“Oops” Trade Secret Disclosure

In Brief: Obtaining a trade secret by mistake isn’t always misappropriation.

Here's What Happened:

Transperfect Global, Inc. provides translation, website localization, and litigation support services. In 2014, one of its shareholders filed a proceeding to dissolve the company. The court ordered the sale of Transperfect shares. The court appointed a custodian to oversee the sale through an auction. The custodian’s representative invited H.I.G. Middle Market, LLC, who had acquired one of Transperfect’s competitors, Lionbridge Technologies, Inc., to participate in the auction. H.I.G. signed a confidentiality agreement for the purposes of conducting due diligence.

The custodian’s representative created a virtual data room for exchange of due diligence information. Here’s where the “oops” happened. The representative mistakenly uploaded more of Transperfect’s customer information than H.I.G. was supposed to get.

One of Transperfect’s original shareholders was the successful bidder at the auction. After the sale, no one asked H.I.G. and Lionbridge to return or destroy any of the information that was disclosed to H.I.G., including the information that was disclosed by mistake.

Transperfect sued H.I.G. and Lionbridge for trade secret misappropriation under the Defend Trade Secrets Act (DTSA) and other state law claims. After discovery closed, H.I.G. and Lionbridge brought a motion for summary judgment. The key issues were whether H.I.G. and Lionbridge obtained the information by improper means and whether H.I.G. and Lionbridge actually used the information. The court held that despite the mistaken disclosure, H.I.G. and Lionbridge properly acquired the trade secrets during due diligence. The fact that Transperfect didn’t ask for the information to be returned or destroyed didn’t help Transperfect’s position. Transperfect didn’t have evidence that H.I.G. and Lionbridge used the information in violation of the DTSA or the confidentiality agreement. Added to that, Transperfect didn’t offer any evidence that it was damaged by any alleged misappropriation. 

The court granted H.I.G. and Lionbridge’s motion for summary judgment on all counts.

Why You Should Know This. The lessons here are two-fold. First, take whatever steps that are necessary to guard against inadvertent disclosure of trade secrets and confidential information during due diligence. Second, if a transaction doesn’t go forward (or you’re in litigation and the litigation is concluded), ask for the return or destruction of disclosed information.