Answer the following question after reading this case study: Newell Industries T
ID: 414169 • Letter: A
Question
Answer the following question after reading this case study: Newell Industries Trade Secrets case study 1. Decide whether Newell Industries has a protectable trade secret and explain your decision. 2. Identify and evaluate the facts of the case study that you believe are more favorable to Newell Industries’ claim for trade secret protection. 3. Identify and evaluate the facts of the case study that you believe are more favorable to Mr. Stephen's and Crota Products’ claims that there is no protectable trade secret. 4. What should Newell Industries have done to better protect its trade secret(s)?
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Question: Newell Industries Trade Secrets Case Study Newell Industries, Inc., a reinforced-block manufactur...
Newell Industries Trade Secrets Case Study
Newell Industries, Inc., a reinforced-block manufacturer, has been in business for thirty years. The company currently employs fifty-three people. The founder, Mark Gray, and the original twenty employees still work at the company. Newell had a humble beginning. Mr. Gray began the company after he graduated from college with a degree in business. He believed employee loyalty came from treating the employees as family. Therefore, he shared all company information with all of the employees. To encourage this family environment, offices and file cabinets were never kept locked. The manufacturing facility was kept locked for safety purposes, but every employee had the access code. Over time, he installed a central computer network. While each employee had password access to his or her computer, the entire network was available for all employees to review. When he incorporated the business, he required all employees at the time to sign employment agreements that contained confidentiality provisions but still maintained the open access environment. Joe Stephens heard about this open environment at Newell and applied for a job there. He was hired by the company in 1989 as a Technician I right out of high school. When he was hired, he was required to sign an employment agreement. The employment agreement provided that he was “not to divulge any of the trade secrets or other confidential information of Newell” that he may receive or obtain during his employment. The agreement also provided that the confidentiality provision continued to apply after termination of his employment but would no longer apply if the information became part of the public domain. In addition, at the time of his hiring, he received a
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company handbook that gave more detail on information within the company that was to be kept confidential. He signed the last page of the company handbook acknowledging he received it and gave the page to Mary Smith, the secretary in the human resources department. His primary duty at that time was to ensure the floors in the manufacturing facility remained free of hazards. Mr. Stephens enjoyed working in the manufacturing facility. If it was not raining outside, the rolling doors were kept open to allow in fresh air and sunshine. In addition, many of the equipment operators would take time to show him how to operate the equipment and how to produce a final product. He soon took on responsibility for accepting orders from vendors at the back entrance. With this new task, he was to meet the vendor at the back entrance when the bell sounded, confirm the vendor received a vendor’s pass from the receptionist in the main office, check the order, and permit the vendor to unload the order at the back door. He was ultimately trained to give visitor tours through the facility. He and three other technicians would take turns conducting the tours. As tour guides, these individuals were expected to meet the visitors in the lobby of the main office, ensure the visitors signed the appropriate nondisclosure forms with the receptionist to receive a visitor pass, guide the visitors through the building to the locked manufacturing facility door, and proceed with the tour in the manufacturing facility where they would show visitors how a final product was produced. With these new responsibilities, the company soon promoted Mr. Stephens to Technician III. Over the years, someone else took over the vendor and tour responsibilities for the company. Mr. Stephens attended college and received an undergraduate degree in
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chemistry, as well as a Ph.D. in materials science. After each degree Mr. Stephens received, Newell promoted him until ultimately he was a member of the division team responsible for development of a new polymer composite reinforced-block. The supervisor of this team was Angela Simmons. The new polymer composite reinforced-block was to have a specific tensile strength for use in certain applications. Eager to make a good impression, Mr. Stephens consulted each of his school textbooks looking for a known polymer composite with the requisite tensile strength for the project. After an exhausting search, he found a reaction mechanism, A+B+C, which would produce a composite with a tensile strength slightly below the required amount. Through his experience working on his dissertation, however, he was aware of various chemicals similar to B that could be substituted in reactions. He believed if he used these B substitutes he might create a polymer composite with the requisite strength. A key word search on the Internet revealed a series of articles on B substitutes. To narrow the possibilities, he decided to search for information on his favorite materials science Web site. The search engine on this Web site allowed him to design a more detailed search so there were fewer hits. One article on the site suggested that when F is used as a substitute for B in most known reactions, the resulting polymer composite has greater strength. He proceeded with the reaction mechanism A+F+C and was able to produce a promising polymer composite in the lab. The resulting composite had the tensile strength necessary for the project. Unfortunately, the team initially experienced great difficulty manufacturing a test block, even though the polymer composite could be successfully produced in the lab. The equipment they were using was the standard equipment used by all block manufacturers
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to make standard blocks. Eventually they decided the project would probably work if the manufacturing equipment were modified. Mr. Stephens was the team member responsible for designing and implementing the equipment modifications. He spent three months modifying the equipment to accommodate the composite, via trial and error. After several attempts, a final modification was designed. A protective housing was placed around the area modified, but the housing was not locked down. When the modifications were complete, the director of operations at Newell placed a sign on the equipment that stated “Trade Secret—No Unauthorized Personnel.” A prototype of the new polymer composite reinforced-block was finally developed by Mr. Stephens and the remainder of the team in 2009. Testing was performed on the prototype block to determine whether it had the appropriate strength for the intended project. This testing took several months to complete but was completed by the end of 2009. Because of the confidential nature of the project, reports concerning the testing were always distributed in envelopes marked “confidential,” and the people entitled to see the information were listed on the envelope. These reports were stored as Microsoft Word documents in the “office supply” directory on the company’s computer network. This was done to ensure that the information was uploaded onto the company’s tape drive when the computer network was backed up for offsite storage. The officers of the company, the supervisor, and members of the division team were the only ones authorized to see these testing reports. In addition, the company handbook prohibited disclosure and copying of the information by those authorized to see it. Once read, the envelopes containing the confidential information were to be resealed and locked in the
