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Supreme Court of Arkansas
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No. 01-737
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349Ark. 469, 79
S.W.3d 326, 2002.AR.0002071< http://www.versuslaw.com>
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June 27, 2002
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TYSON FOODS, INC., APPELLANT, VS. CONAGRA, INC. AND CONAGRA POULTRY
CO., APPELLEES
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SYLLABUS BY THE COURT
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1. Appeal & error - chancery cases - standard of review. - The
standard of review in chancery cases is de novo; all of the issues raised
in the court below are before the appellate court for decision and trial
de novo on appeal in equity cases involves determination of fact questions
as well as legal issues; the appellate court reviews both law and fact
and, acting as judges of both law and fact as if no decision had been made
in the trial court, sifts the evidence to determine what the finding of
the chancellor should have been, and renders a decree upon the record made
in the trial court; the appellate court may always enter such judgment as
the chancery court should have entered upon the undisputed facts in the
record; the appellate court does not reverse a chancery court's findings
of fact unless it concludes that the chancery court has clearly
erred.
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2. Business & commercial law - trade secret - postemployment
confidentiality contract not specifically required in all instances. - The
supreme court did not specifically require in Cardinal Freight Carriers,
Inc. v. J.B. Hunt Transp. Servs., Inc., 336 Ark. 143, 987 S.W.2d 642
(1999), or in ConAgra, Inc. v. Tyson Foods, Inc., 342 Ark. 672, 30 S.W.3d
725 (2000) (Tyson I), that a postemployment confidentiality contract be
entered into in all instances to identify trade secrets and to protect
them; that was simply one measure to which the supreme court referred that
could be taken by the company to assure trade-secret protection
postemployment; however, as the supreme court made clear in Tyson I, no
efforts had been taken by the company to restrain the disclosure of
information postemployment, and that was determinative.
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3. Business & commercial law - trade secret - appellant did not
necessarily equate with confidential information. - The supreme court
concluded that it was clear from a reading of the language of appellant's
Corporate Code that appellant did not necessarily equate confidential
information to a trade secret; more was required under the Arkansas
trade-secret statutes. |
[349 Ark Page 470]
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4. Business & commercial law - trade secret - six-factor analysis
for determining. - The supreme court has endorsed a six-factor analysis in
determining whether information qualifies as a trade secret: (1) the
extent to which the information is known outside the business; (2) the
extent to which the information is known by employees and others involved
in the business; (3) the extent of measures taken by the company to guard
the secrecy of the information; (4) the value of the information to the
company and to its competitors; (5) the amount of effort or money expended
by the appellee in developing the information; and (6) the ease or
difficulty with which the information could be properly acquired or
duplicated by others.
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5. Business & commercial law - trade secret - failure of business
to protect against disclosure of information it considers secret is
critical to appellate analysis. - With respect to the third trade-secret
factor, which is the extent of measures taken by the company to guard the
secrecy of the information, the failure of a business to protect against
the disclosure of information it considers to be secret following
employment is critical to the supreme court's analysis and ultimate
decision regarding whether the information is in fact a trade
secret.
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6. Business & commercial law - trade secret - appellant failed to
take any precautionary measures to protect nutrient profile. - Appellant
failed to take any precautionary measures to protect its nutrient profile;
appellant's Corporate Code hardly qualified as an agreement between
appellant and its former employee not to disclose the nutrient profile;
nor were any other measures implemented, such as detailed record-keeping
procedures; physical security; confidentiality agreements; vendor and
supplier confidentiality agreements; the use of confidential stamps and
legends; the use of entrance and exit interviews; the use of techniques to
put employees on notice of the trade-secret status of the matter on which
they are working; posting of warning or cautionary signs or use of
document legends; restricting visitors; maintaining internal secrecy by
dividing the process into steps and separating the various departments
working on the several steps; using unnamed or coded ingredients; keeping
secret documents under lock; and limiting access to computer materials by
use of passwords to prevent unauthorized access and keeping magnetic
tapes, flow charts, symbolics and source codes under lock and key when not
in use.
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7. Business & commercial law - trade secret - subjective belief of
employee is largely irrelevant in absence of clear |
[349 Ark Page 471]
corporate action to protect information. - The supreme
court concluded that it was incumbent on appellant to clearly identify
what information it considered to be a trade secret because that is a
legal status fixed by statute; moreover, the supreme court drew a clear
distinction between actions taken by appellant to protect trade secrets on
the one hand and understandings of individual officers such as its former
employee in determining whether information was confidential and had value
on the other; absent clear corporate action to protect the nutrient
profile as a trade secret, a subjective belief of an individual employee
that the information is confidential or even had value was largely
irrelevant in the supreme court's analysis.
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8. Business & commercial law - trade secret - reliance on ethical
guide not enough to invoke trade-secret protection. - The efforts taken by
appellant to safeguard the information at issue came down to (1) the
Corporate Code and appellant's directive to its employees that the Code be
read, and (2) the company's faith in the integrity of its employees;
however, hundreds of appellant's managers were educated about the nutrient
profile, and there was no proof that appellant took any steps to swear
them to secrecy or to warn them of the confidential nature of the profile;
relying on an ethical guide such as the Corporate Code, which failed to
identify what is a trade secret or to mention the nutrient profile, was
simply not enough for appellant to invoke trade-secret
protection.
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9. Business & commercial law - trial court erred in finding
nutrient profile was appellant's trade secret - order granting motion for
judgment notwithstanding verdict affirmed for different reasons. - The
supreme court held that the trial court clearly erred in finding that the
nutrient profile was appellant's trade secret and that the trial court was
correct to reverse itself by granting a motion for judgment
notwithstanding the verdict, although the court's reason for doing so was
erroneous.
