| Trade Secret Concepts for Daily Operations | | | | method--a particular and well-developed way of |
| Trade secrets are the most common in daily | | | | conducting business--can be treated as a trade |
| operation comparative to the others in the intellectual | | | | secret and so protected by NDAs. |
| property. | | | | ü "Rebranding" is now commonplace in business. |
| POME details you the basic components of the trade | | | | Companies and products can be rebranded to |
| secrets, how it is vital in the daily operations life. | | | | enhance their appeal and win new customers. In the |
| Defining characteristics | | | | leadup to the launch of the new brand, confidentiality |
| A trade secret is a type of intellectual property that | | | | is vital, and often protected by NDAs. |
| is useful to its Project. It can take many different | | | | ü Companies often consider their customer lists |
| forms such as business plans, customer lists, | | | | to be a valuable asset and treat them accordingly. |
| software programs, formulas, recipes, manufacturing | | | | They are generally considered trade secrets and so |
| techniques, specifications, and designs. It always has | | | | are protected by NDAs. However, they are often a |
| three defining characteristics: | | | | point of contention when an employee leaves, starts |
| Advantage: It provides the Project with an actual or | | | | up a new business, and approaches clients known |
| potential competitive advantage in the marketplace. | | | | from the old company. If such a situation ends up in |
| Secrecy: It is not widely known in the marketplace, | | | | court, the judge has to decide if the customer list |
| by competitors, or by the general public. | | | | truly qualifies as a trade secret. If the information on |
| Security: The Project must take reasonable | | | | the list is very detailed and not readily ascertainable, |
| precautions to maintain its secret status - ensuring | | | | it's likely the judge will rule that it is, in fact, a trade |
| physical security, taking legal precautions, creating | | | | secret protected by an NDA. |
| employee awareness, and ensuring that only those | | | | What NDAs can't protect |
| who need to know the secret, know it. | | | | ü There are some cases where an NDA cannot |
| | | | | protect a trade secret. For example, if the Project of |
| A trade secret is less formal than other types of | | | | a trade secret does not employ all reasonable means |
| intellectual property. It does not have to be | | | | to protect it, then protection is lost. Another case is |
| registered with the Patent and Trademark Office | | | | where the information is generally known in the |
| (PTO) like a patent does. Nor does it have to meet | | | | marketplace, or is otherwise ascertainable. |
| the stringent requirements of originality that a patent | | | | ü Another case where trade secret protection |
| must meet. | | | | does not apply is where the confidential information |
| A trade secret is really a "do-it-yourself" form of | | | | has been discovered independently by another party. |
| protection. The main requirement for the Project of | | | | Consider the case where the formula for a shaving |
| a trade secret is to use whatever means are | | | | product is protected as a trade secret. The |
| necessary to protect its secrecy. | | | | ingredients involved are widely known, but their |
| | | | | relative proportions are not. In this case, it is quite |
| Trade secrets and other forms of intellectual | | | | possible that a competitor's research could |
| property | | | | independently discover the composition of the |
| Apart from trade secrets, there are other forms of | | | | product. In this situation the trade secret is lost. |
| intellectual property such as trademarks, copyright, | | | | ü It is also possible to lose trade secret |
| and patents. A trademark is a name or symbol | | | | protection if a competitor "reverse engineers" a |
| identifying a product, which is officially registered and | | | | product. Reverse engineering is the methodical |
| legally restricted to the use of the Project or | | | | analysis of a product that is available to the public, |
| manufacturer. Copyright is the legal right granted to | | | | with the intention of discovering how it is made, |
| the creator or publisher to exclusive publication, sale, | | | | even if that involves discovering trade secrets that |
| or distribution of a literary or other creative work. | | | | had been used. |
| These two types of intellectual property don't have | | | | Limitations of NDAs |
| much in common with trade secrets, as in most | | | | |
| cases they don't benefit the Project until they are | | | | - There are a number of important limitations that |
| made public. It's more useful to compare trade | | | | apply to nondisclosure agreements: they can't be |
| secrets with patents. | | | | unlimited in scope, they must be properly drafted, |
| In many cases, information can be treated either as | | | | they must be "supported by consideration," and they |
| a trade secret or as a candidate for patenting. So it's | | | | only take effect on execution. |
| worth comparing them to see which approach is | | | | - The NDA defines the scope of the information that |
| more appropriate in any given circumstances. | | | | is protected. It does not specify exact details--this |
| A trade secret is a form of intellectual property like a | | | | would be placing too much confidential information in |
| patent, but it differs from it in a number of important | | | | a legal document which others outside the company |
| respects. | | | | might see. Instead, it describes the types of |
| A trade secret can, if it is properly protected, survive | | | | information and work areas that it expects the |
