Thursday, October 15, 2009, 10/15/2009 10:53:00 AM

North Carolina Business Court Says Customer Pricing Information is NOT a Trade Secret Per Se

By Todd

The authors of this blog practice law in North Carolina. In North Carolina we have a specialized "business court" - where cases involving complex issues of corporate and commercial law are assigned/transferred by the Chief Justice of the North Carolina Supreme Court. This business court hears some of our state's more interesting business law disputes - and trade secrets cases are routinely assigned to this court for its consideration and adjudication. This trial-level court also routinely drafts and publishes well-reasoned and persuasive (well, we think so when our clients prevail) opinions. Click on the title to this blog-post and you can read the Edgewater v. Epic opinion and order.


On August 11th this court (per Judge John R. Jolly, Jr.) examined a trade secrets misappropriation argument made by a company called Edgewater Services, Inc. Edgewater negotiates transporting packages and pricing for clients, specializing mostly in full truckload shipping. Another company located nearby, Epic Logistics, was also in this business but they specialized mostly in partial truckload shipping - apparently their clients didn't usually fill a full truck with their goods. Well - as the story goes - they made an oral deal with each other. They were supposed to direct relevant business to each other pursuant to this agreement. At the time the deal was made, Edgewater employed a woman named Osgood.


Osgood, unbeknownst to Edgewater, was in secret discussions with Epic to become employed with Epic. What she was charged with accomplishing upon her arrival at Epic was to get Epic into the full truckload shipping business - in other words, to help Epic do what Edgewater did. Edgewater also claimed that it observed Osgood stealing files from the company offices - and that those files were customer lists and shipping pricing information.


Epic, after the discovery period was up, moved for summary judgment. They claimed that Edgewater couldn't prevail on its trade secrets misappropriation claim because the stuff they claimed Osgood stole were not trade secrets. As such, Judge Jolly had to consider the issue of whether there was legal validity to Edgewater's claim that it maintained trade secrets and that Osgood had stolen them.


The court found that Edgewater could not legally support their claim and dismissed the trade secrets claims, among others.


The court reasoned that: "In her deposition, Plaintiff Dosher conceded that the only thing in the carrier file that might be considered a “trade secret” would be the rate information. With respect to rates, she testified that rates change as variables such as the cost of fuel and insurance change, and that they even can change depending on the economy or how the industry itself is doing. Dosher further testified that when a customer becomes aware of ESI's rate schedule, the customer is not required to sign anything agreeing to keep that information confidential. Plaintiffs do not dispute Dosher's testimony as reflected in this paragraph, and it therefore is deemed to be undisputed for purposes of the Motions. In addition, although ESI only communicates a quote or rate to its customer, it does not instruct that customer to refrain from sharing that rate information with others."


In essence, the court held that customer pricing information, in order to be a trade secret, needed to be treated differently than customer pricing information is usually treated. Judge Jolly concluded that the pricing is provided to the customer - and the customer is under no obligation to keep that information to itself. In fact, customers would presumably have an incentive to use pricing information from one vendor to use it to extract concessions from another potential vendor. As such, the court concluded that this is not information that would constitute trade secrets under the standard definition.


But the court did not stop there. It went on to note that "The carrier files and rate information are kept in an unlocked file room, accessible to anyone. Carrier files, rate information, and customer files are not kept in any locked containers. Dosher conceded in her testimony that anybody could access the information in the carrier files and rate files “if they knew where to go and what they were looking for.” She also testified that the three ESI operations employees at that time would have had access to these files."


This was not good for Edgewater, either. Trade secrets require reasonable means under the circumstances to maintain their secrecy. The court was essentially concluding Edgewater did not use reasonable means to keep the pricing data secret. As such, the information did not constitute a trade secret and thus wasn't protectable as such.


But - you might be wondering: if Osgood was seen pilfering through Edgewater files and taking documents, even if they weren't trade secrets documents, can she get away with that and not have to face trial? No. The court did not dismiss claims for conversion or breach of her confidentiality agreement with Edgewater. Those claims are going to trial.


North Carolina businesses should take note - before you claim trade secret protections for your customer pricing information you might want to consider requiring customers to keep that information confidential and you might want to lock up your pricing files.

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