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Appeal from Washington Chancery Court; John Lineberger, Judge, and
Mark Lindsay, Judge, on exchange.
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Conner & Winters, Pllc, by: William B. Putman and Ruth A. Wisener;
and Quattlebaum, Grooms, Tull & Burrow, Pllc, by: Leon Holmes, for
appellant. <--pagenum--> [349 Ark Page 472]
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McGrath, North, Mullin & Kratz, P.C., by: Leo A. Knowles and
Patrick E. Brookhouser, Jr., and Cypert, Crouch, Clark & Harwell, by:
James E. Crouch, for appellee Con Agra, Inc.
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Everett Law Firm, by: John C. Everett and Jason H. Wales, for appellee
ConAgra Poultry Co.
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The opinion of the court was delivered by: Robert L. Brown,
Justice.
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Appellant Tyson Foods, Inc., appeals the granting of a motion for
judgment notwithstanding the verdict in favor of appellees ConAgra, Inc.,
and ConAgra Poultry Co. (both companies referred to collectively in this
opinion as ConAgra). Tyson essentially mounts two arguments in its appeal:
(1) that Arkansas law does not invariably require employers to enter into
postemployment confidentiality agreements with departing employees for
company information to qualify as a trade secret, and (2) Tyson's nutrient
profile qualifies as a trade secret. We affirm the trial court's order
granting the motion for judgment notwithstanding the verdict, but we do so
for reasons other than those stated by the trial court in its
order.
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In 1984, David Purtle began his employment with Tyson. *fn1 At the time of his resignation from Tyson in 1999,
Purtle held the position of Senior Vice-President in charge of Retail
Poultry. In 1997, he directed Dr. Roy Brister, Vice-President of Nutrition
Research at Tyson, to develop two nutrient profiles (described as "normal"
and "reduced") for use in formulating Tyson's poultry feed to avoid having
different nutrient profiles at each Tyson complex. Dr. Brister did so. The
two profiles were compiled into a single document, the "nutrient profile,"
which Tyson used to formulate feed for its chickens, based on varying
combinations and levels of amino acids. In June 1999, Purtle left Tyson
and began his employment with ConAgra, because he had become unhappy with
a reorganization of management at Tyson. Soon after he began work with
ConAgra, Purtle gave ConAgra the Tyson nutrient profile, which ConAgra
then implemented.
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That same year, Tyson initiated trade-secret litigation against
ConAgra in which it contended that ConAgra had "raided" Tyson and hired
away four top management executives, including |
[349 Ark Page 473]
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Purtle, and that those executives would inevitably divulge or had
divulged trade secrets to ConAgra. Tyson's prayer for relief included an
injunction against disclosure of Tyson's trade secrets and damages for
misappropriation of the same. Allegations against Purtle were severed,
because it was alleged that he had actually given trade secrets to
ConAgra. The trial of the remaining three executives proceeded. The trial
court in that trial found that certain pricing information and marketing
strategies were trade secrets, and it enjoined the three former Tyson
executives from revealing those trade secrets for a period of one year.
This court reversed and held that the trial court erred in granting the
injunction, because Tyson had made no efforts to restrain disclosure of
information postemployment. See ConAgra, Inc. v. Tyson Foods, Inc., 342
Ark. 672, 30 S.W.3d 725 (2000) (Tyson I).
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The case involving Purtle was tried in October 2000, and a jury was
impaneled, though the matter was in chancery court. Evidence was presented
on (1) whether the nutrient profile was a trade secret; (2) whether it was
misappropriated; and (3) what damages may have resulted from a
misappropriation. Following a trial on liability, the trial court found
that the "nutrient profile" was a trade secret under Arkansas law and was
misappropriated. The trial court so instructed the jury, and the matter of
damages was submitted to a jury. The jury returned a verdict in favor of
Tyson for trade secret misappropriation in the amount of $20,094,531. On
October 26, 2000, the trial court entered a judgment in the amount of
$20,094,531 against ConAgra.
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On November 8, 2000, ConAgra filed a Motion for Judgment
Notwithstanding the Verdict, or Alternatively, Motion for Remittitur or
New Trial. On December 7, 2000, the trial court entered its Order
Regarding Trade Secret Misappropriation, which included the following
findings:
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1. That Tyson's nutrient profile (the "Profile") is a formula,
and
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2. The Profile has independent economic value from not being generally
known; and |
[349 Ark Page 474]
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3. The Profile is not readily ascertainable because it is not readily
available on the open market and it is not capable of being reverse
engineered; and
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4. Tyson took reasonable efforts to protect the secrecy of the Profile
by instituting Tyson's Code of Conduct and Compliance Policy that contains
a confidentiality provision, by having verbal understandings with its
employees and by taking other measures that are equivalent to those
standards in the industry.
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Also on December 7, 2000, and because of this court's decision in
Tyson I, which was handed down on November 16, 2000, the trial court
granted the motion for judgment notwithstanding the verdict and concluded
that Tyson I "appears to require a written contract prohibiting
postemployment disclosure of information and upon no other
grounds."
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On December 29, 2000, the trial court entered an Order of Modification
nunc pro tunc, adding two additional findings to the December 7, 2000
Order Regarding Trade Secret Misappropriation:
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5. The Profile constitutes a trade secret under the
ATSA.
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6. Because David Purtle supplied the Profile to ConAgra which
immediately implemented it without the knowledge or permission of Tyson,
the Profile was misappropriated pursuant to the ATSA.
