Protecting Your Proprietary Information
By Kathleen Pohlid Founder & Managing Member, Pohlid, PLLC | December 07, 2014
The first step in protection is to identify confidential and proprietary information. This information – also referred to as trade secrets – may exist in different forms. In general, it includes any information belonging to your establishment from which an economic benefit is derived by it not being made readily available.
For a hotel establishment, trade secrets may include information obtained from guest surveys, guest contact information, vendor information, financial information and records, security and pass codes, occupancy rates and prices, guest preferences, strategies for minimizing costs, staffing information, and marketing studies and plans. A compromise of this information can be very costly to an establishment and provide significant leverage for a competitor, as well as resulting in significant litigation costs for all entities involved.
In 2009, Starwood Hotels and Resorts sued Hilton Hotel alleging that two Hilton executives, both former Starwood employees, stole over 100,000 documents containing Starwood trade secrets in order to accelerate Hilton's entry into the lifestyle luxury hotel market. Starwood alleged that the theft of its trade secrets constituted unfair competition providing Hilton a significant advantage in reducing the costs as well as a head start in implementing the market venture. In February of 2011, the Wall Street Journal reported that Hilton settled the dispute for a reported $75 million and that the hotel would be under review by a court-appointed monitor to ensure that it would not derive benefit from the information obtained. This incident serves as a reminder that establishments should be mindful that current partners or managers may be future competitors. Establishments must ensure that adequate protections are in place to address this concern.
Business partnership and employee agreements should clearly set forth the ownership interests in products and processes developed for the establishment as well as clearly defining the information which is deemed to be confidential and proprietary. Additionally, even if a product or process is not "confidential," the processes and information used in development may be confidential and if so, should be protected. In BLT Restaurant Group LLC v. Tourondel, 855 F.Supp.2d 4 (S.D. N.Y. 2012), a dispute arose involving the issue of whether a former manager violated the company's operating agreement which prohibited disclosure of confidential information when he developed restaurant menus that mimicked those of his former employer.
Lauret Tourondel, an acclaimed French chef, formerly worked for BLT and played a central role in designing the BLT restaurants, bearing the acronym for Bistrol Laurent Tourondel. After Tourondel left BLT to form his own restaurants which he named "LT," BLT filed suit claiming that he breached the operating agreement by copying recipes, appropriating fanciful names for dishes used in BLT menus and mimicking BLT menu combinations and pricing. The agreement included confidentiality/proprietary rights provisions specifying that members agree that they have "no rights in, or claims with respect to, any inventions, original works or authorship, developments, improvements, or trade secrets which were made by the [employee] prior to the date hereof and which relate to the business, products or services of the Company." Also if an employee incorporates into a product, process, device or system a prior invention owned by him, BLT will have "a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license" to use and sell that prior invention as part of its product, process, device or system. The agreement also provided that discoveries made, inventions created, ideas, concepts and techniques related to the company's business, shall remain the sole and exclusive property of the company. Under the agreement, employee members assign their rights to the company and acknowledge that all original works made solely or with others during the scope of employment and that are protect-able by copyright are "works made for hire."
Although the agreement contained a provision allowing BLT to continue use of the BLT trademark with restaurants which were pre-existing or under construction, the agreement did not specifically prohibit Tourondel, after leaving BLT, from developing menus based upon information obtained during his employment. Tourondel asserted that the complaint should be dismissed in summary judgment because the BLT menus were public and not confidential. However, the court reasoned that even though the "menus are not themselves confidential[,]" this does not establish that "Tourondel did not use confidential information" in creating the LT menus. Therefore, the court denied summary judgment finding that the agreement could be interpreted to prohibit use of BLT's confidential information such as marketing studies in designing competing menus with winning combinations of offerings, catchy names for the dishes, or optimal pricing.