The liquid flows from higher concentration to lower. Is it the same for the flow of information [trade secrets] from higher concentration companies to startups? Not necessarily! HOOKED MEDIA GROUP, INC. (hereinafter referred to as ‘Hooked”) claimed contradictory against Apple Inc.!(hereinafter referred to as “Apple”).
Hooked, a startup company, was in the business of developing recommendations apps based on usage patterns of the users. The startup was interested in selling their business while Apple showed its interest as a potential buyer. However, the startup was later informed that the tech giant is not interested in their technical information rather the interest is in buying their engineers and professionals. Pursuant to this, Apple hired the engineers and Chief Technical Officer of Hooked and the negotiations to buy the startup ended thereof.
Upset from this step, Hooked asked their ex-employees to return all the confidential information. Apple replied on behalf of his new employees that they have no desire to use the confidential information and it will be returned. Nevertheless, Hooked sued the former Chief Technical Officer and Apple for participating in misappropriation of trade secrets, unfair competition, and other wrongs. Apple was allowed a plea of summary judgment.
Appealing to the judgment, Hooked claimed that Apple has violated trade secrets by misappropriation under the United States Uniform Trade Secrets Act (UTSA; Civil Code, § 3426 et seq.). To prove misappropriation under the UTSA, a plaintiff must establish that the defendant improperly acquired or used trade secret information. It is also an obligation on a plaintiff to show that reasonable steps were taken to maintain the confidentiality of the trade secret.
Hooked alleged that Apple has misappropriated the trade secrets using the technical information, such as algorithms and app recommendation strategies and information about the makeup and skills of Hooked’s core engineering team.
India does not have a codified law on the Trade Secrets.
Trade secrets protection is recognised by Indian courts under following heads, but not limited to contract law, copyright law, common law on confidentiality, Information technology act.
The interesting point of acquiring the trade secret was discussed when Hooked claimed that one of the recommendation apps released by Apple is based on the knowledge acquired by its ex-employers during their tenure with Hooked. The experts also confirmed that the source code of Apple’s app is similar to Hooked’s apps. However, the trade secret law does not find the use of knowledge by the employee – gained with the former employer – for the new employer as misappropriation.
The Court said, “Allowing an action for trade secret misappropriation against a former employee for using his or her own knowledge to benefit a new employer is impermissible because it would be equivalent to retroactively imposing on the employee a covenant not to compete.“
Another allegation that Apple has misappropriated the makeup and skills of its engineering team was trashed by the Court as Hooked itself disclosed most of the information during negotiations with Apple without any confidentiality agreement. Hence, the plaintiff did not maintain the confidentiality of the trade secret. Accordingly, the court of appeal of the State of California decided in favour of Apple on May 28, 2020.
This dispute commenced back in 2013. [To access the opinion click here]
Points to remember:
1. Any stipulations in the employment agreement preventing the employee from using his skills and knowledge gained during his term of employment are unlawful.
2. Negotiations should take place under the trust of confidentiality.
3. Reasonable steps should be taken to protect the confidentiality of trade secrets.
4. Employees using the trade secrets of the company should be under the obligation not to disclose it. But the skills and knowledge gained during the tenure do not form part of the trade secrets.