We recently wrote about the Tenth Circuit’s September, 2009 decision in Southwest Stainless v. Sappington, but the decision is worth another look. An issue presented by Southwest Stainless was whether a price quote was a a trade secret. Southwest claimed that a price quote was and asserted a claim for misappropriation of trade secret.
The defendant, a former employee of Stainless, apparently set the price that Stainless quoted to Hughes Aircraft. After the employee left Stainless and went to work for a competitor, Hughes Aircraft placed an order with the new employer at a price slightly less than Stainless’ quote. If Hughes Aircraft had selected Stainless’ quote, Stainless would have earned $31,200 in profit.
The trial court held that the Hughes Aircraft quote was a trade secret. It emphasized all the measures that Stainless took generally to keep its pricing information confidential, including requiring confidentiality agreements, reminding employees of the confidential nature of company information and using passwords to restrict access to information.
Despite these measures, the Tenth Circut held that the the price quote was not a trade secret for one reason. It wasn’t a secret.
Some customers were allowed to know prices on certain items in advance. Furthermore, Stainless did not prevent its customers from disclosing pricing information to others. In other words, the pricing quote was known outside of Stainless (i.e. by Hughes, among others), Stainless took no measures to prevent Hughes from disseminating the information and the former employee could have obtained the price quote simply by calling Hughes.
In contrast, the Colorado Court of Appeals in 2001 affirmed a judgment which held that a contractor’s bid for construction work was a trade secret. In that case, the contractor had submitted a bid for work. The former employee also submitted a bid and his bid was accepted. At trial, the jury found that the bid information was a trade secret and that the former employee had misappropriated the bid information. That judgment was affirmed on appeal despite the former employee’s claim that the bid information was not a trade secret as a matter of law.
In this Court of Appeals case, there was no suggestion that the bid could have been obtained by the former employee if he had contacted the party to whom the bid had been submitted. That distinction may help explain the differning results in the two cases.