| for many decades. This is in contrast with a patent, | | | | employee to keep confidential. The NDA also defines |
| which is protected for a fixed number of years | | | | the types of information that are specifically excluded |
| (generally ranging between 14 and 20, depending on | | | | from its scope. The NDA specifies the time period |
| the type of patent) and which cannot then be | | | | over which it expects the employee or contractor to |
| renewed. | | | | keep information confidential. |
| A trade secret is not registered with any | | | | - An NDA must be properly drafted by a person with |
| government body, whereas patents are registered | | | | suitable legal experience. While a standard NDA is |
| with the Patent and Trademark Office. | | | | appropriate in many cases, there are certain |
| A trade secret need not be considered novel or | | | | well-recognized variations that apply to specific |
| unique, but a patent has to meet some exacting | | | | situations. The most common NDA is one that an |
| requirements to be registered. In particular, it has to | | | | employee signs to protect the employer's trade |
| be considered both "novel" and "nonobvious." | | | | secrets. But there are others who need to sign NDAs |
| Trade secret laws | | | | and the document should be drafted to take into |
| Every state has enacted a law prohibiting the theft | | | | account the many different roles in which |
| or misuse of trade secrets. In most states the law is | | | | confidentiality is required. Specific roles where the |
| derived from the Uniform Trade Secrets Act (UTSA). | | | | NDA should be tailored to particular requirements |
| This is the most important law protecting trade | | | | would include (but not be limited to) independent |
| secrets in most U.S. states. The UTSA was drafted | | | | contractors; vendors; legal, technical, and financial |
| by the National Conference of Commissioners on | | | | consultants; and financial investors. |
| Uniform State Laws in 1970 and amended in 1985. | | | | - An NDA usually includes miscellaneous provisions. |
| | | | | These standard provisions (sometimes known as |
| The concept of trade secrets is somewhat hazy to | | | | "boilerplate") are included at the end of most |
| many people. The UTSA dispels this confusion by | | | | contracts. These provisions are important and can |
| providing a concise definition of a trade secret. The | | | | affect how disputes are resolved and how a court |
| UTSA defines a trade secret as: "information, | | | | enforces the contract. |
| including a formula, pattern, compilation, program | | | | - An employee should be offered something in return |
| device, method, technique, or process, that: | | | | for signing an NDA. In legal terms, it should be |
| (i) derives independent economic | | | | "supported by consideration." This could be a pay |
| value, actual or potential, from not being generally | | | | raise or a promotion for an existing employee, |
| known to, and not being readily ascertainable by | | | | although simply moving to a new area where |
| proper means by, other persons who can obtain | | | | confidentiality is required could be considered a |
| economic value from its disclosure or use, and | | | | benefit. For a new hire, the consideration might simply |
| (ii) (ii) is the subject of efforts that | | | | be the offer of new employment. |
| are reasonable under the circumstances to maintain | | | | - An important limitation of an NDA is that it only |
| its secrecy." | | | | takes effect on execution. It cannot apply |
| Confusion also arises when people use different | | | | retroactively--that is to say, it cannot apply to any |
| terms to describe trade secret abuses - theft, | | | | information that the employee or contractor has |
| misuse, abuse, and so on. | | | | previously divulged. |
| | | | | Benefits of NDAs |
| The central concept, however, is "misappropriation." | | | | |
| The UTSA defines "misappropriation" as acquisition of | | | | - Trade secret protection can be very beneficial to a |
| a trade secret of another by a person who knows | | | | business, but it's a somewhat informal type of |
| that the trade secret was acquired by improper | | | | intellectual property. Getting an employee or |
| means, or disclosure or use of a trade secret of | | | | contractor to sign a nondisclosure agreement is one |
| another without express or implied consent. | | | | way to formalize certain aspects of it, and guarantee |
| The UTSA defines "improper means" to include | | | | the benefits of trade secret protection to the |
| "theft, bribery, misrepresentation, breach or | | | | company. |
| inducement of a breach of duty to maintain secrecy, | | | | - Using NDAs shows that an employer takes the |
| or espionage through electronic or other means." | | | | business of protecting trade secrets seriously. This is |
| The UTSA provides a variety of remedies for | | | | a very important point when trade secret disputes |
| infringement of trade secrets. These include | | | | arise. |
| damages, royalties, profits, injunctions, and the | | | | - An NDA defines exactly what information is |
| provision of attorney's fees. | | | | regarded as a trade secret and is to be kept |
| In addition to the UTSA, another important legal | | | | confidential. In many cases, even management might |
| protection for trade secrets is the Economic | | | | not be sure what types of information, technology, |
| Espionage Act of 1996 (EEA), a federal law that | | | | and know-how constitute valuable trade secret |
| gives the U.S. Attorney General sweeping powers to | | | | information. Having to examine and define the specific |
| punish individuals or companies involved in the misuse | | | | areas the company wants to be kept secret is a |
