Investment Analyst Sues BNY Mellon and Deloitte for Using His “Trade Secret”
On October 6, 2023, an Investment analyst learned a hard lesson about trade secret law. Anyone who creates technology for another — such a spreadsheet system for picking stocks — can lose the rights to such information. No protection will exist, unless the owner can show he had taken reasonable measures to keep the information private.
In Pauwels v. Deloitte LLP, No. 22-21-cv, 2nd Cir, Court of Appeals (Oct. 6, 2023), Andre Pauwels, an analyst for the Bank of New York Mellon Corporation, LLP (“BNY Mellon”), claim that he developed a spreadsheet model for picking energy stocks (“model”) while working as an independent contractor for BNY Mellon. Allegedly, BNY Mellon shared the model with Deloitte LLP (“Deloitte”). Pauwels claimed that Deloitte (1) “reverse engineered” the ideas, and (2) directly profited from the model. For all this, Pauwels sought an award for money damages against both BNY Mellon and Deloitte for the misappropriation of his ideas.
First of all, what law will apply?
Law Governing a Trade Secret Misappropriation
Pauwels v. Deloitte LLP was a New York case. However, New York and Massachusetts have not yet adopted the Uniform Trade Secrets Act (UTSA). Still, pursuant to both UTSA and New York common law: the person bringing a claim must show he had taken reasonable measures to keep the information private. Otherwise, no protection will exist. In Pauwels v. Deloitte LLP, the Second Circuit Court Appeals noted:
[I]n order to successfully state a claim for trade secret misappropriation, “courts require that the [plaintiff-]possessor of a trade secret take reasonable measures to protect its secrecy.” Defiance Button Mach. Co. v. C & C Metal Prods. Corp., 759 F.2d 1053, 1063 (2d Cir. 1985) (citation omitted). And “[a]bsent such measures,” the information “will cease to be a trade secret and will lose the protections of trade secret law.” Id.
What Constitutes “Reasonable Measures” to Protect a Trade Secret?
Pauwels claims that two of the BNYM employees with whom he shared the spreadsheets orally agreed — at Pauwels’ insistence — to keep them and the model secret. This, according to Pauwels, was proof that he had taken reasonable measures to keep his model a secret. However, the appellate court noted from the record:
Pauwels alleges that he sent the Pauwels Model Spreadsheets to three other individuals at BNYM from whom he did not receive any similar assurances, id. at 52 ¶ 35.
This, according to the appellate court –
… undercuts Pauwels’s assertion that he took reasonable measures to safeguard the secrecy of the Pauwels Model and the spreadsheets. See, e.g., Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002, 104 S.Ct. 2862, 81 L.Ed.2d 815 (1984) (“If an individual discloses his trade secret to others who are under no obligation to protect the confidentiality of the information, or otherwise publicly discloses the trade secret, his property right is extinguished.”); Defiance Button, 759 F.2d at 1063 (“[T]he owner is entitled to such protection only as long as he maintains the [alleged trade secret] in secrecy; upon disclosure, even if inadvertent or accidental, the information ceases to be a trade secret and will no longer be protected.”).
It’s no different in Pennsylvania. Pennsylvania’s Uniform Trade Secrets Act (UTSA) provides protection for:
“. . . a formula, drawing, pattern, compilation including a customer list, program, device, method, technique or process that:
(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.
(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
But Were the Defendant’s “Unjustly Enriched” from the Pauwels Model?
Pennsylvania law governing unjust enrichment is identical to New York’s law. “The basic elements of an unjust enrichment claim in New York require proof that (1) defendant was enriched, (2) at plaintiff’s expense, and (3) equity and good conscience militate against permitting defendant to retain what plaintiff is seeking to recover.” Pauwels v. Deloitte LLP, No. 22-21-cv, 2nd Cir, Court of Appeals (Oct. 6, 2023), citing Briarpatch Ltd., L.P v. Phoenix Pictures, Inc., 373 F.3d 296, 306 (2d Cir. 2004).
In Pauwels v. Deloitte LLP, the court found:
Here, the crux of Pauwels’s unjust enrichment claim is that BNYM compensated him solely for his expert consultation but BNYM took more than what it bargained for when it shared the Pauwels Model Spreadsheets with Deloitte in order to have them reverse engineer the Pauwels Model. Because this theory of liability is distinct from those underpinning Pauwels’s claim for trade secret misappropriation, we conclude that Pauwels’s claim for unjust enrichment should not have been dismissed as duplicative of his claim for trade secret misappropriation.
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