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It is from the order of December 7, 2000, granting the motion for
judgment notwithstanding the verdict and the modification order of
December 29, 2000, that Tyson appeals. However, we note that the December
7, 2000 Order Regarding Trade Secret Misappropriation, as modified, was
favorable to Tyson. The second December 7, 2000 order was the grant of the
motion for a judgment notwithstanding the verdict. Tyson urges that this
court reverse the trial court's order granting the motion for judgment
notwithstanding the verdict and reinstate the jury's original damage
award. ConAgra filed a notice of cross-appeal and in its brief argued
before this court that Tyson's proof could not support the verdict and
judgment. |
[349 Ark Page 475]
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We first admit to some confusion over the postjudgment relief
requested by ConAgra in the form of a judgment notwithstanding the verdict
or, alternatively, motion for remittitur or new trial. Part of our
confusion may relate to impaneling a jury in chancery court. It appears
clear to us that it was the trial court that first concluded that the
nutrient profile was a trade secret that was misappropriated by Purtle and
so instructed the jury. The trial court then submitted the issue of
damages to the jury. The jury found that Tyson had been damaged and in
what amount. This all seems akin to a judge directing a verdict in favor
of a plaintiff with the jury fixing damages. In effect, ConAgra's
posttrial motion was a motion for the trial court to reconsider its
December 7, 2000 Order Regarding Trade Secret Misappropriation in light of
this court's decision in Tyson I. Thus, we will treat the motion for
judgment notwithstanding the verdict as one for reconsideration of the
trial court's original order based on our decision in Tyson
I.
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The question then becomes: what is this court's standard of review for
the trial court's order granting ConAgra's motion for judgment
notwithstanding the verdict? The trial court read our decision in Tyson I
as requiring a reversal of its initial ruling as a matter of law. The
trial court reversed itself solely for the reason that it believed it was
mandated to do so by Tyson I, due to the absence of a postemployment
confidentiality agreement.
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[1] Our standard of review in chancery cases is de novo. See Tyson I;
Ferguson v. Green, 266 Ark. 556, 587 S.W.2d 18 (1979). As we said in Tyson
I:
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All of the issues raised in the court below are before the appellate
court for decision and trial de novo on appeal in equity cases involves
determination of fact questions as well as legal issues. The appellate
court reviews both law and fact and, acting as judges of both law and fact
as if no decision had been made in the trial court, sifts the evidence to
determine what the finding of the chancellor should have been and renders
a decree upon the record made in the trial court. The appellate court may
always enter such judgment as the chancery court should have entered upon
the undisputed facts in the record. |
[349 Ark Page 476]
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342 Ark. at 677, 30 S.W.3d at 728-29 (quoting Ferguson, supra, 266
Ark. at 564, 587 S.W.2d at 23 (1979) (citations omitted)). We have further
stated that we do not reverse a chancery court's findings of fact unless
we conclude the chancery court has clearly erred. See Tyson I; Bendinger
v. Marshalltown Trowell Co., 338 Ark. 410, 994 S.W.2d 468 (1999).
Accordingly, our standard of review in this case is de novo, but we will
apply the clearly-erroneous standard to any findings of fact made by the
trial court.
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a. Postemployment confidentiality agreement.
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Turning to the merits, we first consider whether the trial court erred
in concluding that this court held in Tyson I that a postemployment
confidentiality agreement be signed in all instances as an absolute
prerequisite for trade-secret status and protection. We hold that the
trial court did err in this regard. Our decision in Tyson I was not
limited to the failure to have a postemployment contract. Rather, we
concluded:
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As best we can tell, there were no efforts on Tyson's part to restrain
disclosure of information postemployment. And that distinguishes the facts
in this case from the facts in Cardinal Freight. Obviously, the failure of
a business to protect against the disclosure of information it considers
to be secret following employment is critical to our analysis and ultimate
decision regarding whether the information is in fact a trade
secret.
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Accordingly, we conclude that the trial court was clearly erroneous in
finding that the information at issue qualified as a trade secret. We
reverse the decree of the trial court ordering the one-year injunctions
and remand for an order to be entered forthwith voiding the
injunctions.
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Tyson I, 342 Ark. at 680, 30 S.W.3d at 730-31 (emphasis
added).
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In holding as we did, we relied on our opinion in Cardinal Freight
Carriers, Inc. v. J.B. Hunt Transp. Serv., Inc., 336 Ark. 143, 987 S.W.2d
642 (1999). In Cardinal Freight, we alluded to a postemployment
confidentiality agreement for one year as being one way a company could
protect trade secrets. We also emphasized measures taken by the company
during the employee's employment to protect the secrecy of its
information. J.B. Hunt, in that case, had passwords and passcodes in place
to protect trade-secret |
[349 Ark Page 477]
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information and had adopted a "loose-lips" policy to restrict public
disclosure of confidential information.
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[2] In short, we did not specifically require in Cardinal Freight or
in Tyson I that a postemployment confidentiality contract be entered into
in all instances to identify trade secrets and to protect them. That was
simply one measure to which we referred that could be taken by the company
to assure trade-secret protection postemployment. However, as we made
clear in Tyson I, no efforts had been taken by the company to restrain the
disclosure of information postemployment. And that was
determinative.
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b. Trade-Secret Protection.
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Having concluded that a postemployment confidentiality agreement is
not an absolute requirement in all instances for trade-secret protection,
we now consider whether the trial court was right to rule in favor of
ConAgra on its motion for judgment notwithstanding the verdict, albeit for
the wrong reason. See Norman v. Norman, 347 Ark. 682, 66 S.W.3d 635
(2002); Ouachita Trek & Dev. Co. v. Rowe, 341 Ark. 456, 17 S.W.3d 491
(2000); Malone v. Malone, 338 Ark. 20, 991 S.W.2d 546 (1999). In this
regard, we examine what steps Tyson took both during Purtle's employment
and postemployment to identify the nutrient profile as a trade secret and
to protect it. Tyson urges that it did take pains to protect its
confidential information and points to its Corporate Code of Conduct and
Compliance Policy (Corporate Code) as evidence of that fact.