| of trade secrets. The intentional stealing or | | | | useful exercise in itself, as it shows where extra |
| misappropriation of trade secrets can lead to severe | | | | security may be necessary. |
| punishments. Individuals may be imprisoned for up to | | | | - An NDA can specify dispute resolution methods |
| ten years and fined up to $500,000. Corporations | | | | such as arbitration or mediation that are to be used |
| may be fined up to $5 million. | | | | in the case of a dispute later on. This can reduce the |
| Benefits | | | | possibility of expensive litigation proceedings. |
| Trade secrets provide important benefits to both | | | | - The employee has an implicit duty of confidentiality |
| large and small businesses. The main benefit of a | | | | to the employer. However, she may not be fully |
| trade secret is that it gives its Project a competitive | | | | aware of this fact, or all its implications. An NDA |
| advantage in the marketplace. The trade secret itself | | | | makes explicit this duty of confidentiality. Ideally, this |
| can come in many different forms, but as long as its | | | | will also have the beneficial effect of enhancing an |
| Project protects its secrecy, it will continue to deliver | | | | employee's awareness of security and confidentiality |
| the benefits while being protected by law. | | | | issues on a daily basis, all through her employment by |
| Trade secret protection is immediate, and it does not | | | | the company. |
| require registration (and consequent expense). These | | | | |
| benefits are particularly important for smaller | | | | Resolving Trade Secrets Problems |
| companies with limited budgets. | | | | |
| Trade secret protection can last indefinitely. This | | | | Trade secret misappropriation |
| benefit can be enjoyed by both large and small | | | | Trade secret information is considered a form of |
| companies. For example, the recipe of Coca-Cola is a | | | | valuable property and is protected by relevant laws. |
| trade secret that has been protected for over 100 | | | | There are certain activities that the courts will treat |
| years. The world has changed immeasurably in that | | | | as trade secret misappropriation, which means that |
| time, yet this is still the world's leading soft drink | | | | the Project will be afforded judicial relief such as |
| brand. Also, small family-owned businesses have | | | | damages or injunctions. |
| maintained trade secrets for decades, deriving | | | | The courts will treat as trade secret misappropriation |
| substantial benefits from them. | | | | any disclosures by key employees in violation of their |
| Trade secret protection provides a benefit to a | | | | duty of trust toward their employer. Such employees |
| company in cases where it is not possible to gain | | | | would typically include current and former managers, |
| protection using other forms of intellectual property. | | | | research scientists, and engineers. Disclosure of |
| For example, trade secrets can be as varied as | | | | confidential information by current and former |
| customer lists, marketing plans, manufacturing | | | | employees who have signed a nondisclosure |
| processes, and designs. In many cases it would not | | | | agreement with their employer is also considered |
| be possible to protect these with other legal | | | | trade secret misappropriation. |
| approaches such as a patent. | | | | There are often many people providing services to a |
| | | | | company. These include independent contractors or |
| Trade Secret Project/ Operations Rights | | | | consultants, financial advisers, and vendors. Very |
| | | | | often they need to know confidential information to |
| One of the most important rights of a trade secret | | | | perform their roles. If such people sign a |
| Project is the ability to prevent certain groups of | | | | nondisclosure agreement, and then go on to misuse |
| people from exploiting those secrets. These groups | | | | confidential information, this is considered trade |
| include the following: | | | | secret misappropriation. |
| - People who have signed NDAs | | | | The courts will treat as trade secret misappropriation |
| - Employees (including key employees) | | | | any time that a company or person deliberately gains |
| - Employers who obtain trade secret information | | | | access to someone's trade secrets through illegal |
| from ex-employees of competitors | | | | means such as bribery or certain forms of industrial |
| - People who obtain a trade secret through theft or | | | | espionage. |
| espionage | | | | Situations can arise where trade secrets are |
| People who sign nondisclosure agreements (NDAs) | | | | accidentally lost. The Project of a trade secret is |
| promise not to divulge trade secret information | | | | expected to take "reasonable precautions" to protect |
| without permission of the Project Sponser/ | | | | confidential information. But sometimes a sequence of |
| Operations Manager/ Decision Maker. Many companies | | | | events happen, that are entirely unforeseen, that |
| now have independent contractors working for them | | | | cause a trade secret to be lost. |
| - such contractors do not owe a duty of | | | | If such a sequence of events happens, and no |
| confidentiality to the company employing their | | | | person was willfully negligent in what happened, the |
| services. Therefore, to protect trade secrets, it is | | | | trade secret is lost but no misappropriation has |
| now standard practice for companies to require | | | | occurred. |
| these contractors to sign an NDA. It is both common | | | | Steps to take if problems arise |
| and good practice to also get employees with access | | | | v If an employer suspects that an important |
| to such information to sign NDAs. | | | | trade secret has been divulged to a competitor by |
