Federal Court In New Jersey Allows Marketing Firm To Bring Claims Against Jeweler For Stealing Its Trade Secrets To Compete With The Online Jewelry Store They Operated Together
February 9, 2023
By: Carl L. Engel
On February 8, 2023, the U.S. District Court for the District of New Jersey, in the case CLI Interactive, LLC v. Diamond Phil’s, LLC, allowed a social-media marketing firm to bring claims against a jeweler for violations the New Jersey Trade Secrets Act (“NJTSA”). The two businesses had been operating an online jewelry store together under a joint-venture agreement, when the jeweler established its own competing online store. The marketing firm alleges that, to do so, the jeweler used the logos, social-media accounts, and other items of intellectual property that the marketing firm had created for the joint venture. The marketing firm requested the court’s permission to bring claims under the NJTSA based on the jeweler’s misappropriation of this business information to compete with the joint venture. Rather than make a blanket decision, the court carefully analyzed each item of information to ascertain whether it could constitute a “trade secret” as a matter of law, and allowed the marketing firm to bring only some of the proposed claims. As a result, the court’s opinion provides valuable guidance to New Jersey businesses as to what of their proprietary business information is a protectable trade secret under the NJTSA.
CLI Interactive, LLC (“CLI”), is a social-media branding and advertising company. CLI had an agreement with Diamond Phil’s, LLC, whereby they formed a joint venture to promote and sell jewelry. Under the agreement, CLI managed the advertising and marketing for their online store, Diamond Phil’s provided the inventory and processed orders, and CLI would receive a share of the jewelry sales. CLI created an “Amore Jewelry Design” brand, logo, and website for the business, and used its own social-media accounts for promotion.
CLI alleges that, in December 2021, Diamond Phil’s abruptly terminated their agreement and began to compete directly with the joint venture. As part of its scheme, Diamond Phil’s created a brand called “Amore Fine Jewelry” and a logo that was identical to the one that CLI created for “Amore Jewelry Design.” CLI claims that Diamond Phil’s also accessed the joint venture’s social-media pages and its website to change the login information and lock CLI out, then changed the logos to “Amore Fine Jewelry.” CLI has also alleged that it was unable to use its existing social-media accounts as a result, and has had to rebuild its network from scratch.
CLI shortly thereafter filed a lawsuit against Diamond Phil’s for breach of contract, copyright infringement, and tortious interference with prospective economic advantage. CLI then asked the court to allow it to bring additional claims for misappropriation of trade secrets under the NJTSA. The trade secrets for which CLI seeks protection are “admin. identity and password, original and unique branding, marketing concepts, art creations, images, photos, videos, educational content, proprietary optimization techniques, and data.” Diamond Phil’s opposed the new claims, arguing that these items did not constitute “trade secrets” as a matter of law.
The court agreed with Diamond Phil’s as to some of the items, and with CLI as to others. To decide which of the items could be considered “trade secrets” and which could not, the court observed:
It is simply not enough for a plaintiff to point to broad areas of technology and assert that something there must have been secret and misappropriated. The plaintiff must show concrete secrets. A list of general categories and types of information they allege comprise their trade secrets is not enough to identify the trade secrets at issue with the particularity necessary for Defendant to identify the information which Plaintiffs claim was misappropriated because they are too general to specify the trade secrets at issue.
The court then found that the items for “original and unique branding, marketing concepts, art creations, images, photos, videos, educational content, proprietary optimization techniques, and data” are exactly the kinds of “broad areas of technology” and “general categories and types of information” that do not constitute trade secrets as a matter of law.
The court held, however, that not all of the items proposed by CLI were “boilerplate recitations of categories” that could not sustain a claim. Indeed, the alleged misappropriation of CLI’s online login information was sufficient, because it was a specific item, and courts in several other jurisdictions had recognized that login information is a “trade secret” for the purposes of a misappropriation claim. The court further recognized that, although general categories of information could not be a “trade secret,” they could constitute “confidential information” if they were entrusted to Diamond Phil’s in confidence in connection with the joint venture. Therefore, in addition to a claim for misappropriation of trade secrets based on its login information, the court also allowed CLI to bring a claim for misappropriation of the broad categories of “confidential information” it gave to Diamond Phil’s in connection with the joint venture.
The court’s decision provides a clear illustration of what constitutes a “trade secret” under NJTSA and what does not. As a general principle, a trade secret claim will only be supported by allegations that specific pieces of information (such as online login information) were taken and misused by the defendant. However, even broad categories of information may support a claim for misappropriation of “confidential information,” if the information was entrusted to the defendant as part of an employment agreement, joint venture, or other close relationship. Accordingly, when faced with a situation where someone has stolen and misused its business information, a company should first consider whether the stolen information was a specific identifiable item or whether it was general confidential information, to ensure that it brings the proper claims.