Confidential Info Protection: Waiver By Sharing with the Gov’t?

Effect of Sharing Trade Secrets with the Government 

Our Pittsburgh lawyers have blogged extensively about how an employer's "secret" information will fall short of "trade secret" classification, unless the employer can show it had taken steps to develop and protect the "secret." 

This comes up surprisingly often. Our government at all levels -- local, state, and federal -- regulates many things and, in so doing, demands to learn highly valuable secrets, which, in turn, can become public through a Right to Know Law (RTKL) Request.

Instances include: 

• Building construction and renovation requiring a permit.  A borough, township or city may keep on file unique construction plans and designs -- things for which a competing builder or architect might pay a fortune to peep!
• Food and Drug Administration (FDA) regulation. The FDA regulates food ingredients -- and must know quite literally the composition of many "secret" sauces. Further, FDA knows the exact chemical composition of all existing drugs and potential new ones in production. 

If disclosure of such information to the government could defeat "trade secret" classification, the impact would be felt by employers and many workers, alike. For example, what effect would this have on an employer's ability to sue an outgoing employee for stealing "secret" information, if prior disclosure of said information to the government had stripped the information of its "trade secret" protection?

Trade Secret Litigation Between Employers and Former Employees 

Trade secret litigation is a hot area of employment law. This is because, just as the FTC and Congress gear up to ban non-competes entirely, trade secret protection will remain. Further an employer-employee NDA will not be enforce unless the employer can prove that (a) it has a protectable interest worth keeping "confidential" and (b) the information is not publicly available or subject to privilege or the contractual defenses described above.  

Thus, for the employer wanting to restrict his competition and protect his market share in an industry, many are already pivoting from enforcing any given non-compete agreement.   

Employers are instead characterizing all their company information as "secrets" to sue outgoing employees as thieves of "trade secrets." Hence, the definition of a "trade secret" is key.  

So what then is the verdict?  Does disclosing information to the government -- and thus to the public via Right to Know Laws (RTKL) -- effectively "de-classify" information and render it public information for which there is no protection?  

Trade Secret Disclosure to Regulatory Agencies 

To get the answer, you might have to smoke a little weed or, at least, read about the production of weed smoked by others. So sit back and breathe in the PA Supreme Court's decision in McKelvey v. PENNSYLVANIA DEPT. OF HEALTH, 255 A.3d 385 (2021). 

McKelvay v. Pa. Dept. of Health et al.  

Turns out, if you grow weed and sell it (legally), the government still wants to know a whole lot about you, your business, and your production process, as one might expect. This is pursuant to regulations via PA Department of Health ("Department") regulations found in 28 Pa. Code §§ 1131.1.  

By "whole lot," we mean: 

• • Your financial and operational capabilities (i.e, they want to see your books!)
  • The community impact plans
  • Your site and facility plans
  • The verification of an applicant's principals, operators, financial backers, and employees
  • A description of the business activities in which the applicant intended to engage, and
  • A statement that the applicant was able to maintain effective security and prevent diversion or other illegal conduct related to their medical marijuana business. 35 P.S. § 10231.602(a). 

In McKelvay v. Pa. Dept. of Health, et. al., above, a dispensary made all of the above disclosures to the Commonwealth of Pennsylvania in two formats: one redacted (minus the trade secrets) plus one un-redacted.  A journalist, McKelvay, wanted to see the un-redacted version via his Right to Know Request.  This resulted in a dispute that went all the way to PA's highest court.    

This, my friends, is where the "tire meets the road," as my law professor and former Superior Court Judge Maureen Lally-Green used to say.  Because, if allowed, the disclosure of such secrets to a journalist would effectively render trade secret law obsolete in all industries regulated by the government.  

 

The Supreme Court of PA's Decision Regarding Secrets Given to the Government  

Here is what the PA Supreme Court decided in McKelvay: 

[T]he Department's regulations provided that information that falls within an exemption to the RTKL, or is "considered to be confidential proprietary information by other law," or is "information regarding the physical features of, and security measures installed in, a [medical marijuana] facility" is not subject to disclosure except by court order. 28 Pa. Code § 1141.22(b)(8), (9).

Thus, in other words, information protected by "other law," includes the Uniform Trade Secrets Act.  Hence, according to the Department's regulations, an exemption to the RTKL exists for information that falls within the Uniform Trade Secrets Act.   

So the dispensaries can exhale a big... sigh of relief. 

Trade Secret Lawyer in Pittsburgh

Interestingly, the McKelvay opinion was silent as to what might have happened had the dispensary not redacted the "trade secret" information.  Would the dispensary have effectively waived the right to claim confidentiality?  After all, absent the redaction, how would the Department of Health had known to keep secret some portion of dispensary's information? 

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