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As we noted in Tyson I, Tyson adopted the Corporate Code in the
mid-to-late 1990s as an outgrowth of the special prosecutor's
investigation into the affairs of Michael Espy and Tyson. The Corporate
Code includes various legal and ethical principles, and its purpose,
according to its foreword written by Tyson's then chairman and CEO, is "to
help us at Tyson Foods make ethical business decisions." The Corporate
Code deals with Conflicts of Interest, Confidential Information, Corporate
Records, Relationships with Government Personnel, Political Contributions,
International Transactions, Antitrust Compliance, Environmental
Compliance, and Reporting of Violations. Employees were asked |
[349 Ark Page 478]
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to read the code and then sign a statement to the effect that they had
done so. They further attend a class every year in which the Code is
discussed. No contractual agreement was required between the company and
its employees mandating that the employees would keep certain information
confidential.
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[3] The pertinent provision of the Corporate Code for our purposes is
the section entitled "Confidential Information":
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1. Proprietary Information
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All Tyson Foods' employees are required to safeguard the Company's
confidential business and technical information and use such information
only for Company purposes. Failure to observe this duty of confidentiality
may additionally result in a conflict of interest or a violation of
securities, antitrust, or employment laws. Confidential information,
whether Tyson Foods' information or the information of others, may further
be subject to agreements Tyson Foods has with other companies, trade
secret statutes, or other laws for the protection of such information. In
addition to protecting its own trade secrets, it is the policy of Tyson
Foods to respect the trade secrets of others. Tyson Foods will not
tolerate the violation of confidentiality or secrecy agreements or the
improper acquisition of protected information. If a Tyson Foods' employee
is furnished with information or becomes aware of information which may
have been misappropriated from another party, the employee must
immediately contact the Legal Department.
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It is clear from a reading of this language that Tyson did not
necessarily equate confidential information to a trade secret. More was
required under our trade-secret statutes.
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We turn then to an examination of our trade-secret law. Section
4-75-601(4) of Arkansas's Unfair Practices Code defines a "trade secret"
as:
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(4) "Trade secret" means information, including a formula, pattern,
compilation, program, device, method, technique, or process,
that:
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(A) 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; and |
[349 Ark Page 479]
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(B) Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
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Ark. Code Ann. § 4-75-601(4) (Repl. 2001).
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[4, 5] In addition to the statute, this court has endorsed a
six-factor analysis in determining whether information qualifies as a
trade secret: (1) the extent to which the information is known outside the
business; (2) the extent to which the information is known by employees
and others involved in the business; (3) the extent of measures taken by
the company to guard the secrecy of the information; (4) the value of the
information to the company and to its competitors; (5) the amount of
effort or money expended by the appellee in developing the information;
and (6) the ease or difficulty with which the information could be
properly acquired or duplicated by others. See Tyson I. See also Weigh
Sys. S., Inc. v. Mark's Scales & Equip., Inc., 347 Ark. 868, 68 S.W.3d
299 (2002); Wal-Mart Stores, Inc. v. P.O. Market, Inc., 347 Ark. 651, 66
S.W.3d 620 (2002); Saforo & Assocs., Inc. v. Porocel Corp., 337 Ark.
553, 991 S.W.2d 117 (1999); Restatement of Torts § 757, cmt. b. As to the
third factor, which is the extent of measures taken by the company to
guard the secrecy of the information, this court held in Tyson I that "the
failure of a business to protect against the disclosure of information it
considers to be secret following employment is critical to our analysis
and ultimate decision regarding whether the information is in fact a trade
secret." Tyson I, 342 Ark. at 680, 30 S.W.3d at 731. Here, Tyson maintains
that it took reasonable efforts to guard the secrecy of its nutrient
profile. We disagree.
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Tyson specifically argues that Purtle admitted that he considered the
nutrient profile to be confidential and that he instructed others that it
was. Further, Tyson claims that Purtle knew of his obligation to keep such
information secret because of the Corporate Code. Tyson also asserts that
the nutrient profile was an internal document and was not part of any
third-party customer contract. Moreover, it contends that, according to
Dr. Brister, only five people at Tyson retained a hard copy of the
nutrient profile. ConAgra counters this by urging that while Purtle
thought the nutrient profile was confidential, he testified that he never
considered it to be a trade secret. ConAgra also points to Purtle's |
[349 Ark Page 480]
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| [64] |
testimony that hundreds of Tyson managers in the field were given a
hard copy of the nutrient profile, without an admonition of
confidentiality, which undercuts any notion that the profile was a trade
secret.
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| [65] |
We turn then to an examination of the efforts taken by Tyson to keep
the nutrient profile secret, both during Purtle's employment and after he
left to join ConAgra. Certainly, covenants not-to-compete and
confidentiality agreements would have been active efforts on the part of
Tyson to protect proprietary information it considered to be a trade
secret. See Weigh Sys. S., Inc. v. Mark's Scales & Equip., Inc.,
supra; Tyson I, supra. However, those steps are not the only options
available to a company. Melvin F. Jager, in his treatise, Trade Secrets
Law, sets out other options, in addition to publishing corporate ethical
principles, which would be acceptable measures for a company to institute
to protect secret information. Those measures include detailed
record-keeping procedures, physical security, confidentiality agreements,
vendor and supplier confidentiality agreements, use of confidential stamps
and legends, computer security measures like passwords, and the use of
entrance and exit interviews. See 1 Melvin F. Jager, Trade Secrets Law §
5.05[2][c] (2001).
