Trade secrets have an intrinsic value based on the very fact of their secrecy. Businesses typically take many steps to protect their trade secrets, such as instituting special procedures for handling the information and requiring non- disclosure agreements for their employees. A thorny question may arise when considering the disclosure of trade secrets to clients or customers in the course of doing business: will sharing this information lead to a waiver of its trade secret status? A recent Ohio Supreme Court case determined that for commercial leases, trade secrets retain their status even when shared with customers without a confidentiality agreement.
In The State Ex Rel. Luken v. Corporation for Findlay Market of Cincinnati, Slip Opinion No. 2013-Ohio-1532, the Supreme Court relied heavily on expert testimony in finding that the disclosure of rental terms and rates to tenants did not waive trade secret status. The Luken case involved a public records request for leases for the Findlay Market, a historic public market in Cincinnati. The Market is owned by the city and managed by a nonprofit corporation (“corporation”). Pursuant to the Ohio Public Records Act, Kevin Luken requested the leases for all vendors at the Market from the city. When the city provided the lease information, the terms and rents were redacted as a trade secret exempt from the Ohio Public Records Act. Mr. Luken filed suit to compel production of this information; his request was denied at the trial court and appellate level. The matter was then appealed to the Ohio Supreme Court, which ruled against Mr. Luken.
In doing so, the Court found that in order for the redacted information to be exempt, it must meet two criteria: (1) the information must derive independent economic value from not being generally known to those who may obtain a benefit from using it; and (2) the entity seeking to withhold this information must have made reasonable efforts to maintain its secrecy. In the Luken case, the first prong was satisfied because the information had independent economic value. Expert witness testimony established that lease terms and rental rates are closely guarded by property managers. The second prong was a closer call: the corporation did not require tenants to keep this information secret with confidentiality clauses, but it did keep the only unredacted copies of the leases in a locked filing cabinet. The corporation’s expert witness testified that these precautions are standard among commercial property managers. The Court determined that the measures taken by the corporation were adequate based on industry standards. The redacted information was a trade secret exempt from disclosure under the Act.
The upshot of this decision is that businesses do not need to obtain confidentiality or non-disclosure agreements from their customers for information such as pricing. Sharing this information with customers will not necessarily surrender that information’s status as a trade secret. However, this result may depend on industry standards; in Luken, expert testimony established that the corporation’s steps were reasonable for commercial property managers. As a practical matter, if a business takes reasonable steps to keep its trade secrets secure, the fact that it has shared certain information with customers should not defeat trade secret status.
If you have any questions concerning The State Ex Rel. Luken v. Corporation for Findlay Market of Cincinnati, or would like further information on the protection of trade secrets, please contact a member of our Employment Practices Group or our Corporate & General Business Group.