Companies should have a program to deter and limit trade secret misappropriation. Inside and outside counsel should be involved so their client can be in the best position to seek and obtain judicial intervention to stop trade secret misappropriation and use. A litigator’s perspective focuses on proof needed to obtain a temporary restraining order and prevail at trial.
A seeming axiom of trade secret and unfair competition litigation is that the more brazen and dishonest the behavior of the former employee (and perhaps their new employer), the more accommodating a court may be to a company whose proof is less than perfect. By contrast, the thinner a company plaintiff’s proof is, the more a court may accept a former employee’s argument that there is nothing secret, nor valuable in the assets even if their theft can be proven. While no company hopes for employee misconduct, below are key elements of a trade secret protection program that can help win in court.
Identify “real” trade secrets and their value.
Most states have adopted the Uniform Trade Secrets Act, or a version of it, which essentially defines a trade secret as information, including a formula, pattern, compilation, program, device, method, technique or process that: has actual or potential economic value from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
With that in mind, companies should evaluate their confidential and proprietary information and answer three questions.
- What information, if taken by a competitor, could damage or destroy your business or give the competitor a windfall by not having to develop the information on its own?
- In reality, is the information generally available to others, is not common industry practice, or outdated?
- If it is secret, how much time and money has or will the company spend to develop this information?
Identify and limit access to those who need to know
To maintain secrecy, the best place to start is to have all personnel who may come into contact with trade secrets (or confidential information which might not rise to the level of trade secrets) sign non-disclosure agreements (NDAs). Do not undermine the effect of the NDA by including restrictive covenants, such as non-compete clauses that are not likely to be enforceable. Update employee handbooks by including confidentiality and social media policies, and limiting employees' expectation of privacy in their use of the company's computers, phones and work areas. Use pre-hire background checks.
Next, identify and limit access to each type of trade secret to individuals or work groups who need to know the information to perform their jobs. Then, compartmentalize and limit physical and electronic access to only those who need to know the particular information in a way that will show a court that the company took reasonable efforts under the circumstances to protect its trade secrets. Methods include labeling “trade secrets,” installing layers of computer password-protected access with warning screens, restricting the ability to print or copy files, imaging key employees’ workstations and laptop hard drives routinely, electronically shredding deleted files that contain trade secrets, formatting hard drives before disposing of old computers, adding the ability to remotely wipe out data from company laptops of exiting employees, installing physical barriers such as locks on doors and drawers, requiring identity and access badges and shredding trash. Include lawful monitoring of networks, workstations and laptops to detect, among other things, attempted downloads of trade secrets and to record all usage.
Interview every employee and ask them to sign an acknowledgment of continuing confidentiality obligations. Even if they do not sign, provide an extra copy of the confidentiality agreement with a letter saying you expect them to abide by it and that they should show it to their next employer. Require the return of company property including equipment and documents. Often, lies told by exiting employees about, for example, why they are leaving, where they are going to work next and whether they returned all company property can be used to discredit them in later litigation.
Execute NDAs with outsiders that may come into contact with company trade secrets such as independent contractors, recycling and other vendors, IT and other consultants and bankers. Scrub presentations of company personnel to outsiders. Tailor company tours to avoid access to trade secrets and confidential information.
Inside and outside counsel should develop the program
Finally, inside and outside counsel should work together to develop and then improve the trade secret program. Then, when a key employee leaves and investigation reveals that trade secrets were taken and the company’s business is at risk, inside and outside counsel are ready to go to court.