Over-Release Leads to Over-Regret

The good news is that the parties settled their trade secret litigation. The bad news is the release language in the settlement agreement. Security Camera Warehouse, Inc. sued Bowman, one of its former owners, for trade secret misappropriation. During the settlement negotiations, unbeknownst to Security Camera, Bowman still had access to Security Camera’s servers and downloaded Security Camera’s trade secrets. After the parties signed a settlement agreement, Bowman set up a new company and competed with Security Camera using the information he took during settlement negotiations. Security Camera brought a second suit against Bowman for trade secret misappropriation. The court held that Security Camera’s claims were barred by the release in the settlement agreement from the first case. The language specifically released Bowman from any claims that Security Camera may have in the future based on events that occurred before the execution of the settlement agreement.

WHY YOU SHOULD KNOW THIS. The troubling part of this decision is that Bowman apparently committed trade secret misappropriation while seeking to settle with Security Camera. So Bowman knew a material fact that he withheld from Security Camera. Perhaps the judge should have addressed this situation before coming to his decision. Be that as it may, there are several options to avoid this outcome. First, include representations and warranties in the settlement agreement where defendant affirmatively states that he is not in possession of any trade secrets belonging to the plaintiff. Second, include a requirement that the defendant destroy or return all copies of the trade secret (digital or otherwise) and provide an affidavit confirming compliance. Third, and most importantly, do not release unknown future claims.