Simply Legal

E-Mail Article Printer-Friendly

Shut Up and Drink

Columnist

---

Brandon R. Blevans
All articles by columnist

Shut up and drink¹

It’s hard to talk with le gobelet de vin perched on your lips, its contents gently finding their way across the palate. As many of us know, however, the longer (and easier) those contents flow, the looser the lips become. Libation-lubricated conversations ensue, many times providing the participants with personal information even the best CIA interrogator would find difficult to extract. “In vino veritas” often equates to “too much information.”

Hopefully, the consequences of these types of incidents are limited to a foggy headache and slight embarrassment (as opposed to confession of mortal sin or profession of love to your spouse’s sibling!). With any luck, an individual’s own “internal controls” ensure that any deep, dark secrets remain anchored in the depths of the memory banks. And even in the case of “diarrhea of the mouth,” it’s unlikely the disclosure will result in personal or financial ruin.

In business, the consequences of mishandling valuable information can be dire. The wine industry is no exception. Yet, for decades, important and valuable information flowed between competitors in an unfiltered manner. Except in rare instances, winery operators took few steps to protect profitable or economically advantageous information from seeping out to others.

Today, more and more wineries are seeking to protect certain types of information from disclosure by labeling it “trade secrets.” (Unfortunately, the term is bandied about with the same sophistication a lifelong Pabst drinker might bring to a discussion of rare Bordeaux.)² With the proliferation (and profitability) of “wine clubs,” coupled with the growth of direct sales, the industry experiences increasing litigation over misappropriation of alleged “trade secrets” in the form of customer identities and sales information stemming from the departure of key employees.

In many instances, these claims fail because of a basic misunderstanding of what constitutes a “trade secret.” It’s not an ethereal concept, nor is it a label that magically transforms any information into secret information. Rather, the term has a statutory definition with three prongs. In short, it’s information with actual or potential value because it’s not readily known by others and is subject to reasonable efforts to maintain its secrecy.³ It doesn’t need to be the secret formula for Coca-Cola. It can be any type of information that satisfies all three tests. Even customer lists (such as wine club members) can constitute a trade secret.

Many wineries assume customer information automatically satisfies all of these prongs. While many wineries can establish the first and second prongs, where the trade secret analysis ends up with the equivalent of “cork taint” is in the third prong—taking reasonable efforts to maintain the secrecy of the information.

We’re not talking about Fort Knox here. The law doesn’t require armed security guards posted at the end of the tasting bar.⁴ Nor does it require retinal scanning equipment to access computer lists. (Although, for some tasting room employees, a blood alcohol content screen might be wise.) But “reasonable” efforts are required.

These generally can include:

• Confidentiality agreements that both specify the exact information that constitutes a trade secret and inform employees that they may not divulge that information.
• Password-restricted access to files containing the information.
• Limiting access only to employees who “need to know.”
• Providing a “gentle reminder” to departing employees of their obligation to keep the information secret.⁵
• Preparing a plan for immediate legal action in the case of disclosure. A failure to appropriately respond can result in loss of trade secret protection.

Once information qualifies as a trade secret, it’s protected from use or disclosure by law. But trade secret status is not absolute. It can be lost through disclosure—such as sharing customers’ identities with industry groups or selling their information as a mailing list.

Assuming you don’t engage in this type of conduct, you might be able to claim a customer list as a trade secret. If correct, the information would be protected from “use” or “disclosure.” However, not all “use” is created equal. (Here comes a Clintonian definitional debate). Although the law defines prohibited trade secret misappropriation to include any “use” of the information, the California Supreme Court excepted from prohibited “use” the “use” of trade secret customer information to announce a new employment affiliation. (Have some more wine. That sentence makes more sense after a bottle or two.) That’s right—your former sales employee can lawfully contact your customers to simply say he or she is now employed by a competitor.

That employee cannot, however, solicit the business of your customers. He can call and say “Hi, I no longer work for XYZ, but ABC, and can be reached at 555-1212.” He cannot add the phrase, “and would love to work with you” or “can provide you even better wine than that swill I sold before.” That makes a lot of difference.

Although this “use” exception might seem like a gaping hole you could drive a bulk juice tanker through, the law does afford protection from any other type of use or disclosure. It also doesn’t let an employee keep copies of the information or transmit such information to his or her new employer. For these types of use or disclosure, a company can obtain an injunction and seek damages.

By remembering that “loose lips sink ships,” and taking steps designed to keep your customer information confidential, maybe the next bottle of wine your customer drinks will be yours. After all, isn’t that why you make it in the first place?

¹Responsibly, of course!

²No offense to most other of my fellow beer drinkers, but using the term “sophistication” and “Pabst” in the same sentence took some serious consideration!

³Cal. Civil Code § 3426.1.

⁴Booze and firearms—the 2nd Amendment folks are salivating at the thought!

⁵I’m a fan of thumb screws, but hear that some people prefer a less entertaining approach.