 S.W.2d 546 (1999). In this regard, we examine what steps Tyson took both during Purtle's employment and postemployment to identify the nutrient profile as a trade secret and to protect it. Tyson urges that it did take pains to protect its confidential information and points to its Corporate Code of Conduct and Compliance Policy (Corporate Code) as evidence of that fact. As we noted in Tyson I , Tyson adopted the Corporate Code in the mid-to-late 1990s as an outgrowth of the special prosecutor's investigation into the affairs of Michael Espy and Tyson. The Corporate Code includes various legal and ethical principles, and its purpose, according to its foreword written by Tyson's then chairman and CEO, is to help us at Tyson Foods make ethical business decisions. The Corporate Code deals with Conflicts of Interest, Confidential Information, Corporate Records, Relationships with Government Personnel, Political Contributions, International Transactions, Antitrust Compliance, Environmental Compliance, and Reporting of Violations. Employees were asked to read the code and then sign a statement to the effect that they had done so. They further attend a class every year in which the Code is discussed. No contractual agreement was required between the company and its employees mandating that the employees would keep certain information confidential. The pertinent provision of the Corporate Code for our purposes is the section entitled Confidential Information: 1. Proprietary Information All Tyson Foods' employees are required to safeguard the Company's confidential business and technical information and use such information only for Company purposes. Failure to observe this duty of confidentiality may additionally result in a conflict of interest or a violation of securities, antitrust, or employment laws. Confidential information, whether Tyson Foods' information or the information of others, may further be subject to agreements Tyson Foods has with other companies, trade secret statutes, or other laws for the protection of such information. In addition to protecting its own trade secrets, it is the policy of Tyson Foods to respect the trade secrets of others. Tyson Foods will not tolerate the violation of confidentiality or secrecy agreements or the improper acquisition of protected information. If a Tyson Foods' employee is furnished with information or becomes aware of information which may have been misappropriated from another party, the employee must immediately contact the Legal Department. It is clear from a reading of this language that Tyson did not necessarily equate confidential information to a trade secret. More was required under our trade-secret statutes. We turn then to an examination of our trade-secret law. Section 4-75-601(4) of Arkansas's Unfair Practices Code defines a trade secret as: (4) Trade secret means information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (A) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Ark.Code Ann. § 4-75-601(4) (Repl.2001). In addition to the statute, this court has endorsed a six-factor analysis in determining whether information qualifies as a trade secret: (1) the extent to which the information is known outside the business; (2) the extent to which the information is known by employees and others involved in the business; (3) the extent of measures taken by the company to guard the secrecy of the information; (4) the value of the information to the company and to its competitors; (5) the amount of effort or money expended by the appellee in developing the information; and (6) the ease or difficulty with which the information could be properly acquired or duplicated by others. See Tyson I . See also Weigh Sys. S., Inc. v. Mark's Scales & Equip., Inc., 347 Ark. 868, 68 S.W.3d 299 (2002); Wal-Mart Stores, Inc. v. P.O. Market, Inc., 347 Ark. 651, 66 S.W.3d 620 (2002); Saforo & Assocs., Inc. v. Porocel Corp., 337 Ark. 553, 991 S.W.2d 117 (1999); Restatement of Torts § 757, cmt. b. As to the third factor, which is the extent of measures taken by the company to guard the secrecy of the information, this court held in Tyson I that the failure of a business to protect against the disclosure of information it considers to be secret following employment is critical to our analysis and ultimate decision regarding whether the information is in fact a trade secret. Tyson I, 342 Ark. at 680, 30 S.W.3d at 731. Here, Tyson maintains that it took reasonable efforts to guard the secrecy of its nutrient profile. We disagree. Tyson specifically argues that Purtle admitted that he considered the nutrient profile to be confidential and that he instructed others that it was. Further, Tyson claims that Purtle knew of his obligation to keep such information secret because of the Corporate Code. Tyson also asserts that the nutrient profile was an internal document and was not part of any third-party customer contract. Moreover, it contends that, according to Dr. Brister, only five people at Tyson retained a hard copy of the nutrient profile. ConAgra counters this by urging that while Purtle thought the nutrient profile was confidential, he testified that he never considered it to be a trade secret. ConAgra also points to Purtle's testimony that hundreds of Tyson managers in the field were given a hard copy of the nutrient profile, without an admonition of confidentiality, which undercuts any notion that the profile was a trade secret. We turn then to an examination of the efforts taken by Tyson to keep the nutrient profile secret, both during Purtle's employment and after he left to join ConAgra. Certainly, covenants not-to-compete and confidentiality agreements would have been active efforts on the part of Tyson to protect proprietary information it considered to be a trade secret. See Weigh Sys. S., Inc. v. Mark's Scales & Equip., Inc., supra ; Tyson I, supra . However, those steps are not the only options available to a company. Melvin F. Jager, in his treatise, Trade Secrets Law, sets out other options, in addition to publishing corporate ethical principles, which would be acceptable measures for a company to institute to protect secret information. Those measures include detailed record-keeping procedures, physical security, confidentiality agreements, vendor and supplier confidentiality agreements, use of confidential stamps and legends, computer security measures like passwords, and the use of entrance and exit interviews. See 1 Melvin F. Jager, Trade Secrets Law § 5.05[2][c] (2001). The treatise, Milgrim on Trade Secrets, details a variety of precautionary steps that have been implemented by trade-secret owners to protect secret information: use of techniques to put employees on notice of the trade-secret status of the matter on which they are working; posting of warning or cautionary signs or use of document legends; restricting visitors; maintaining internal