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| [66] |
The treatise, Milgrim on Trade Secrets, details a variety of
precautionary steps that have been implemented by trade-secret owners to
protect secret information: use of techniques to put employees on notice
of the trade-secret status of the matter on which they are working;
posting of warning or cautionary signs or use of document legends;
restricting visitors; maintaining internal secrecy by dividing the process
into steps and separating the various departments working on the several
steps; using unnamed or coded ingredients; keeping secret documents under
lock; and limiting access to computer materials by use of passwords to
prevent unauthorized access and keeping magnetic tapes, flow charts,
symbolics and source codes under lock and key when not in use. See 1 Roger
M. Milgrim, Milgrim on Trade Secrets § 1.04 (2001).
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| [67] |
The South Dakota Supreme Court has also discussed reasonable
precautions for maintaining secrecy when a feed supplement was at issue:
|
[349 Ark Page 481]
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| [68] |
In addition, there was no substantial evidence showing Weins took
reasonable efforts to maintain his product's secrecy. SDCL 37-29-1(4)(ii).
Secrecy is fundamental to the existence of a trade secret. Pioneer Hi-Bred
Int'l, 35 F.3d at 1235. Although the secrecy is not required to be
absolute, reasonable precautions must be taken. Id. Regarding such
precautions, the Appellate Court of Illinois held:
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| [69] |
[N]o evidence exists to show that plaintiff took any affirmative
measures to keep its [product] secret. No evidence was presented regarding
internal or external physical security; that confidentiality agreements or
understanding existed among those having access to plaintiff's [product];
that plaintiff's [product] contained confidentiality stamps or [was] kept
under lock and key; or that employees received entrance and exit
interviews imparting the importance of confidentiality. Consequently, we
conclude that plaintiff failed to produce sufficient evidence to prove
that under [the relevant section] of the [Trade Secrets] Act, its
[product] was the subject of reasonable efforts designed to protect its
secrecy.
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| [70] |
Gillis Associated Indus. v. Cari-All, 206 Ill. App.3d 184, 151 Ill.
Dec. 426, 431, 564 N.E.2d 881, 886 (1990) (applying the same subsection as
SDCL 37-29-1(4)(ii)).
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| [71] |
Weins v. Sporleder, 569 N.W.2d 16, 27 (S.D. 1997).
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| [72] |
[6] Tyson failed to take any precautionary measures to protect its
nutrient profile. The Corporate Code at Tyson, for example, hardly
qualifies as an agreement between Tyson and Purtle not to disclose the
nutrient profile. Nor were any other measures, such as those listed above,
implemented. Donald "Buddy" Wray, the former President of Tyson, and a
current member of its Board of Directors, summarized Tyson's
efforts:
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| [73] |
Counsel: I had forgotten to ask you a question. Oh, I want to go back
to the issue of Tyson's code of conduct-Corporate Code of Conduct. Do you
remember the question about the Corporate Code of Conduct?
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| [74] |
Wray: Yes, sir.
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Counsel: Did Tyson do anything else or rely upon anything else, other
than the Corporate Code of Conduct, with respect to |
[349 Ark Page 482]
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| [76] |
keeping the confidentiality of its proprietary information or alleged
trade secrets?
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_____Wray: I don't think Tyson would be any different than anyone
else. You can have a signed document, but you have to trust your people
and believe in their honesty and in their integrity.
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_____Counsel: Have you heard Mr. Manuel comment one way or another as
to what he believes the standard in the industry is with respect to
maintaining confidentiality of proprietary information and alleged trade
secrets?
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| [79] |
_____Wray: I think his words were that they had to depend on the
honesty or the character and integrity of their people.
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| [80] |
Wray also testified that Tyson's Corporate Code did not list items
like the nutrient profile it considered to be confidential in the
Corporate Code. Finally, Wray admitted that there was no time for an exit
interview with Purtle. Of course, an exit interview could have been used
to discuss matters Tyson believed were proprietary.
|
| [81] |
Dr. Roy Brister, Vice President of Tyson's Nutrition Research,
testified that only five employees had a hard copy of the nutrient
profile, but he admitted that many other Tyson employees had seen it on an
overhead projector because the nutrient profile was used as a tool to
educate the upper management of Tyson's complexes. Apparently, one reason
for showing the nutrient profile was so the managers could choose between
the normal or the reduced profile. Dr. Brister could not say whether those
managers were told about the confidential nature of the profile. Purtle
added that these meetings with Tyson managers out in the field probably
involved a total of four hundred to four hundred and fifty people. He
contradicted Dr. Brister's testimony and stated that most of the field
managers were given a hard copy of the nutrient profile.
|
| [82] |
[7] Tyson bears down hard on the fact that Purtle admitted that he
knew the nutrient profile was confidential. The fact that Purtle himself
believed the nutrient profile to be confidential, however, as well as the
fact that Dr. Brister testified that Purtle told him he thought the
profile possessed economic value do not decide the issue for us. Purtle
also testified that he did not believe |
[349 Ark Page 483]
|
| [83] |
the nutrient profile was a trade secret. We believe that it was
incumbent on Tyson to clearly identify what information it considered to
be a trade secret, as that is a legal status fixed by statute. Moreover,
we draw a clear distinction between actions taken by Tyson to protect
trade secrets on the one hand and understandings of individual officers
like Purtle in determining whether information was confidential and had
value on the other. As discussed above, the six Saforo factors contemplate
that it is the efforts taken by the company to safeguard the information
that is critical, not the perception of individual officers. Absent clear
corporate action to protect the nutrient profile as a trade secret, a
subjective belief of an individual employee that the information is
confidential or even had value seems largely irrelevant in our analysis.
