III\IA recent Second Circuit case, Pauwels v. Deloitte LLP, 83 F.4th 171 (2d Cir. 2023), involved an investment bank’s consultant who brought suit for misappropriation of trade secret and other claims. Bank of New York Mellon Corp. (BNYM) and its subsidiary retained Andre Pauwels as an independent contractor to work on an investment valuation project. To facilitate his work, Pauwels developed the so-called Pauwels Model, a bespoke valuation tool that he used to evaluate BNYM’s potential energy-sector investments and to monitor existing ones. Pauwels shared spreadsheets derived from the Pauwels Model with various employees and executives at BNYM. Pauwels later learned that BNYM had shared his spreadsheets with Deloitte without his consent, and that Deloitte used the spreadsheets to reverse engineer Pauwels’ model and was using it to service BNYM.
The Second Circuit rejected Pauwels’ trade secret claim because he had failed to take reasonable steps to protect its confidentiality. He claimed that he only shared the spreadsheets with a core group of individuals, who agreed orally to maintain them as secret. But he admitted to sending them to other BNYM employees who gave no such assurances. And even as to those who agreed, that was only an informal agreement, with no indication that they had authority to bind BNYM. Finally, there was no indication that the proprietary spreadsheets had been password protected, encrypted, or expressly labeled as “confidential.” For all these reasons, the trade-secret claim failed.
The Second Circuit did, however, sustain one possible claim: unjust enrichment. Pauwels claimed that BNYM had paid only for his advice, not for his proprietary models. Where the parties have a close relationship (such as the consulting agreement that Pauwels had with BNYM), the Court held an unjust enrichment claim may lie. And, because Pauwels alleged that BNYM took more than it paid for and benefited, it could be held to have been unjustly enriched. Notably, however, the Second Circuit did dismiss the unjust enrichment claim against Deloitte, since it had no relationship with Pauwels.
The Pauwels decision provides two important takeaways. First, if one claims “proprietary” interests in an idea or method, unless it is patented, it is only going to be protected by trade secret law. And that requires significant efforts to maintain its confidentiality before it is shared with outsiders. Pauwels would have been well advised to have BNYM sign a confidentiality agreement, and to protect the spreadsheets with passwords or encryption.
Second, Pauwels illustrates how in some cases, common law claims like unjust enrichment might be a backup for intellectual property protection. While not as robust as trade secret protection (note that Deloitte was dismissed), an unjust enrichment claim might be a useful backup in litigation.
The Second Circuit rejected Pauwels’ trade secret claim because he had failed to take reasonable steps to protect its confidentiality. He claimed that he only shared the spreadsheets with a core group of individuals, who agreed orally to maintain them as secret. But he admitted to sending them to other BNYM employees who gave no such assurances. And even as to those who agreed, that was only an informal agreement, with no indication that they had authority to bind BNYM. Finally, there was no indication that the proprietary spreadsheets had been password protected, encrypted, or expressly labeled as “confidential.” For all these reasons, the trade-secret claim failed.
The Second Circuit did, however, sustain one possible claim: unjust enrichment. Pauwels claimed that BNYM had paid only for his advice, not for his proprietary models. Where the parties have a close relationship (such as the consulting agreement that Pauwels had with BNYM), the Court held an unjust enrichment claim may lie. And, because Pauwels alleged that BNYM took more than it paid for and benefited, it could be held to have been unjustly enriched. Notably, however, the Second Circuit did dismiss the unjust enrichment claim against Deloitte, since it had no relationship with Pauwels.
The Pauwels decision provides two important takeaways. First, if one claims “proprietary” interests in an idea or method, unless it is patented, it is only going to be protected by trade secret law. And that requires significant efforts to maintain its confidentiality before it is shared with outsiders. Pauwels would have been well advised to have BNYM sign a confidentiality agreement, and to protect the spreadsheets with passwords or encryption.
Second, Pauwels illustrates how in some cases, common law claims like unjust enrichment might be a backup for intellectual property protection. While not as robust as trade secret protection (note that Deloitte was dismissed), an unjust enrichment claim might be a useful backup in litigation.