J. Crew Complaint Illustrates Issues with Litigating Misappropriation Cases Under New York Law

By Robert A. Levine, ’13

In a recently filed case, the popular clothing brand J. Crew Group, Inc, accused an ex-designer of stealing confidential information his new job at Bonobos, a competing clothing line. J. Crew claims its “confidential and proprietary information [includes] product designs, . . . productions schedules, manufacturing resources, and other information concerning [its] business operations,” such as budgets and marketing strategies. At first glance, this would appear to be a typical case of an employee leaving one company for its competitor (and taking the former’s trade secrets with it). Indeed, Law360’s headline for the case reads, “J. Crew says Designer Lifted Trade Secrets for New Gig.” However, J. Crew’s complaint notably lacks any mention of the actual term “trade secret.” The complaint illustrates the unique considerations for lawyers that litigate misappropriation cases under New York law.

New York is one of three states that has yet to adopt a Uniform Trade Secrets Act. A claim for trade secret misappropriation in New York relies on common law. New York courts have adopted the definition of trade secret from Section 757 of the Restatement of Torts. Per comment b of the Restatement, “A trade secret may consist of any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Unlike the Uniform Trade Secrets Act, the Restatement has a “use” requirement – the secret must be deployed “for continuous use in the operation of the [claimant’s] business.”

Analysts, included noted trade secrets Professor Eric Claeys, have questioned the vitality of the “use” requirement beyond specific, sub-sets of facts. However, it is by all accounts still “good law” in New York. For example, in Massachusetts (which, along with Texas, has also not adopted a Uniform Trade Secrets Act), courts have spent some time specifically discussing the “use” requirement. In Portfolioscope, Inc. v. I-Flex Solutions Ltd., 473 F. Supp. 2d 252 (D. Mass. 2007), the District Court of Massachusetts noted that, although “one District of Massachusetts judge [had] questioned the vitality of this continuous use requirement,” the requirement is nonetheless “part of Massachusetts law and this court is powerless to remove it.”

New York also recognizes a claim for misappropriation of a plaintiff’s property where defendant improperly acquired the property in order to compete with plaintiff. This “unfair competition” claim is broader, and can be applied to both real and intangible property, such as “ideas.” Like traditional trade secret cases, these claims involve analysis of the “commercial advantage” afforded to the defendant by the misappropriated property. However, they have a heavier focus on whether the property (or idea) is “unique” and/or “novel.” In Daou v. Huffington, No. 651997/2010 (N.Y. Sup. Ct. Oct. 25, 2011) — a case involving an “idea” for a blog — the New York Supreme Court held that “New York law recognizes the tort of misappropriation of ideas when a plaintiff’s factual assertions establish that the misappropriated ideas were both novel and concrete.”

So is J. Crew’s claim merely one for misappropriation of its property and ideas? Maybe. However, J. Crew’s legal team included a separate claim for unfair competition. That claim (in paragraphs 18 and 19 of the complaint) alleges that Defendant “engaged in unfair competition by, among other things, unlawfully misappropriating and using J. Crew’s confidential information for the benefit of J. Crew’s competitor, Bonobos . . . .” This claim seems to be more aligned with the second type of misappropriation claim discussed above.

Ultimately, this case will likely come down to whether and to what extent Defendant was bound by a non-disclosure agreement (described in paragraph 8). J. Crew will also need to persuade a jury that Defendant’s act of sending J. Crew’s confidential information to his personal computer evidences intent to use that information against J. Crew, and for Bonobos. However, it provides a good example of the “legal tightrope” that New York litigators may need to walk in order to avoid having to prove that their client’s pre-commercial ideas, designs, etc., are “trade secrets” and “continuously used” in their business.

(3/5/13 update: On February 1, 2013 TSI filed a version of the this Commentary in reaction to the filing of J. Crew’s complaint in this case. It is has been edited to reflect a later settlement between the parties and stipulated dismissal. The original Commentary’s substantive analysis of J. Crew’s claim has been preserved to the extent possible.)