We note once more that even the Corporate Code distinguished confidential
information from a trade secret.
|
| [84] |
[8] In sum, the efforts taken by Tyson to safeguard the information
comes down to (1) the Corporate Code and Tyson's directive to its
employees that the Code be read, and (2) the company's faith in the
integrity of its employees. Yet, hundreds of Tyson managers were educated
about the nutrient profile and there was no proof that Tyson took any
steps to swear them to secrecy, or warn them of the confidential nature of
the profile. Relying on an ethical guide like the Corporate Code, which
fails to identify what is a trade secret or to mention the nutrient
profile, is simply not enough for Tyson to invoke trade-secret
protection.
|
| [85] |
[9] We hold that the trial court clearly erred in finding that the
nutrient profile was a Tyson trade secret and that the trial court was
correct to reverse itself by granting the motion for judgment
notwithstanding the verdict, albeit the court's reason for doing so was
erroneous. Because we affirm the order granting the motion for judgment
notwithstanding the verdict, ConAgra's cross-appeal on damages is
moot.
|
| [86] |
Affirmed.
|
| [87] |
Thornton, J., dissents.
|
| [88] |
Ray Thornton, Justice, dissenting.
|
| [89] |
The trial court found that Tyson Food's nutrient profile was a trade
|
[349 Ark Page 484]
|
| [90] |
secret belonging to Tyson Foods and that David Purtle, Senior
Vice-President in charge of Retail Poultry at Tyson, misappropriated the
secret formula when he left the company. A few days after Mr. Purtle left
Tyson, the former senior vice-president delivered the secret formula to
Tyson's competitor, ConAgra, of which company he had just been named
President of Retail Sales. Mr. Purtle gave the confidential profile to Dr.
Dorr, the nutritionist for ConAgra, and told him to "implement this," and
Dr. Dorr immediately took steps to implement the Tyson nutrient formula at
ConAgra.
|
| [91] |
The question of damages to Tyson by ConAgra's use of the nutrition
formula was fixed by the jury at more than twenty million dollars, and
ConAgra sought a remittitur to reduce the judgment to the 1.3 million
dollars, which was the amount that ConAgra testified they saved by using
Tyson's nutrient profile.
|
| [92] |
Notwithstanding its findings of fact and the verdict of the jury, the
trial court granted ConAgra's motion for a JNOV based upon a
misinterpretation of our holding in Conagra, Inc. v. Tyson Foods, Inc.,
342 Ark. 672, 30 S.W.3d 725 (2000), (hereinafter Tyson I). The trial court
erroneously concluded that an action for damages for the misappropriation
of a trade secret could not be maintained unless the company had
implemented written post-employment, non-competition agreements. The trial
court reaffirmed all its findings as to the existence of a trade secret
and its misappropriation but set aside the jury verdict and consequent
damages on the sole ground that our decision in Tyson I required that
extraordinary action.
|
| [93] |
I agree with the majority's conclusion that a JNOV was not required by
our decision in Tyson I and that the trial court erred in setting aside
the verdict on the basis of its erroneous interpretation of our Tyson I
decision.
|
| [94] |
The conclusion by the majority that a JNOV was not required should
have the effect of reinstating the earlier findings by the trial court and
the verdict by the trial court and the jury unless, in our de novo review
we determined that the earlier findings by the trial court were clearly
erroneous. These earlier findings were specifically repeated when the
trial court erroneously |
[349 Ark Page 485]
|
| [95] |
reversed itself based on its misinterpretation of the legal principals
articulated in our Tyson I opinion. We do not reverse a finding of fact by
the chancery court unless it is clearly erroneous. Weigh Systems South v.
Mark's Scales & Equipment, Inc., 347 Ark. 868, 68 S.W.3d 299 (2001). A
finding of fact by the chancery court is clearly erroneous when, although
there is evidence to support it, the reviewing court on the entire
evidence is left with a definite and firm conviction that a mistake has
been committed. Id.
|
| [96] |
While I agree with the majority that the trial court erred in its
application of Tyson I, I believe the effect of that conclusion
necessitates the reinstatement of the trial court's earlier findings and
the jury verdict. However, I disagree with the majority's conclusion that
a review of the evidence supporting the findings made by the trial court
reflect that those findings were clearly erroneous, and I respectfully
dissent. I believe that each of the trial court's findings was based upon
convincing evidence and that the trial court's findings were not clearly
erroneous.
|
| [97] |
In my analysis of the issues before the trial court, I will first
address whether the trial court's finding that the nutrient profile was a
trade secret was clearly erroneous. Next, I will consider whether the
trial court's finding that the trade secret was misappropriated and that
damages resulted from the misappropriation was clearly erroneous. Finally,
I will consider whether the jury's determination that Tyson suffered
damages as a result of the misappropriation and conversion of its nutrient
formula was clearly erroneous.
|
| [98] |
Was the trial court clearly erroneous in finding that the nutrient
profile formula is a trade secret?
|
| [99] |
I. Saforo Analysis
|
| [100] |
In Tyson I, this court listed the six factors from Saforo & Assoc.
