Failure to protect corporate trade secrets had dire consequences for AGC, Inc., a Connecticut aviation component manufacturer forced to file a Chapter 11 bankruptcy on April 16, 2013. AGC blamed its circumstances in substantial part on the theft of its trade secrets by one of its former key executives who joined a rival competitor where he used the valuable proprietary information. AGC obtained little judicial sympathy because it failed to keep its trade secrets secret in the fashion required to be awarded injunctive relief.
Former AGC Vice President David J. Baillargeon was laid off in July 2009, due to a downturn in AGC’s business; and on his departure, he told the AGC President that he would regret terminating his employment. Baillargeon left the company with about one thousand pages of documents stored on a computer memory stick, including presentations, strategic plans, personnel information and pricing information, along with a three-ring binder containing AGC blueprints. He brought the information to his next job at an AGC competitor, Twin Manufacturing Co., and he used it to compete against AGC, resulting in AGC’s loss of approximately $2 million in annual revenue in addition to the expenses of a costly and largely unsuccessful trade secrets litigation against Baillargeon and Twin.
AGC sued Baillargeon and Twin in Connecticut state court in May 2010, alleging causes of action for violation of the Connecticut Uniform Trade Secrets Act (CUTSA), the Connecticut Unfair Trade Practices Act (CUTPA), breach of fiduciary duty and tortious interference with business and contractual relations. Unfortunately, AGC’s failure to protect its trade secrets and keep them confidential was a textbook example of what not to do if a company needs injunctive relief.
The particular trade secret at issue was AGC’s rubber injection molding work on aircraft engines by which rubber of appropriate shape and thickness is attached to various parts within the aircraft engine. Although AGC policies prohibited employees from disclosing confidential company information, AGC did not enter into a noncompete agreement with Baillargeon, and it failed to take the steps courts require for trade secret protection to be awarded. For example, AGC made a trade show PowerPoint presentation to showcase its capabilities to thousands of attendees, which included many competitors. There were no indications that any of the presentation was confidential or secret. No one attending the trade show was required to sign any confidentiality agreement. Color photographs of the rubber injection molding parts and devices were clearly visible during the presentation and customers were given the same presentation on a memory stick with no restrictions on its use. Also, AGC offered facility tours to customers, potential customers and competitors, who visited nearly every room in the facility, including the injection molding department, as well as a viewing of the injection apparatus and the mold that was used for it, while the visitors stood within mere feet of the apparatus. The mold designs were on public display for marketing purposes. Documents and drawings in plain view were not stamped “Confidential Trade Secrets”. No one was told that anything visible on the tour was confidential or secret. There was no controlled or limited disclosure during the tour, no legends of confidentiality on documents, no shielding of processes from plain view, and no segregation of proprietary information.
Consequently, in a March 2011 decision, the state court ruled that AGC failed to preserve the secrecy of its manufacturing processes or pricing and denied any relief under CUTSA. The court granted limited injunctive relief under CUTPA against Baillargeon for unfair or deceptive trade practices based on his theft and misuse of AGC’s property, which the court found had given Twin a minor head start in setting up its rubber injection molding business because it saved time in Twin’s creation of its drawings. There was insufficient evidence to hold Twin in violation of CUTPA. To prevent continuing violations of AGC’s property rights, Baillargeon was enjoined from using or disclosing AGC’s property and confidential and proprietary information, and he was ordered to return to AGC any property that he had taken when he was terminated.
AGC's litigation and bankruptcy confirm how essential it is for a company to take proactive and diligent steps to protect its confidential and proprietary trade secrets by keeping them secret, designating the information as “Confidential” and securing the trade secrets from plain view at the risk of great financial peril or even the company’s survival for failure to do so.