Publication Details

Protecting Trade Secrets

Employers are constantly walking a high wire act. They must balance their employees' need to know while protecting the company's proprietary information. With today's transient workforce, an employer's balancing act is even more treacherous. Deciding how much information to disclose is a critical decision. Proprietary information falling into the hands of a competitor can ruin a business. This risk of losing proprietary information is real. It is estimated that U.S. businesses lose approximately$100 billion annually because of the misappropriation of trade secrets.

 

 

WHAT IS A TRADE SECRET?

A trade secret is difficult to define. However, trade secrets have characteristics which most state statutes or common law recognize. They are:

  • Secrecy
  • Security
  • The Value of the Information
  • The Effort Expended to Create the Information, and
  • Ease of Duplication

Secrecy - The most important characteristic of a trade secret is secrecy. In determining whether information qualifies as a trade secret, courts focus upon how extensively the purported proprietary information is known to employees, the public or competitors. The more extensively circulated, the less likely the information will be considered a protected trade secret.

Security - Courts will crucially exam the extent that a company takes security measures to preserve the secrecy of the disputed information. These measures constitute evidence of the existence of trade secret information. To install these security measures, companies incur time and money. When confronted with these measures, courts presume that businesses incur these costs because they believe that the information provides them with a competitive advantage.

The Value of the Information and The Effort Expended to Create Information - The greater the value of the information, the more likely the company is to protect its secret. Evidence showing the cost incurred by the company to devise the information and the value that the information provides to the company are the critical components of this characteristic. The more time, effort and money expended in developing the information, the more likely it is a protected trade secret.

Ease of Duplication - The more easily information can be obtained or replicated, the less likely it is a protected trade secret.

A customer list is a classic example of information that might be considered a trade secret. The list, by itself, would probably not be a protected trade secret. It could only be protected if the customer list is not "readily ascertainable" from sources outside the particular company. In making that determination, the courts will look to see if the customer list contains detailed and sophisticated information. For example, a list of customers containing data revealing their monthly purchases would more likely constitute a trade secret. The mere listing of customer names and addresses which could be obtained from a telephone book, would probably not constitute a protected trade secret.

DEVELOPING A PROGRAM TO PREVENT MISAPPROPRIATION OF TRADE SECRETS

Developing a program to prevent misappropriation of trade secrets is an important step for any company trying to protect its trade secrets. If used properly, the company can avoid needless litigation and preserve the integrity of its proprietary information. It also can help prevent the company from being accused of misappropriating a competitor's proprietary information. This program should cover four distinct areas. They are:

  • Recruitment
  • New Employees
  • Current Employees, and
  • Departing Employees

Recruitment - Extensive interviews of any applicant is imperative. During the interview, the employer must determine if the applicant has any knowledge of his or her former employer's trade secrets. If the applicant has knowledge, the employer must determine whether the applicant can fulfill the responsibilities of the job being sought without disclosing those trade secrets. The employer should also ask the applicant to sign a non-disclosure agreement specifying that he or she will not disclose his or her former employer's trade secrets and will not bring any files or other tangible documents to your company's workplace and also determine whether the applicant has signed a confidentiality and/or noncompete agreement with former employer.

New Employees - Advise all new employees of the importance of maintaining the secrecy of your company's secrets. All employees who have access to proprietary information should acknowledge the secrecy and the value of the information in a confidentiality agreement. This acknowledgment should be in writing and should be used in conjunction with a non-compete agreement to protect the company's trade secrets and also its confidential and proprietary information.

Current Employees - Constantly remind current employees of the obligation to keep trade secrets and other proprietary information confidential. An employer should take the time to identify trade secrets and properly dispose of any documents containing trade secret information. Since secrecy is an important component of any trade secret, the company must take reasonable steps to maintain the secrecy of information. For example, keep all secret documents under lock and key and limit access to sensitive computer information by use of passwords. Your company should mark all proprietary information it wishes to maintain confidential as "proprietary" and/or "confidential." Requiring current employees to sign a non-disclosure agreement and limiting access to this sensitive information to those employees with a legitimate need-to-know are also appropriate measures to take.

Departing Employees - During an exit interview remind the former employee to return all trade secret and proprietary information belonging to your company. If the employee signed a nondisclosure agreement, remind the employee to abide by its terms. Immediately upon termination, remove the departing employee's access to sensitive information stored in files or on computer and check a departing employee's computer to determine whether confidential information was recently downloaded, copied or e-mailed to another destination.

Trade secrets are a valuable tool to maintain a competitive advantage. To be able to protect trade secrets you must take reasonable steps to insure their secrecy.

 

FOR MORE INFORMATION, CONTACT
JAY BARRY HARRIS
(215) 893-8704