Inc., v. Porocel Corp., 337 Ark. 553, (1999) to be used to determine
whether company information qualifies as a "trade secret": (1) the extent
to which the information is known outside the business; (2) the extent to
which the information is known by employees and others involved in the
business; (3) the extent of measures taken by the company to guard the
secrecy of the information; (4) the value |
[349 Ark Page 486]
|
| [101] |
of the information to the company and to its competitors; (5) the
amount of effort or money expended by the appellee in developing the
information; and (6) the ease or difficulty with which the information
could be properly acquired or duplicated by others. Id. See, Ark. Code
Ann. § 4-75-601(4). *fn2
|
| [102] |
In interpreting this statute we have listed six factors to be
considered. Saforo, supra. I will examine each of the six criteria
presented in Soforo, Id.
|
| [103] |
The first factor is the extent to which the information is known
outside the business. There was no evidence that the Tyson nutrient
profile was known by anyone outside of Tyson until David Purtle took a
copy of the profile from his desk at Tyson and shared that copy with
ConAgra. Mr. Purtle testified that as an officer of Tyson, he instructed
the nutritionists of Tyson to develop the formula and to keep it
confidential because it gave Tyson a competitive advantage in the cost of
feeding chickens.
|
| [104] |
The testimony of Dr. Brister, the Tyson nutritionist who led the
development of the formula, was that there were only five hard copies of
the nutrition formula, and that they were treated as confidential by the
five nutritionists who used them in developing appropriate feed mixes. It
is true that the existence of the confidential formula was disclosed by
means of an overhead projector to other Tyson employees, all of whom had
signed a confidentiality agreement. There is no evidence that the
confidential nutritional formulas had been seen or discovered by anyone
other than a Tyson employee until Mr. Purtle took his copy from his desk
at Tyson and delivered it to ConAgra with instructions to implement it for
that company's benefit.
|
| [105] |
The trial court's finding relating to the first Saforo factor that the
information was not known outside of Tyson is certainly not clearly
erroneous. |
[349 Ark Page 487]
|
| [106] |
The second factor of the Saforo test is the extent to which the
information is known by employees and others involved in the business.
Here, the development of the confidential nutritional formula was
accomplished by five Tyson nutritionists who were instructed to keep the
formula confidential by Mr. Purtle. Furthermore, Dr. Roy Brister, Tyson's
nutritionist, stated that Tyson has between 65,000 and 70,000 employees
but that "I would say five people have a copy of this sheet [the
formula]." Dr. Brister further stated, "if there is one document in the
nutrition department I could protect from disclosure, it would be our
nutrient profile."
|
| [107] |
The trial court was not clearly erroneous in concluding that the
evidence showed that the confidential formula was closely guarded,
satisfying this element of the Saforo criteria.
|
| [108] |
The third factor in the Saforo analysis is to examine the extent of
the measures taken by the company to guard the secrecy of the information.
This third factor was given particular emphasis by this court in Tyson I,
a case that related to price lists that were generally available to any
purchaser. We stated:
|
| [109] |
Though reasonable efforts to protect the secrecy of certain
information is only one of the factors we look to in determining the
status of a trade secret, it is a prominent one. To reiterate in part, §
4-75-601(4)(B) requires that for information to qualify as a trade secret,
it must be "the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. And in Saforo & Assoc., Inc. v.
Porocel Corp., supra, we listed as a factor the extent of measures taken
by the company to guard the secrecy of the information. As best we can
tell, there were no efforts on Tyson's part to restrain disclosure of
[price list] information post-employment. And that distinguishes the facts
in this case from the facts in Cardinal Freight. Obviously, the failure of
a business to protect against the disclosure of information it considers
to be secret following employment is critical to our analysis and ultimate
decision regarding whether the information is in fact a trade
secret.
|
| [110] |
Tyson I, supra. By no means did this court hold in Tyson I that simply
because there was no written post-employment agreement of confidentiality
or covenant not to compete, there could be no |
[349 Ark Page 488]
|
| [111] |
trade secret. We considered that factor as a part of our analysis of
whether or not Tyson took steps to keep price lists a
secret.
|
| [112] |
In the case before us, while there was no covenant not to compete, or
a post-employment agreement not to divulge trade secrets, there were valid
measures taken by Tyson to guard the secrecy of the nutrient profile.
First, unlike the price lists involved in Tyson I, the nutrient profile
was not made public. Next, the corporate code of conduct required current
employees to guard the secrecy of Tyson's confidential information. This
code of conduct was a means by which Tyson instructed its employees that
certain information was meant to be kept secret. Post-employment
confidentiality contracts are only one way in which to indicate to
employees that information should be kept confidential, and even Tyson I
does not hold that post-employment contracts are necessary to support a
finding that there was a trade secret. Here the court considered
convincing evidence that Mr. Purtle knew the nutrition profile was
confidential, instructed the nutritionists to safeguard the information,
and signed the corporate code of conduct protecting confidential
information. The trial court's finding that this prong of the Saforo test
was met, and that there were sufficient measures taken by Tyson to guard
the secrecy of the information was not clearly erroneous.
|
| [113] |
The fourth factor in determining whether the information is a trade
secret is the value of the information to the company and to its
competitors. The value of the nutrient profile to the company was shown by
ConAgra's reduced costs due to the implementation of the nutrient profile.
ConAgra testified that it saved 1.3 million dollars by using the nutrient
profile. Purtle told Dr. Dorr at ConAgra to implement the nutrient
profile, and therefore the trial court was not clearly erroneous in
finding that ConAgra implemented the profile because it was useful and
valuable. Indeed, it is ConAgra who asks this court for a remittitur of
the damages to the 1.3 million dollar amount that they admit they saved as
a result of implementing the nutrient profile. However, ConAgra argues
that because it no longer uses the profile, it does not remain valuable.
The fact remains that ConAgra used the nutrient profile and saved
substantial costs for a period of time, and that is sufficient to support
the trial court's finding that the |
[349 Ark Page 489]
|
| [114] |
fourth Saforo factor was satisfied as to the value of the secret.
