Pharmacist Misappropriates Trade Secrets

Issue of the Case:

The Mississippi Supreme Court was asked in this month's case to determine whether a pharmacy had engaged in unfair competition when a pharmacist allegedly stole or misappropriated a unique customer list from a previous employer.

Facts of the Case:

John Doe was the manager and pharmacist at ABC Pharmacy, where, as part of his responsibilities, he created a customer list known within the store as the "IRS List." As one might expect, the list was used around tax time each year when patients would request information regarding their total prescription expenditures for the year.

The IRS List contained information about each patient and his or her prescription history. The list was kept in the pharmacy area in a filing cabinet, or, when it was required more frequently, it was maintained in a folder on the pharmacy counter near the cash register.

Doe was contacted by a representative of XYZ Pharmacy with an offer of employment. Several days later, Doe gave notice to ABC Pharmacy that he would be leaving and going to work for XYZ. Doe continued to work for ABC throughout the month. Prior to his departure, he collected some personal belongings and took the IRS List as well.

Shortly after starting work for XYZ, Doe drafted a letter to the physicians in the community and to all his old customers on the IRS List, announcing his new position and explaining the benefits of shopping at XYZ. XYZ mailed out the letter to between 954 and 1242 customers who had a local zip code and who had spent over $100 during the year on prescriptions at ABC.

Two weeks later, ABC personnel realized that the IRS List was missing. A supervisor called Doe and asked "if he had accidentally taken the list." Doe stated that he had not taken the list. At trial, he explained that his answer was not a lie, because he had not accidentally taken the list but had instead taken it on purpose. The evidence suggested that an XYZ vice president was given the IRS List after Doe told him that he had had an inquiry from ABC about it. The list was ultimately shredded, pursuant to the directions of the XYZ vice president. ABC Pharmacy filed suit against XYZ.

The Court's Ruling:

Following a jury trial, ABC was awarded compensatory damages of $56,750 and punitive damages of $300,000. Further, attorney's fees and expenses were awarded in the amount of $72,042. On appeal, the Supreme Court of Mississippi concluded that ABC failed to prove loss of net profits, but it agreed that XYZ caused damages to ABC in the amount of $650 when it destroyed the original IRS List and it had to be recreated. As a result, the court reduced the $56,750 award to $650. The punitive damages were upheld.

The Court's Reasoning:

The Supreme Court of Mississippi concluded that the IRS List met the definition of a trade secret, because the information on the list had independent economic value, as evidenced by the fact that marketing companies are willing to pay money to obtain it. Furthermore, the information on the list, especially the amounts of money spent by customers of ABC and the number of prescriptions filled, was not information that was known to XYZ.

The court also noted that XYZ could obtain economic value from the disclosure of the list. There was obvious value in knowing which ABC customers were big spenders on prescription medications, because they have more health problems and are the kind of customers that a pharmacy would like to have.

The law requires that the owners of a trade secret take reasonable steps to maintain its secrecy. In this regard, the court found that the IRS List was stored on a computer at ABC and was obtainable only through a password. The list was kept in the pharmacy and was not divulged to anyone outside the pharmacy except customers who requested an accounting of their expenditures.

The court reasoned that, "although we do not find the steps taken by ABC to maintain secrecy to be elaborate steps, we do find them to be reasonable and that will suffice." It is important to note that the court continued by stating that if the list had been maintained in the front portion of the store, rather than in the pharmacy, which has more security, they might have decided the case differently.

Larry M. Simonsmeier is Emeritus Professor of Pharmacy Law at Washington State University College of Pharmacy.