Protecting Trade Secrets

What are trade secrets?

In general, the definition of a trade secret varies from state to state. Essentially, it means any confidential information you would not want your competitors to know about. This could be anything from customer lists, marketing plans, to business models. Although, this definition is broad, it is important to look at the exact definition of what is a trade secret according to the applicable jurisdiction. In California, a trade secret is defined as information that takes independent economic value from its confidential nature subject to reasonable efforts to maintain its secrecy. Here, California’s definition of a trade secret places a focus on economic impact. This differs from states such as New York where the law simply defines a trade secret as information that would give an advantage over a competitor. See Ashland Mgt. v. Janien, 82 N.Y.2d 395, 407 (1993). In comparison, New York has a broader definition than California and covers any non-economic related trade secrets.

Why is protection necessary?

Let’s imagine that you are a founder of a tech start-up that was named one of the most innovative companies of 2015. During the last team meeting of the year, you share plans with your team for the upcoming year. The plans include information crafted by you and members of the team and is projected to give the company an advantage over its competitors. A competing company finds out about the meeting and steals away your right hand man. With that, your legal department has already failed to prevent the former team member from sharing your company’s 2016 plans. Now your competitor has access to your new plans and your anticipated advantage is now hindered.

In the current competitive market, situations like these can come to fruition when trade secrets are not properly protected. There are certain regulations protecting trade secrets, but most only protect secrets that are illegally taken or accessed without authorization.

How can you protect yourself?

Depending on which laws apply, companies can require new hires to sign various documents in their efforts to protect trade secrets. These documents can include a non-compete agreement, non-solicitation agreement, non-disclosure/confidentiality agreement, and telecommuting agreement.  The non-compete agreement binds the new hire to a key position from working for a competitor for a limited time.  The non-solicitation agreement prevents a former employee from attempting to get a current employee to join a competing company. The non-disclosure/confidentiality agreement prevents the former employee from disclosing information to both third parties and unauthorized internal employees. Lastly, the telecommuting agreement makes sure a remote employee knows the confidentiality policy of the work environment.  These agreements are meant to protect all confidential information, especially any information that would constitute a trade secret. However, the enforceability of these agreements is dependent on the jurisdiction and in-house counsel should use them when suitable.

Other methods of protection include implementing company policies, training, marking documents as confidential, and conducting exit interviews to remind the employee of the legal documents he/she executed during employment. However, even when the company engages in all efforts to prevent the spread of trade secrets, it should always have a trade secret breach plan. This plan can involve anything from retaining outside counsel in advance, to knowing which law enforcement agency to contact in the event of a breach.

At our law firm, we assist clients with legal issues related to business, trade secret protection, and intellectual property issues. You may contact us to set up an initial consultation.