Certainly, the trial court's finding was not clearly
erroneous.
|
| [115] |
The trial court next weighs the amount of effort or money expended by
the appellee in developing the information to determine if there is a
trade secret. With respect to the fifth Saforo factor, the testimony is
not controverted that Tyson invested much time, money, and effort in
developing the confidential nutritional profile. Tyson presents evidence
that the effort in developing the nutrient profile involved years of
private research by nutritionalists and chemists at Tyson. ConAgra argues
that Tyson received this nutrient profile from its acquisition of Holly
Farms, and spent no more than a few hours developing the information. Dr.
Roy Brister testified that the tests had been under development since
1993. Even if ConAgra is correct in its assertion that the nutrient
profile was first developed at Holly Farms, Tyson expended resources
acquiring that company and its profile, and that is part of its
expenditure in developing the secret formula. Again, I would not
characterize the trial court's finding on this Saforo factor as being
"clearly erroneous."
|
| [116] |
The sixth element of the Saforo test is the ease or difficulty with
which the information could properly be acquired or duplicated by others.
Tyson argues that though the nutrient levels of a sample of feed could be
ascertained from a sample, the samples of feed vary so much that it would
be difficult, if not impossible to reverse engineer from a sample, as Dr.
Brister testified: "My opinion is absolutely not. I say that for all the
reasons we've talked about and because it is based on Tyson data from our
thirty-one complexes, years of information . . . Looking at our history,
it would take fifteen years or more [for ConAgra to develop the same
nutrient profile.]
|
| [117] |
Furthermore, getting the percentages of supplemental nutrients exactly
right is key to saving the money that ConAgra saved. Dr. Brister
testified: "A one-hundredth of a percent change in Lysine for Tyson is
nearly five-million dollars. Even on these concepts, the last hundredth
decimal place can be millions of dollars from Tyson's standpoint." |
[349 Ark Page 490]
|
| [118] |
Dr. Brister put it very succinctly: "Based on the variations I have
discussed, it is my opinion that neither ConAgra nor another poultry
company could determine Tyson's nutrient profile by reverse engineering.
Even if ConAgra or another competitor knew the amino acid levels in all of
Tyson's five feeds, they could not recreate the information on this
chart." Certainly the trial court was not clearly erroneous in concluding
that this sixth Saforo factor supported the existence of a trade
secret.
|
| [119] |
Everyone agrees that the nutritional profile was confidential. Whether
this confidential information should be treated as a trade secret should
be subject to a Saforo analysis. The findings by the trial court that each
of the Saforo factors was satisfied and that the nutrient profile is a
trade secret are based upon convincing evidence. The trial court's
findings are not clearly erroneous. Thus, the judgement based upon those
findings should be affirmed, and the granting of a JNOV on a
misinterpretation of law should be reversed.
|
| [120] |
Was the trial court clearly erroneous in finding that the nutrient
profile formula was misappropriated?
|
| [121] |
II. Misappropriation of a Trade Secret
|
| [122] |
Where a trade secret is at issue, we must next determine whether
ConAgra misappropriated the secret. Misappropriation of a trade secret is
defined at Ark. Code Ann. § 4-75-601 as:
|
| [123] |
(A) Acquisition of a trade secret of another by a person who knows or
who has reason to know that the trade secret was acquired by improper
means; or
|
| [124] |
(B) Disclosure of use of a trade secret of another without express or
implied consent by a person who:
|
| [125] |
(i) used improper means to acquire knowledge of the trade secret;
or
|
| [126] |
(ii) at the time of disclosure or use, knew or had reason to know that
his knowledge of the trade secret was:
|
| [127] |
(a) derived from or through a person who had utilized improper means
to acquire it; |
[349 Ark Page 491]
|
| [128] |
(b) acquired under circumstances giving rise to a duty to maintain its
secrecy or limits its use; or
|
| [129] |
(c) derived from or through a person who owed a duty to the person
seeking relief to maintain its secrecy or limits its use; or
|
| [130] |
(iii) Before material change of his position, knew or had reason to
know that it was a trade secret and that knowledge of it had been acquired
by accident or mistake.
|
| [131] |
Id.
|
| [132] |
ConAgra's actions clearly constitute misappropriation of a trade
secret. Purtle knew or had reason to know that giving the confidential
nutrient profile to ConAgra constituted a conversion of the trade secret
for ConAgra's benefit by improper means. He understood the nutrient
profile to be "confidential" and in limited distribution within Tyson, but
still gave it to ConAgra nutritionists for use in order to reduce costs.
Purtle's misappropriation of the nutrient formula was a breach of his
agreement with Tyson to keep that information confidential. His former
position at Tyson as the Senior Vice-President of Retail Sales at Tyson
gave him access to confidential trade secrets. He handed over those trade
secrets to ConAgra immediately after being hired, a blatant
misappropriation and abuse of his former position at Tyson.
|
| [133] |
It seems clear to me that the trial court's findings that the nutrient
profile was a trade secret, that the trade secret was misappropriated and
delivered to a competitor, and that this misappropriation of a trade
secret damaged Tyson in a substantial amount are all supported by the
evidence. I cannot find an instance where those findings were "clearly
erroneous."
|
| [134] |
For that reason, I believe we should reverse the trial court on its
erroneous interpretation of the principles of law articulated in our
decision in Tyson I, and reinstate the trial court's findings and the jury
verdict. Because the majority concludes otherwise, the majority did not
discuss the issue of a possible remittitur, and I will also refrain from
addressing that issue.
|
| [135] |
I respectfully dissent.
|
| |
|
| |
Opinion Footnotes |
| |
|
| [136] |
*fn1 Purtle had been employed by Tasty Bird, which was
acquired by Tyson in 1984.
|
| [137] |
*fn2 "Trade secret" means information, including a formula,
pattern, compilation, program, device, method, technique, or process,
that:
|
| [138] |
(A) 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; and (B) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. [349 Ark Page
492]
|
