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back to index backGLOBALtalk June,  2005

Protect company trade secrets from in-house thieves

When most people hear the term trade secret” they automatically think about something major like the formula for Coca-Cola; they don't realize that trade secret theft can impact businesses of all sizes.

When employees move on to new jobs they may be tempted to copy files and take key information about the company's business practices with them. The result may arm the competition with key information about your business.

Employers can protect themselves by understanding their rights under trade secret laws, which protect businesses from theft of confidential information. Trade secrets encompass far more than formulas and can include customer lists, customer preferences, prospective customers, prices and pricing policies, costs, margins, internal weaknesses, business, marketing, strategic, and sales plans, business processes, planned products and services, mergers and acquisition targets, and identities of, and information about, suppliers and employees and more.

If an employee were to go to a competitor and use the former employer's confidential information (even if he or she allegedly only memorized” this information), the (U.S.A.) Uniform Trade Secret Act would allow a suit for an immediate injunction against use, disclosure, or even threatened use” of such information (and in some cases even against employment with the competitor or solicitation of the businesses' customers). The Act also allows recovery of damages to the extent that a trade secret violation is proven and in certain cases allows recovery of attorneys' fees from the offender(s).

If the information is truly valuable, the secrecy required for a trade secret claim may be demonstrated by some or all of the following:

  • Storage of information with locked or limited access.
  • Need-to-know information access.
  • Electronic key access to rooms/information.
  • Clear marking of confidential information.
  • Limited access of computer-stored information.
  • Visitor restrictions.
  • Employee policies on confidential information.
  • Routine verification of confidentiality procedures.
  • Routine employee reminders of confidentiality policy.
  • Pursuit of departing employees with access to confidential information.
  • Prohibiting removal of confidential information from company premises.
  • Restricting copying of confidential information (numbering copies, etc.).
  • Conducting exit interviews.

Small business owners need to understand their rights under the law and take the appropriate actions to protect their businesses. Here are a few things business owners need to know:

Noncompetes : These are separate from the filing of a trade secret claim and are a useful means of protecting a business from customer raiding or trade secret violations. These agreements bar employment with a competitor or at least raiding of customers. Such agreements may help to satisfy the Trade Secret Act, but are not necessary to bring a trade secret claim. Nonetheless, for employees in possession of information that is especially sensitive, non-compete or at least non-solicitation and non-disclosure agreements are an appropriate means of protection.

To be enforced in court (and such a claim should be brought quickly so that an immediate injunction may be obtained), a non-competition agreement (barring employment at a competitor) must be reasonable as to geographic scope, duration, and the line of work it prohibits (e.g., the former employer's business) and must have the purpose of protecting a reasonable competitive interest (such as trade secrets or good will).

Even if a non-compete agreement is not adopted, a non-solicitation agreement {in which the former employer's customers may not be solicited for a time (such as a year)}, or at least a confidentiality agreement (identifying business secrets), is an appropriate means of protecting trade secrets and the goodwill of customer relationships. These agreements also may be enforced by suit for injunctive and other relief.

Businesses of all sizes are vulnerable to trade secret theft. Company information in the hands of the competition can seriously harm or destroy a business. Advance planning and establishing confidentiality policies can save the future of your business.

Source: Butzel Long - GAI

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