
A recent federal court ruling shines a spotlight on an important issue surrounding the liability of former employees accused of stealing trade secrets.
Remarkably, ex-employees can be held responsible for trade secret misappropriation even if they do not physically take any confidential information but instead rely on their memory.
Background of the Case
On November 20, Citibank NA (Citi) took legal action in the Northern District of California by requesting a temporary restraining order against two former private bankers, John Mitchell and Benjamin Carr, who had moved to a rival firm.
Through its filings, Citi revealed that Carr had accessed its customer management system to search for details on five specific clients just prior to his resignation.
In addition, it came to light that Mitchell had utilized confidential client data stored in his memory to lure one of Citi’s high-profile clients to his new employer.
A particularly telling incident unfolded a month after Mitchell left Citi—he contacted a former client to persuade them to shift their funds on the same day a substantial certificate of deposit was about to mature.
In that communication, he highlighted that his new employer offered more attractive deposit rates than Citi, making it especially relevant given the client’s significant cash reserves.
Defense and Court Rulings
In their defense, Carr and Mitchell argued that Citi could not identify any information that met the criteria of a protectable trade secret.
They maintained that they had not taken or copied any documents during their departure from the organization.
The court, presided over by Judge Charles R. Breyer, issued a temporary restraining order against Mitchell, while declining to impose similar restrictions on Carr.
This ruling prohibited Mitchell from using or divulging any of Citi’s confidential information concerning its operations, customers, or employees and required him to return any such data within 24 hours.
The judge found strong grounds to believe that Citi could prove Mitchell had misappropriated trade secrets, pointing to an email he sent using the confidential information he had recalled from memory.
On the other hand, Carr’s actions before resigning did not provide enough evidence to support Citi’s claims.
Implications of the Ruling
Later, the parties involved struck a deal for a preliminary injunction, mostly reaffirming the terms established in the temporary restraining order while agreeing to move forward with arbitration regarding Citi’s request for a longer-term injunction.
This case highlights two crucial aspects.
Firstly, the court recognized that certain non-public details about clients, such as information on large cash balances and the maturity dates of accounts, are indeed eligible for protection as trade secrets.
Secondly, the judge remarked that whether Mitchell physically took any documents from Citi was irrelevant to the trade secrets allegation.
Instead, under California law, the protection afforded to trade secrets includes their improper use, which does not require the actual possession of any documents.
This means that, although many trade secret disputes involve tangible evidence, such as retained documents, that is not always necessary to prove misappropriation.
In California, trade secret information can simply exist in an employee’s memory without needing written records.
Source: Natlawreview