On February 8, 2023, a federal trial court in New Jersey ruled that login credentials were a trade secret and also addressed the concept of “misappropriation of confidential information,” in a case where one party was accused of locking the other party out of its own social media pages. CLI Interactive, LLC v. Diamond Phil’s, LLC, Civ. No. . 2:22-cv-01602-JXN-CLW (D.N.J. Feb. 8, 2023) (2023 WL 1818381).
The case began when a jewelry company engaged an advertising company pursuant to a written agreement. Under that agreement, the advertising company agreed to promote the jewelry company, in exchange for a percentage of the jewelry company’s sales. The agreement also provided that the advertising company “reserves all rights to all advertising and marketing intellectual properties including design, art creation, programming user interface and strategies throughout and continuing beyond the term of th[e] agreement.”
According to the complaint, the jewelry company abruptly terminated the agreement, and began using a logo that was identical to the logo the advertising company had created. The jewelry company also allegedly changed the account credentials to the advertising company’s social media accounts and website, redirecting traffic to the jewelry company and preventing users from communicating with the advertising company.
The advertising company brought several claims in federal court, including breach of contract, copyright infringement, misappropriation of trade secrets and tortious interference with prospective economic advantage. The court ruled on the misappropriation and tortious interference claims in this opinion, and found in favor of the advertising company.
Under New Jersey state law, trade secret claims “require claimants to demonstrate (1) the existence of a trade secret, defined broadly as information with independent economic value that the owner has taken reasonable measures to keep secret, and (2) misappropriation of that secret, defined as the knowing improper acquisition and use or disclosure of the secret.” (citation omitted). The advertising company claimed that the following were the trade secrets that the jewelry company allegedly misappropriated: “admin. identity and password; original and unique branding, marketing concepts, art creations, images, photos, videos, educational content; proprietary optimization techniques and data.” The court ruled that these general descriptions did not meet the standard for a trade secret, except for the admin ID and password. So the advertising company could proceed on the misappropriation of trade secrets claim solely with respect to the admin ID and password.
But the analysis was not completed because New Jersey expressly recognizes a common law claim of “misappropriation of confidential information.” The court characterized the standard as lower than what is required for a trade secret and that the court:
“should consider whether the allegedly misappropriated information was provided to [a defendant] by [a plaintiff] in the course of his employment for the sole purpose of furthering [the plaintiff’s] business interests. To answer that question, the Court should consider the following factors: (1) whether the information was generally available to the public; (2) whether [defendant] would have been aware of the information if not for his employment with [plaintiff]; (3) whether the information gave [defendant] … a competitive advantage vis-a-vis [plaintiff]; and (4) whether [defendant] knew that [plaintiff] had an interest in protecting the information to preserve its own competitive advantage.”
(citation omitted). In footnote 7, the court explained its expansion of the tort beyond the employment relationship: “Misappropriation of confidential information most commonly arises in the employment context. However, the Court sees no reason to cabin it there. . . . Such [agency law] principles would appear to animate the instant parties’ dealings just the same as if theirs was an employment relationship.” Consequently, the court ruled for the advertising company, holding that its claim “even if too broadly stated to constitute trade secrets — would appear to fall under the umbrella of ‘allegedly misappropriated information’ . . . for the sole purpose of furthering [CLI’s] business interests.”
The case serves as a reminder that companies may be able to protect company assets through a variety of methods, including possibly a “misappropriation of confidential information” claim.