Drama at J.Crew

By Kristin Grant [March 14th, 2013] 


Trade secret misappropriation and breach of confidentiality by employees have been longstanding issues for companies who seek to maintain the competitive advantage which results from confidential and proprietary information. Therefore, it comes as no surprise when a company takes action against a former employee for these acts.

On January 24th, 2013 J. Crew Group Inc. filed a complaint against former Senior Design Director, Dwight Fenton, in the New York Supreme Court alleging trade secret misappropriation and breach of duty of confidentiality.

On January 15, 2013 Dwight Fenton informed the company that he was leaving to join direct competitor, Bonobos, a men’s clothing retailer. After Fenton’s termination, J. Crew performed a review of his e-mails for the past month, which revealed the transmission of several emails to his personal email address containing “highly confidential and proprietary J. Crew documents.”  J. Crew seeks injunctive relief, compensatory damages and punitive damages as a result of Fenton’s misappropriation of their trade secrets, which allegedly include “product designs, specifications, and measurements, production schedules, manufacturing resources, and other information concerning J. Crew’s business operations.”

While most states have adopted a version of the Uniform Trade Secrets Act, New York, is one of the three states in the nation that is yet to adopt a version of the Act. In New York, trade secrets are governed by the common law where civil liability is available for misappropriation and criminal liability may be imposed under New York’s larceny statute.

To establish a claim for misappropriation in New York, a plaintiff must show that (1) it possesses a trade secret, and (2) defendant is using that trade secret ‘‘in breach of an agreement, a confidential relationship, or duty, or as a result of discovery by improper means.’ Hudson Hotels Corp. v. Choice Hotels Int’l, 995 F.2d 1173, 1176 (2d Cir. 1993).

In determining whether information is a trade secret, New York Courts consider six factors: “(1) the extent to which the information is known outside of [the] business; (2) the extent to which it is known by employees and others involved in [the] business; (3) the extent of measures taken by [the business] to guard the secrecy of the information; (4) the value of the information to [the business] and [its] competitors; (5) the amount of effort or money expended by [the business] in developing the information; [and] (6) the ease or difficulty with which the information could be properly acquired or duplicated by others.” Id. at 1177

The result of this case is left to be seen. However, J. Crew will most likely have to show that Fenton was bound by a confidentiality agreement, which was breached by the unlawful misappropriation of their trade secrets with the intent to use such information with a competitor. To recover damages they will have to show that economic harm was suffered as a result of the misappropriation, keeping in mind that punitive damages are only awarded where the defendant’s acts involve a high degree of moral culpability.

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