The Massachusetts Supreme Judicial Court (“SJC”) recently found that trade secret misappropriation by employees who then use the trade secrets to compete is actionable under Massachusetts’ Unfair and Deceptive Trade Practices Law. The SJC’s ruling in Governo Law Firm v. Bergeron means that Unfair and Deceptive Trade Practices Statute, Massachusetts General Laws Chapter 93A Section 11 (“Chapter 93A”), now applies to trade secret disputes in the employer-employer context. Previously, such cases were considered an “internal matter” and therefore not actionable.
For more than two decades, plaintiff Governo Law Firm, built databases and an electronic library that contained legal theory, client information, and more than 100,000 documents related to their asbestos litigation practice. In 2016, three non-equity partners at Governo Law Firm were considering either acquiring the firm from its sole owner, Governo, or starting their own law firm. In furtherance of their plan, in October 2016, the defendants began to export documents from the firm’s research library, databases, and administrative files. They moved these documents from their laptops to thumb drives. One of the defendant attorneys even told another defendant attorney to use a gym bag to remove materials, so as to not rouse any suspicions. Following the document transfer, the defendants uploaded these documents onto a laptop they had purchased for their new law firm. Defendants then proceeded to offer to buy the law firm from Governo, providing him until 5:00 pm the on same day to accept their offer. Governo rejected the offer and within a few days, defendants commenced operating their own recently incorporated law firm using Governo documents.
Governo Law Firm brought suit against the former employees for, among a number of other claims, violation Chapter 93A, which provides that any person who (a) engages in trade or commerce and (b) loses money or property due to use “by another person who engages in any trade or commerce of …an unfair or deceptive act or practice” may bring an action for damages against that person. However, Massachusetts courts have long held that Chapter 93A does not apply to “internal matters,” which it has described as members of the same enterprise, including, partners in a business, and shareholders in a closely-held corporation, based on the theory that these disputes do not arise in the context of a “commercial marketplace transaction.” Similarly, courts have held that Chapter 93A also does not apply to disputes within the employment relationship between employers and employees.
The Governo trial court relied on these principles and instructed the jury that the employees’ conduct while employed by Governo Law Firm could not be considered to assess liability under Chapter 93A. As a result, the jury found that while the defendants were guilty of various claims, the defendants had not violated Chapter 93A, as their conduct was not within a “commercial marketplace transaction.”
Governo Law Firm filed an appeal from the trial court’s judgement and the SJC granted their application for direct appellate review. On April 9, 2021, the SJC reversed the lower court’s decision, noting that when “an employee misappropriates his or her employer’s proprietary materials during the course of employment” and then uses those materials “in the marketplace,” the employee’s conduct “is not purely an internal matter.” Rather, this conduct constitutes a “marketplace transaction.” The fact that the defendants were employees of the law firm at the time of the misappropriation “does not shield them from liability;” they “subsequently used the ill-gotten materials to compete with their now-former employer.” While the SCJ also ordered a new trial, the application of Chapter 93A to this law firm employer-employee misappropriation as a “marketplace transaction” provides greater potential liability for employees who engage in trade secret theft and simultaneously offers wider protection to employers.