IP Law Daily, TRADE SECRETS—M.D. Ala.: Outdoor living products company obtains TRO against former employee, competitor, (Jun 7, 2022)

By Ursula Furi-Perry, J.D.

Plaintiff demonstrated a likelihood of success on the merits of its misappropriation claims and a likelihood of irreparable injury in the absence of a restraining order.

A manufacturer of outdoor living products, including proprietary column lines, sued a direct competitor in federal court, alleging misappropriation of trade secrets stemming from information shared by a former employee. A federal district court in Alabama determined that the company had a substantial likelihood of success on the merits of its misappropriation of trade secrets claims, and that irreparable injury would occur if a temporary restraining order were not granted (HB&G Building Products, Inc. v. Digger Specialties Inc., June 3, 2022, Marks, E.).

Background. A maker of outdoor living products, HB&G Building Products (“HB&G), sued a competitor, Digger Specialties (“Digger”) after its former employee left HB&G’s employ and began working for Digger. HB&G is particularly well-known for its porch columns, and it expends substantial time and resources researching and developing formulas and materials for its columns. The employee, who had previously worked at HB&G as the head of new product development, had signed an employee confidentiality agreement. He was closely involved in the development of HB&G’s proprietary column lines during his employment and had access to HB&G’s most sensitive trade secrets and confidential information on materials, sourcing, operation processes, costs, pricing, strategies, and proprietary column formulas.

The employee began talking with Digger, a direct competitor, regarding a new position at that company. He sent to Digger HB&G’s list pricing guide and multiplier, among many other files containing data about HB&G’s prices, raw materials, and profitability. Through several months, he continued to send confidential information about HB&G to Digger, both before and after he started his new position. HB&G sent a cease-and-desist letter to both the employee and Digger, which went unanswered.

HB&G filed suit in the U.S. District Court for the Middle District of Alabama for misappropriation of trade secrets in violation of the Defend Trade Secrets Act and its Alabama counterpart, breach of contract and fiduciary duty, conversion, and interference with contractual relations. The company alleged that the defendants worked together to unlawfully obtain HB&G’s trade secrets and confidential information to acquire HB&G’s market share and requested the court to issue a temporary restraining order.

The court evaluated the temporary restraining order request by reviewing whether HB&G could prove: (1) a substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury if the temporary restraining order is not issued, (3) that the threatened injury if the temporary restraining order is denied outweighs any harm that will result if the injunction is granted, and (4) that the grant of a temporary restraining order will not disserve the public interest.

Likelihood of success on the merits. The court held that HB&G was likely to prevail on its claims, as the documents allegedly forwarded by the former employee constituted trade secrets. The company took reasonable steps to protect its proprietary information, including requiring employees to sign confidentiality agreements; instructing all employees about the importance of keeping confidential information secret in its employee handbook; restricting information to employees with a “business need to know”; and password-protecting its electronic systems.

The court also found that HB&G established that the information likely could not be readily ascertained or derived from publicly available information and had significant economic value. The federal court determined that HB&G had a substantial likelihood of success on the merits of its misappropriation of trade secrets claims, pretermitting any discussion of the substantial likelihood of success on its remaining claims.

Irreparable injury. The court agreed with HB&G that it faced a likelihood of irreparable injury absent a temporary restraining order, as damages could not adequately compensate for the loss of a trade secret. If the defendants were not enjoined from using their improperly obtained confidential information, HB&G would stand to lose competitive market advantage and its customer base.

The balance of the harms also weighed in HB&G’s favor, the court held, as the defendants could immediately use the proprietary information if the temporary restraining order were not granted. Lastly, the court found that the public interest was served by protecting trade secrets and enforcing confidentiality agreements.

Conclusion. The court granted the TRO request, enjoining the defendants from accessing any information that includes HB&G trade secrets and ordering them to return improperly obtained information.

The Case is No 2:22-cv-00329-ECM-KFP.

Attorneys: Heidi E. Siegmund (McGuireWoods LLP) for HB&G Building Products, Inc. George L. Beck, Jr. (Morris Haynes LLP) for Digger Specialties Inc. James Price Pewitt (James P. Pewitt, LLC) for Brittain Russell.

Companies: HB&G Building Products, Inc.; Digger Specialties Inc.

Cases: TradeSecrets AlabamaNews