Wisconsin Supreme Court Sets Tight Standard of Proof for Conspiracy to Misappropriate Trade Secrets
The Wisconsin Supreme Court recently clarified the evidentiary requirements for establishing a conspiracy to misappropriate trade secrets under Wis. Stat. § 134.90. See North Highland Inc. v. Jefferson Machine & Tooling Inc. et al., 2017 WI 75, 898 N.W.2d 74 (2017). In a narrow 4-3 decision written by Justice Ann Walsh Bradley, the Court concluded that such a claim may proceed to trial only if there is evidence establishing the defendant had direct knowledge of the misappropriation.
North Highland Inc. is a small manufacturing company that served as a vendor for Bay Plastics, a distributor of customized plastic parts. Dwain Trewyn worked as a business generator for North Highland. His duties included submitting bids for potential projects. When Frederick Wells, Bay Plastics’ owner, decided to form his own manufacturing company, Jefferson Machine & Tool Inc., he approached Trewyn about joining the new venture. Trewyn became a 25% owner of Jefferson, even as he continued to work at North Highland.
A dispute arose when Jefferson and North Highland submitted competing bids to manufacture stainless steel trolley assemblies for Tyson Foods Inc. Trewyn submitted North Highland’s confidential bid for the project. Then, he submitted a slightly lower bid on behalf of Jefferson. Tyson awarded the contract to Jefferson, until North Highland threatened to sue and the deal fell apart.
North Highland sued Trewyn, Wells, Jefferson, and Bay Plastics, alleging, among other theories, that Wells and Trewyn had conspired to misappropriate North Highland’s trade secrets (namely, the amount of the Tyson bid). After Trewyn filed for bankruptcy and settled North Highland’s claims against him, the circuit court granted Wells’ summary judgment motion and dismissed the claims against Wells.
On appeal, the Court of Appeals affirmed the dismissal of the claims against Wells. The court concluded that (1) North Highland had failed to set forth any facts establishing that Trewyn and Wells conspired to misappropriate North Highland’s trade secrets, and (2) North Highland had not established that the amount of its bid qualified as a trade secret under Wis. Stat. § 134.90(1)(c). At North Highland’s request, the Wisconsin Supreme Court agreed to review the case.
Writing for the majority, Justice Ann Walsh Bradley affirmed the dismissal. Like the lower courts, the Supreme Court determined that the evidentiary record did not support the allegation that Wells had conspired with Trewyn to misappropriate North Highland trade secrets allegedly protected by statute. Id. ¶ 39. While it was undisputed that Trewyn had formulated the Tyson bids for both North Highland and Jefferson, the Court was unwilling to permit a jury to say that meant that Wells himself must have known the amount of North Highland’s bid. Id. ¶ 41. The Court cited repeated deposition testimony from both Wells and Trewyn that (1) Wells was not aware Trewyn had submitted a Tyson bid on North Highland’s behalf, (2) Wells was not involved in formulating Jefferson’s bid, and (3) Wells had not created Jefferson to compete against North Highland. Id. ¶¶ 11-15, 30-33.
In the face of this “unrebutted” deposition testimony, the Court concluded that “[t]here are simply no facts or reasonable inferences derived from the facts to support such an allegation [of trade secret misappropriation against Wells].” Id. ¶ 42. Having found no evidence of misappropriation, the Court had no need to decide whether the amount of a confidential project bid qualifies as a “trade secret” under Wis. Stat. §134.90(1)(c).
In a detailed dissent, Chief Justice Roggensack noted that § 134.90(2) extends liability to anyone who “knows or had reason to know” about misappropriation, such that circumstantial evidence of an actor’s knowledge should be enough to prove a violation. Id. ¶¶ 109-110 & n.38. Applying this standard, the dissent referenced additional deposition testimony from Wells that (1) Wells worked with Trewyn to develop Jefferson’s bid, (2) Wells knew Trewyn continued to work at North Highland during the Tyson bidding process, (3) Wells recognized that North Highland and Jefferson were competitors, and (4) Wells was aware that Trewyn’s employment contract with North Highland did not contain a non-compete provision. Id. ¶¶ 56-61, 109. Given this additional testimony, the dissent argued that the evidentiary record presented factual issues appropriate for a jury to resolve.
In the wake of North Highland, entities considering suit against former employees and/or competitors for violations of Wis. Stat. § 134.90 should evaluate what admissible evidence ties their competitors’ conduct to the alleged misappropriation. The majority was unwilling to allow North Highland to extend liability beyond its own employee (Trewyn), who clearly was the primary actor, despite Wells’ presumed awareness of Trewyn’s business conflicts. Accordingly, before undertaking expensive litigation under Wisconsin trade-secrets law, companies should be prepared to establish a clear, strong, direct link between their targeted defendants and the alleged misappropriation.