Using NDAs or Confidentiality Agreements to Head Off – or Support – Misappropriation Claims Thumbnail

Using NDAs or Confidentiality Agreements to Head Off – or Support – Misappropriation Claims

A recent Ohio court of appeals decision applying Ohio’s trade secrets law found that even trade secrets obtained with permission can be deemed to be misappropriated when used improperly, serving as a good reminder to adequately protect your business’ confidential information when sharing it and to tread carefully when using the information of others. A good non-disclosure or confidentiality agreement can always help to clearly define your rights and responsibilities.
In Rhododendron Holdings, LLC v. Harris, 2021-Ohio-147 (2nd App. Dist. 2021) (linked here), a medical device company, NovoSource, that was facing financial difficulties voluntarily provided confidential product design history files to one of its former directors, Harris. Unfortunately, it did so without an explicit agreement as to how the information could be used.  Harris then used the files to create and seek FDA clearance for products similar to NovoSource’s, but for a new company he had formed. 
NovoSource sued Harris and others for misappropriation of trade secrets under the Ohio Uniform Trade Secrets Act, but the common pleas court entered summary judgment in favor of Harris, finding that the voluntary disclosure of the files to Harris destroyed any trade secret protections. The court of appeals reversed the decision and permitted the misappropriation claim to proceed.
The appellate court determined that the files could retain their trade secret protections despite being voluntarily disclosed to a third party because NovoSource allegedly had understood (albeit, not via a written agreement) that Harris would use them in a very limited manner – and not to duplicate NovoSource’s products. It focused on the language of Ohio’s statute, which “generally defines misappropriation of a trade secret to include improper acquisition, disclosure or use of a trade secret of another.” In other words, even if properly acquired or voluntarily disclosed, a trade secret can still be deemed to be misappropriated when improperly used.
The decision is a common-sense application of Ohio’s trade secret laws, but provides valuable practical reminders when dealing with trade secrets or other confidential information. First, when disclosing confidential information to others, make sure to get it in writing. You should insist on a confidentiality or non-disclosure agreement that explicitly and adequately spells out – and limits – how the other party can use the information.  Second, when using confidential information of others, ensure that you are doing so consistently with any restrictions the other party imposed on your use of the information.

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