One of my clients provides sophisticated IT services to the Department of Defense. The client recently won a lucrative multi-million federal contract.
The client’s subcontractor then sued my client for more than $3.7 million. The subcontractor asserted that my client breached alleged partnership and contractual obligations—including a right of first refusal—by not hiring the subcontractor to perform on the awarded federal contract.
The subcontractor also claimed that my client breached non-solicitation provisions—and committed tortious interference—because the client had used the services of one of the subcontractor’s independent contractors to bid on, and win, the federal contract.
The client countersued because the subcontractor possessed, and refused to return, a number of the client’s proprietary documents and trade secrets, including proposals and pricing used to bid on federal contractors. Michigan’s Uniform Trade Secret Act, MCL 445.1901 et seq., permits a company to seek an order to return such trade secrets.
After a five-day arbitration hearing, the arbitrator denied all of the subcontractor’s claims and entered an injunction against the subcontractor, ordering it to return the client’s trade secrets and destroy any copies.
At the hearing, I elicited testimony from the subcontractor’s three owners had inconsistent and conflicting interpretations of the parties alleged partnership and contractual rights. I also introduced substantial evidence that the so-called right of first refusal was merely part of the parties’ negotiations that did not find its way into the parties’ written agreements.
The arbitrator agreed, concluding that there was no “meeting of the minds” regarding an alleged partnership or a right of first refusal. The arbitrator also held that any discussion regarding the right of first refusal was part of preliminary negotiations, which were “merged and integrated”—in essence, abandoned—as part of the parties’ final agreement.
Similarly, the arbitrator found that the client did not solicit the independent contractor. Rather, the testimony and written evidence demonstrated that the independent contractor sought out, and obtained, business from the client. As such, the client neither solicited the independent contractor nor tortiously interfered with the subcontractor’s relationship with the independent contractor.
On the other hand, the arbitrator agreed with my arguments that the client was entitled to an injunction ordering the return of the client’s trade secrets. The arbitrator concluded that the trade secrets could in fact provide an economic advantage to the subcontractor, and that the client had taken reasonable steps to protect them, including a non-disclosure agreement and confidentiality provisions concerning the trade secrets. The award highlights the critical importance of non-disclosure and confidentiality agreements prior to sharing a company’s trade secrets with third parties.
The award vindicates parties’ trade secret rights under Michigan law: Companies commit immerse energy and money to their proposals, pricing, and bidding strategies. The award hammers home the point that other companies are not entitled to use litigation as an excuse to keep other’s trade secrets.