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Commercial Division Rejects Employers’ Plea For Trade Secret and Trademark Protection

When employees resign, the scope of the trade secret doctrine often defines the relationship between former employers and their employees.  Trade secret misappropriation claims frequently overlap with other claims arising out of the employment relationship, such as for breach of contract, unfair competition and breach of confidentiality obligations, and also with other doctrines that protect intangible information, such as trademark and copyright law.  In S.A.S.C.O. Trading, Inc. v. Pamnani, Case No. 655441/2016, 2016 BL 375946 (N.Y. Sup. Ct. Nov. 1, 2016), Justice O. Peter Sherwood of the Commercial Division analyzed whether a clothing company’s customer lists, manufacturer and supplier lists, and clothing designs were subject to trade secret protection and in the case of the clothing designs, also copyright or trademark protection. [1]

The plaintiffs, S.A.S.C.O Trading Inc. and La Strada Fashions NY, LLC sought a temporary restraining order to prevent the defendants, who were former employees of S.A.S.C.O and La Strada Fashions, and their new employers Main Street Fashion and Resolution Clothing, LLC, from using the plaintiffs’ designs and information, including the names of clothing and manufacturer suppliers and customers. The plaintiffs alleged that their former employees misappropriated pricing information, information of buyers and suppliers, and customer purchase histories.  The plaintiffs argued that all the foregoing types of information were protected as trade secrets under New York law “due to the extensive effort it took to gather the information and the fact that only employees and consultants had access to it.” [2]   Justice Sherwood denied the temporary restraining order, concluding that the information that the plaintiffs sought to protect failed to qualify as proprietary trade secrets. 

The test for evaluating a trade secret claim, the Court explained, includes several factors: a) the extent to which the information is known outside the business and by employees and others involved in the business, b) the measures taken to safeguard the information, c) the value of the information to the business and competitors, d) the money and effort expended to develop the information, and e) the ease of duplicating such information.[3] In S.A.S.C.O., the information at issue regarding suppliers was available on a subscription database.  Moreover, the information regarding which retail stores purchased the plaintiffs’ clothing was available on various websites.  The Court thus denied trade secret protection for these two types of information because they were “matters of public record, in the public domain,” were ascertainable from sources other than the plaintiffs’ business, and the plaintiffs had not taken precautionary measures to protect this information.[4]

As to the plaintiffs’ clothing designs, Justice Sherwood stated that the designs were not confidential or secret because the designs were created in order to be marketed. [5]  Moreover, the Court stated that the plaintiffs could not show that their logo or designs were protected under copyright or trademark law.  Although the Commercial Division ultimately denied the TRO, the Court preliminarily enjoined the defendants from manufacturing or displaying for sale any of the plaintiffs’ trademarked logos or from altering or destroying electronic records relevant to the case.

Justice Sherwood’s ruling in S.A.S.C.O. helps shed greater light on how to draw the line between protected and unprotected information in trade secret disputes, particularly in the fashion industry.

END NOTES

 

[1] S.A.S.C.O. Trading, Inc. v. Pamnani, Case No. 655441/2016, 2016 BL 375946 (N.Y. Sup. Ct. Nov. 1, 2016).

[2] Id. at *3.

[3] Id. at *4.

[4] Id.

[5] Id.