secrecy by dividing the process into steps and separating the various departments working on the several steps; using unnamed or coded ingredients; keeping secret documents under lock; and limiting access to computer materials by use of passwords to prevent unauthorized access and keeping magnetic tapes, flow charts, symbolics and source codes under lock and key when not in use. See 1 Roger M. Milgrim, Milgrim on Trade Secrets § 1.04 (2001). The South Dakota Supreme Court has also discussed reasonable precautions for maintaining secrecy when a feed supplement was at issue: In addition, there was no substantial evidence showing Weins took reasonable efforts to maintain his product's secrecy. SDCL 37-29-1(4)(ii). Secrecy is fundamental to the existence of a trade secret. Pioneer Hi-Bred Int'l [ v. Holden Foundation Seeds, Inc. ], 35 F.3d [1226] at 1235 [ (8th Cir.1994) ]. Although the secrecy is not required to be absolute, reasonable precautions must be taken. Id. Regarding such precautions, the Appellate Court of Illinois held: [N]o evidence exists to show that plaintiff took any affirmative measures to keep its [product] secret. No evidence was presented regarding internal or external physical security; that confidentiality agreements or understanding existed among those having access to plaintiff's [product]; that plaintiff's [product] contained confidentiality stamps or [was] kept under lock and key; or that employees received entrance and exit interviews imparting the importance of confidentiality. Consequently, we conclude that plaintiff failed to produce sufficient evidence to prove that under [the relevant section] of the [Trade Secrets] Act, its [product] was the subject of reasonable efforts designed to protect its secrecy. Gillis Associated Indus. v. Cari-All, 206 Ill.App.3d 184, 151 Ill.Dec. 426, 431, 564 N.E.2d 881, 886 (1990) (applying the same subsection as SDCL 37-29-1(4)(ii)). Weins v. Sporleder, 569 N.W.2d 16, 27 (S.D.1997). Tyson failed to take any precautionary measures to protect its nutrient profile. The Corporate Code at Tyson, for example, hardly qualifies as an agreement between Tyson and Purtle not to disclose the nutrient profile. Nor were any other measures, such as those listed above, implemented. Donald Buddy Wray, the former President of Tyson, and a current member of its Board of Directors, summarized Tyson's efforts: COUNSEL: I had forgotten to ask you a question. Oh, I want to go back to the issue of Tyson's code of conduct-Corporate Code of Conduct. Do you remember the question about the Corporate Code of Conduct? WRAY: Yes, sir. COUNSEL: Did Tyson do anything else or rely upon anything else, other than the Corporate Code of Conduct, with respect to keeping the confidentiality of its proprietary information or alleged trade secrets? WRAY: I don't think Tyson would be any different than anyone else. You can have a signed document, but you have to trust your people and believe in their honesty and in their integrity. COUNSEL: Have you heard Mr. Manuel comment one way or another as to what he believes the standard in the industry is with respect to maintaining confidentiality of proprietary information and alleged trade secrets? WRAY: I think his words were that they had to depend on the honesty or the character and integrity of their people. Wray also testified that Tyson's Corporate Code did not list items like the nutrient profile it considered to be confidential in the Corporate Code. Finally, Wray admitted that there was no time for an exit interview with Purtle. Of course, an exit interview could have been used to discuss matters Tyson believed were proprietary. Dr. Roy Brister, Vice President of Tyson's Nutrition Research, testified that only five employees had a hard copy of the nutrient profile, but he admitted that many other Tyson employees had seen it on an overhead projector because the nutrient profile was used as a tool to educate the upper management of Tyson's complexes. Apparently, one reason for showing the nutrient profile was so the managers could choose between the normal or the reduced profile. Dr. Brister could not say whether those managers were told about the confidential nature of the profile. Purtle added that these meetings with Tyson managers out in the field probably involved a total of four hundred to four hundred and fifty people. He contradicted Dr. Brister's testimony and stated that most of the field managers were given a hard copy of the nutrient profile. Tyson bears down hard on the fact that Purtle admitted that he knew the nutrient profile was confidential. The fact that Purtle himself believed the nutrient profile to be confidential, however, as well as the fact that Dr. Brister testified that Purtle told him he thought the profile possessed economic value do not decide the issue for us. Purtle also testified that he did not believe the nutrient profile was a trade secret. We believe that it was incumbent on Tyson to clearly identify what information it considered to be a trade secret, as that is a legal status fixed by statute. Moreover, we draw a clear distinction between actions taken by Tyson to protect trade secrets on the one hand and understandings of individual officers like Purtle in determining whether information was confidential and had value on the other. As discussed above, the six Saforo factors contemplate that it is the efforts taken by the company to safeguard the information that is critical, not the perception of individual officers. Absent clear corporate action to protect the nutrient profile as a trade secret, a subjective belief of an individual employee that the information is confidential or even had value seems largely irrelevant in our analysis. We note once more that even the Corporate Code distinguished confidential information from a trade secret. In sum, the efforts taken by Tyson to safeguard the information comes down to (1) the Corporate Code and Tyson's directive to its employees that the Code be read, and (2) the company's faith in the integrity of its employees. Yet, hundreds of Tyson managers were educated about the nutrient profile and there was no proof that Tyson took any steps to swear them to secrecy, or warn them of the confidential nature of the profile. Relying on an ethical guide like the Corporate Code, which fails to identify what is a trade secret or to mention the nutrient profile, is simply not enough for Tyson to invoke trade-secret protection. We hold that the trial court clearly erred in finding that the nutrient profile was a Tyson trade secret and that the trial court was correct to reverse itself by granting the motion for judgment notwithstanding the verdict, albeit the court's reason for doing so was erroneous. Because we affirm the order granting the motion for judgment notwithstanding the verdict, ConAgra's cross-appeal on damages is moot. Affirmed. THORNTON, J., dissents.