The Confidentiality Demands of Remote Work
As the workplace increasingly shifts to remote operations, driven by communication technologies like Zoom, businesses must adapt their confidentiality practices to align with this new standard of work.
The case of Smash Franchise Partners, LLC v. Kanda Holdings, Inc. is a cautionary tale. Smash, a mobile trash compaction franchisor, accused Todd Perri and Kanda Holdings of misusing confidential information to create a competing business, Dumpster Devil. Perri, who had signed a Non-Disclosure Agreement (NDA) during franchise discussions, allegedly breached it by launching the competitor. However, the Delaware Court of Chancery denied Smash's injunction request, highlighting that much of the information Perri accessed was publicly available, including details inadvertently shared during Zoom meetings. The case underscores the need for businesses to secure confidentiality even in virtual settings to enforce NDAs effectively.
For a more in-depth read on the case, here’s an excerpt from a great article on the case published by Trade Secret Insider:
In December 2019, the defendants signed an NDA and participated in several open Zoom calls regarding the cost of doing business, business strategies, and targeted customers. The defendants subsequently decided to open their own mobile trash compacting business in direct competition with Smash.
Smash immediately filed suit against the new competitor claiming the defendants misappropriated its trade secrets, and Smash sought an injunction to prohibit the defendants from operating their competing business. To obtain a preliminary injunction, Smash was required to show a reasonable likelihood of success on their trade secret claim.
The Delaware court determined that Smash could not show a likelihood of success on the merits of its trade secret claim because it did not take reasonable steps to protect the trade secrets. The court reached this conclusion after emphasizing that any trade secrets defendants allegedly misappropriated were disclosed during open Zoom calls. Notably, Zoom offers security features to ensure confidentiality is maintained, i.e. Zoom hosts can hold private meetings that require passwords to prevent unauthorized participants from joining. Smash did not use this feature or follow its own procedure, which required roll be called before any prospective franchisee presentation and the removal of unauthorized participants.
The lesson. 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. Employers must takes steps to ensure that the use of Zoom and other tools does not result in the loss of trade secret protections. When using Zoom to hold meetings where proprietary business information is disclosed, companies must use security features that permit password-protected meeting links, and they should also implement other procedures like taking a roll call and removing unauthorized participants.
Works Cited:
Culotta, Jason. “Zooming In: How Using Zoom Improperly Can Destroy Trade Secret Protections.” Trade Secret Insider, 22 Oct. 2020, www.tradesecretsinsider.com/zooming-in-how-using-zoom-improperly-can-destroy-trade-secret-protections/. Accessed 1 Nov. 2020.
