With many employees working from home during the COVID-19 pandemic, employers have depended on Zoom or other web-based video conferencing tools to conduct meetings online. Users can choose to record sessions, collaborate on projects, and share or annotate on one another’s screens. Unfortunately, the process also can open the possibility of trade secret theft if employers fail to use the platform’s privacy and security features, as a recent Delaware case demonstrated.
Smash Franchise Partners is a franchisor of mobile trash compactors, which allow customers to save on waste management and disposal by compacting trash onsite. The company sells its compactors and business model to franchisees. Before being introduced to the product and business model, however, prospective franchisees are required to sign a nondisclosure agreement (NDA).
In December 2019, officials with Kanda Holdings signed an NDA and participated in several open Zoom calls with Smash about the cost of doing business, business strategies, and targeted customers. Kanda subsequently decided to open its own mobile trash compacting business in direct competition with Smash.
Smash immediately filed suit against Kanda, claiming the new competitor misappropriated its trade secrets, and sought an injunction to prohibit it from operating the business. To obtain a preliminary injunction, Smash was required to show a reasonable likelihood of success on its trade secret claim.
A Delaware chancery court decided Smash couldn’t show its trade secrets claim would likely succeed because it didn’t take reasonable steps to protect them. The court noted any trade secrets allegedly misappropriated by Kanda had been disclosed during the open Zoom calls.
Zoom offers security features to ensure confidentiality is maintained. For example, the hosts can hold private meetings that require passwords to prevent unauthorized participants from joining. Smash didn’t use the feature or follow its own procedure, which required a roll call before any prospective franchisee presentation and the removal of unauthorized participants. Smash Franchise Partners, LLC v. Kanda Holdings, Inc.
Lessons for Employers
Work from home is here to stay. Zoom and other social media applications like it have become critical to the seamless and immediate transfer of ideas and business information in the remote workplace era. Take the following steps to ensure the use of the tools doesn’t result in the loss of trade secret protection:
- When relying on Zoom to hold meetings during which proprietary business information will be disclosed, use the platform’s security features, which permit password-protected meeting links; and
- Implement other procedures such as taking a roll call and removing unauthorized participants.