Posted On: February 3, 2010 by Pilar G. Kraman

New opinion from Delaware Court of Chancery on Trade Secret Misappropriation

In a recent case before Vice Chancellor Parsons of the Delaware Court of Chancery, Plaintiff Great American brought claims against Defendant Cherrydale for, among other things, misappropriation of trade secrets. Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC et al., C.A. No. 3718-VCP (Del. Ch. Jan. 29, 2010). The action stemmed from events that occurred around the acquisition of Kathryn Beich, Inc. (“KB”) by Great American. The trade secrets in question involved a list of sales representatives and their contact information; a list of KB sales representatives ranked by volume of sales; order status reports, which listed contact information and the status of KB orders; and other confidential proprietary reports, customer contact and purchasing information. Id. at 11-14. Cherrydale argued that this information did not constitute trade secrets and were not misappropriated because the “information was used solely by independent contractors whose acts cannot be attributed to Cherrydale.” Id. at 45.

Under the Delaware Uniform Trade Secrets Act, the plaintiff must prove: (1) “that a trade secret exists, i.e., the statutory elements—commercial utility arising from secrecy and reasonable steps to maintain secrecy—have been shown;” (2) “that the plaintiff communicated the trade secret;” (3) “that such communication was made pursuant to an express or implied understanding that the secrecy of the matter would be respected;” and “(4) that the trade secret has been used or disclosed improperly to the plaintiff’s detriment.” Id. at 46-47. After weighing the evidence presented at trial, Vice Chancellor Parsons determined that the information at issue were protected trade secrets. Id. at 48-67. However, because Great American failed to prove the amount of actual damages it was entitled to, Vice Chancellor Parsons awarded Great American compensatory damages only for Cherrydale’s unjust enrichment caused by the misappropriation. Id. at 68-78. Cherrydale’s actions were, however, found to be willful and malicious leading Vice Chancellor Parson’s to double the compensatory damages award. Id. at 82.

Great American Opportunities, Inc. v. Cherrydale Fundraising, LLC et al., C.A. No. 3718-VCP (Del. Ch. Jan. 29, 2010)