Is Credit Card Information Stored by a Restaurant a “Trade Secret”?

Credit Card Data BreachA federal district court in Colorado recently ruled that customer credit card information was not a “trade secret” under the federal Defend Trade Secrets Act (DTSA).

This case arose out of a 2017 data breach of Chipotle Mexican Grill, Inc.’s computer system and point of service (POS) terminals which resulted in the theft of customers’ credit card and debit card data. As the result of the breach, several financial institutions had to replace their members’ credit and debit cards and refund fraudulent payments. Consequently, they sued Chipotle for negligence, unfair competition, and a violation of the DTSA, on behalf of themselves and other financial institutions. 

Plaintiffs argued that the credit card information of their members was a “trade secret” under the DTSA because: (1) it was plaintiffs’ financial data; (2) they had taken reasonable measure to keep it secret; and (3) the data had independent economic value, and that Chipotle misappropriated it in violation of the federal statute.

The district court noted that the question of whether the credit card information was a trade secret was a question of first impression as neither plaintiffs not Chipotle cited any authority clearly addressing this issue. However, it concluded that because the credit card information simply created an access mechanism for the members’ accounts, it had no independent value.  In other words, the value of the credit card information derived from the thing that it was intended to protect – a bank account.  See N. Star Media, LLC v. Winogradsky-Sobel, 2011 WL 13220157, at *10-11 (C.D. Cal. May 23, 2011); State Analysis, Inc. v. Am. Fin. Servs. Assoc., 621 F. Supp. 2d 309, 321 (E.D. Va. 2009); see also MicroStrategy Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 429 (E.D. Va. 2004)(expressing skepticism that a CD key is a trade secret); Tryco, Inc. v. U.S. Med. Source, L.L.C., 80 Va. Cir. 619 (2010) (“Courts have repeatedly held that collections of numbers and/or letters, whose only value is to access other potentially valuable information, do not by themselves have independent economic value.”).

The court reasoned that the payment card data (including cardholder names, credit or debit card numbers, and corresponding CVVs) was similar to passwords and usernames that provided access to something of value, i.e. an individual’s line of credit with a financial institution or money in an account with a financial institution. Absent a connection to either a line of credit or a bank account, payment card data was simply a string of alpha or numeric (or indeed other typographical) symbols, and, thus, had no independent economic value.

Because the court concluded that the credit card information was not a trade secret, it did not address whether a misappropriation occurred during the breach or whether Chipotle could be liable under the DTSA. 

Leiza litigates trade secrets and non-compete agreements disputes in a variety of industries.  If you are a party to a dispute involving a non-compete agreement or theft of confidential information, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

Non-Compete and Confidentiality Issues to Watch in 2017

Non-Compete Issues to WatchIn 2016, there have been some major developments involving confidentiality and non-compete agreements law, which are likely to have some repercussions in 2017. Here’s a summary of the most important issues that companies should be aware of going into the new year.

1. The Federal Defend Trade Secrets Act.  This statute, enacted in May 2016, creates a federal question jurisdiction for misappropriation of trade secrets, allows companies to seize their trade secrets out of the hands of competitors in some circumstances, and provides whistleblower protection to employees when certain conditions are met.  In 2017, as companies begin to take advantage of the statute, the courts will begin creating a new body of law interpreting its provisions.

2. SEC Enforcement. The SEC will continue to go after the companies whose confidentiality agreements and policies they may find to violate the SEC’s whistleblowing rules.  Making sure that confidentiality agreements include the language specified in the federal Defend Trade Secrets Act may help with SEC’s scrutiny.

3. Choice of Law Issues.  Choice of law issues in interstate non-compete and confidentiality disputes will continue to be of major concern to companies who have out-of-state employees. A number of states in 2016 passed statutes dramatically limiting non-competes and California passed a statute that prohibits application of other states’ laws to its employees’ non-compete agreements. Business owners should make sure that their non-competes are enforceable in the jurisdictions in which they intend to enforce them.

4. Disclosure of Trade Secrets During Litigation.  This will continue to be a major point of dispute in trade secrets and non-compete lawsuits. For example, earlier this year, the Texas Supreme Court addressed what a trial judge must consider before allowing a competitor’s corporate representative in the courtroom during the testimony that might reveal the adverse party’s trade secrets. Thus, in 2017, those companies that are engaged in trade secrets misappropriation litigation in Texas will need to consider how this balancing test will apply in their particular circumstances. Many other states’ courts faced a similar issue in 2016 and have fashioned their own rules regarding when the disclosure of trade secrets in litigation is appropriate. 

TexasBarToday_TopTen_Badge_VectorGraphicLeiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Why the Appointment of Jeff Sessions as the New Attorney General May Lead to More Trade Secrets Litigation

jeff-sessions-827pngOn Friday, President-elect Donald Trump named Alabama Sen. Jeff Sessions as his pick for the next Attorney General. Sessions is a former U.S. attorney and current senator with lengthy experience with the Justice Department. He is also known as a pro-business conservative, who on numerous occasions has expressed a favorable view of corporate indictments of executives marred in white-collar crimes. 

Sessions co-sponsored the Federal Defend Trade Secrets Act, which became the law this year. The statute allows civil lawsuits to prevent or redress theft of trade secrets in addition to already-existing criminal penalties under 18 U.S.C. § 1832.  His previous publicly expressed views suggest that he will not shy away from indicting big companies and individuals for white-collar crimes, which include theft of trade secrets.  

For example, in 2010, during a confirmation hearing for the U.S. deputy general, Sessions questioned the candidate about the “dangerous” philosophy of not charging companies criminally because of concerns regarding the effect of such charges on employees and shareholders and stated that he “was taught that if they violate a law, you charge them.” 

Trade secret theft indictments have been on the rise over the past several years, prompting an almost unanimous passage of the Federal Defend Trade Secrets Act in the beginning of this year. The uptick in criminal litigation has been accompanied by a blooming civil litigation of trade secrets theft on state and federal level as well.  

Given Sessions’ prior remarks regarding his preference for corporate indictments in lieu of settlements or payment of penalties, as well as his expressed support towards protection of trade secrets, we can expect a rise in corporate indictments arising out of theft of sensitive information (especially when it is shared with foreign companies or states). This will put the spotlight on the rise of trade secrets theft in the country, will garner more publicity for such acts, and will in turn educate the US companies and business owners as to legal remedies available to them in the civil court to remedy trade secret theft.  

In short, Sessions’ expected tough stance on corporate crime, including trade secrets theft and the accompanying publicity will likely result in an increase in civil litigation in that arena as well. 

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Breaking News: President Obama Signs Trade Secrets Bill Into Law

Today, President Obama signed into law S. 1890, which will allow companies to sue entities in federal court over allegations of trade secrets theft. Previously, the Senate passed the bill 87-0 on April 4, and the House cleared it by 410-2 on April 27.

“Enacting the Defend Trade Secrets Act is the most significant intellectual property development in years, and it demonstrates that Republicans and Democrats can work across the aisle in seeking to advance important public policies that will benefit the American people and boost our nation’s economy,” Utah Sen. Orrin Hatch (R), the bill’s sponsor, said today in a statement. 

The federal trade secrets statute imposes certain new requirements on  all employers who use non-disclosure agreements with their employees. To make sure that your business is compliant, contact an attorney knowledgeable in this area. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.