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appropriate division file cabinet. It was common knowledge at the company, however, that the key to the file cabinet was kept taped under the receptionist’s desk. Due to the success of the tests, Newell decided to start manufacturing the new polymer composite reinforced-block and also decided on an official product launch date of April 1, 2010. The company expected to file a patent application on the product after the official product launch. In addition, the company expected to submit a bid for use of the product in building a local elementary school, but the product had to be reviewed by the Environmental Protection Agency to determine if the composition produced emissions that had an impact on air quality. After Mr. Stephens completed work on the block, he began seeking employment elsewhere. During his search, he learned of a job opening for a Lead Chemist at Crota Products, LLC, a direct competitor of Newell. He applied and was ultimately hired by Crota in January 2010 as the supervisor of the company’s division for development of new product designs. He gave Newell two week’s notice that he was leaving the company. Before leaving, Mr. Stephens attended an exit interview at Newell with Angela Simmons. During the exit interview, he was reminded of his employment agreement with the company and his continuing obligation of confidentiality concerning any company information. He signed a written confirmation that he was aware of this continuing obligation of confidentiality. Angela Simmons also signed the document as the individual who conducted the exit interview. While Mr. Stephens was working at Crota, his new employer released a polymer composite reinforced-block with a polymer composite similar to the one designed at Newell. This new design was released March 1, 2010.
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Because the use of polymer composites in reinforced-blocks was a new concept, Newell is convinced Mr. Stephens disclosed confidential information concerning the modified manufacturing equipment and the product composition to Crota in exchange for his job as a supervisor. On March 22, 2010, Newell filed a lawsuit against Mr. Stephens and Crota Products seeking damages for misappropriation of trade secrets due to Mr. Stephens’s disclosure to the new employer of information learned during his employment with Newell and subsequent use of the trade secret information by Crota to design a polymer composite reinforced-block in direct competition with Newell. In order to succeed on its misappropriation of trade secrets claim, Newell must first show that it has a protectable trade secret.
Answer the following question after reading this case study
1. Decide whether Newell Industries has a protectable trade secret and explain your decision.
2. Identify and evaluate the facts of the case study that you believe are more favorable to Newell Industries’ claim for trade secret protection.
3. Identify and evaluate the facts of the case study that you believe are more favorable to Mr. Stephen's and Crota Products’ claims that there is no protectable trade secret.
4. What should Newell Industries have done to better protect its trade secret(s)?
Explanation / Answer
1. Yes, Newell Industries has a protectable trade secret. Though the company shares all the information with the employees to encourage a family environment, the employment agreement has strong confidentiality provisions that all employees need to sign. The employment agreement requires the employees not to reveal any of the trade secrets or other confidential information of Newell that employee may receive or obtain during employment. The agreement also provided that the confidentiality provision continued to apply after termination of employment but would no longer apply if the information became part of the public domain. Even the visitors need to sign the appropriate nondisclosure forms with the receptionist to receive a visitor pass while entering the site. All these information shows that Newell Industries has a protectable trade secret.
2. The facts that is favorable to Newell’s claim for trade secret protection includes the employment agreement every employee need to sign with the confidentiality provisions. The employment agreement requires the employees not to reveal any of the trade secrets or other confidential information of Newell that employee may receive or obtain during employment. The agreement also provided that the confidentiality provision continued to apply after termination of employment but would no longer apply if the information became part of the public domain. Mr. Stephen has signed the agreement while starting his employment and also he has signed the last page of the company handbook containing company information and handed over the page to the Secretary of Human Resources. Stephen was reminded of his employment agreement during his exit interview with Angela Simmons and he has signed a written confirmation that he is aware of his continuing obligation of confidentiality concerning the company information. The confidential information regarding the new prototype block was kept by the company as trade secret and only listed people were allowed to access the information. Still Stephen has disclosed the information to his new employer who is the direct competitor of Newell. These facts are more favorable to Newell Industries’ claim for trade secret protection.
3. The facts that are favorable to Stephen and Crota Products include the information sharing policy of Newell that share its information with all the employees. The offices and file cabinets are never kept locked and provided the access code of manufacturing facility to all the employees. The central computer network was also accessible to all the employees which show that they do not consider keeping their information as secret. The reports regarding the new polymer composite reinforced block also was stored in the company network. All these facts are favorable t the claim that there is no protectable secret at Newell.
4. In my opinion instead of making the information available to all the employees Newell should tighten its information sharing policies and provide access of sensitive and secret information to only authorized persons. There are many other ways to promote family like atmosphere in Newell like giving the freedom for expressing employee opinions and encourage employee participation in company matters. As the company considers the information regarding the polymer composite block as trade secret it should not have allowed Stephen to leave the organization before launching the product. As Stephen was the person behind developing the product he should have been there in the organization till the product launch which would have avoided the confidential information leakage.