| Employees are bound by a duty of confidentiality not | | | | someone who owes a duty of trust, be that person |
| to reveal anything of value to competitors or anyone | | | | a current or former employee, or an independent |
| else who can damage the business. All employees are | | | | contractor who has signed an NDA, then a certain |
| bound by this duty, and it applies whether or not | | | | set of steps can be taken to resolve the problem.v |
| they have signed NDAs. | | | | The first step an employer should take when trade |
| There is an even stronger duty of confidentiality | | | | secret misappropriation is suspected is to get a good |
| applied to key employees such as top executives, | | | | attorney. An experienced attorney can advise on |
| researchers, and so on. This is called a "fiduciary | | | | how to proceed with the next step, which is the |
| duty." In cases of misappropriation, judges take a | | | | investigation and gathering of evidence. An attorney |
| very poor view of its abuse. | | | | can provide an independent perspective, and advise |
| A company that employs a person who has worked | | | | of possible risks in the investigative process.v The |
| for a competitor is not entitled to exploit trade | | | | second step is to investigate and gather evidence |
| secret information such an employee may have | | | | about the means of misappropriation. How did the |
| gained in his previous employment. This is because | | | | secrets leave the business? Was information passed |
| the trade secret information is considered the | | | | by e-mail or in conversation? Were physical |
| property of the previous employer. It doesn't matter | | | | documents stolen or copied? The investigator should |
| if the employee had worked on, gathered, or | | | | inspect relevant company files to determine if any |
| developed any of this confidential information. The | | | | documents are missing. Investigation is very |
| trade secret belongs to the former employer, and | | | | important. If an employer makes false or unprovable |
| the new employee still owes them a duty of | | | | statements that damage a person's reputation, he |
| confidentiality. | | | | may be liable for defamation. That's why professional |
| Anybody who hires a person who has worked for a | | | | input into the investigation can be very beneficial.v |
| competitor should always be aware of situations | | | | The third step is to decide what legal claims to make. |
| where she would be breaking trade secret law, and | | | | In order to put a halt to a disclosure—either |
| act appropriately in the Projects. | | | | through negotiation or litigation—the lawyer will |
| No one is entitled to acquire trade secret information | | | | need to show that the employer has solid grounds |
| through theft, bribery, or certain forms of industrial | | | | for a lawsuit against the person who violated the |
| espionage. The Project of a trade secret will have a | | | | NDA. One legal claim that can be made is that the |
| clear-cut case against anyone who uses these | | | | person has committed breach of contract. In addition, |
| methods, if the misappropriation can be proved. | | | | the attorney must determine whether there are |
| There is one group of people who cannot be | | | | other grounds on which to sue, such as |
| stopped from using information protected as a trade | | | | misappropriation of trade secrets, or breach of |
| secret. If someone discovers the secret | | | | fiduciary duty.v The fourth step for the employer is |
| independently, without using any illegal method as | | | | to determine what has been lost and what they are |
| described in the relevant laws, she is free to use the | | | | prepared to do about it. How has the trade secrecy |
| information. For example, it is not a violation of trade | | | | loss affected business? This must be known in order |
| secret law to analyze a lawfully obtained product and, | | | | to figure out what to get from the perpetrators. For |
| by so doing, to determine any trade secrets used in | | | | example, if the employer had intended to patent an |
| its manufacture. This process is called "reverse | | | | invention, disclosure of confidential information may |
| engineering." | | | | have eliminated this possibility.v When considering |
| | | | | what to do about a trade secret misappropriation, it's |
| Protecting Trade Secrets | | | | useful to consider what stage the misappropriation is |
| Potential problems that may occur | | | | at. In a "threatened misappropriation," no damage has |
| If a company fails to take steps to protect its trade | | | | been done but a threat has been identified. In this |
| secrets, it is likely to lose them and the commercial | | | | case, the trade secret has not yet been divulged. For |
| advantages they deliver. If a competitor acquires the | | | | example, an employee is found with unauthorized |
| confidential information, it could gain market share at | | | | documentation. A written request to return the |
| the expense of the company who originally had the | | | | material might work; failing this, a court order might |
| trade secret. Alternatively, trade secret information | | | | be necessary.v In a "continuing misappropriation," |
| can simply become public knowledge. In this case the | | | | damage has been caused but the trade secret rights |
| company still suffers because it has lost control of | | | | may not be lost completely. In this case, damage has |
| the information that gave it a competitive advantage. | | | | been done. A competitor may have unlawfully |
| The single most effective method to enforce trade | | | | acquired a trade secret, but not yet exploited it. A |
| secret confidentiality is to get all relevant people, | | | | court order can be obtained to prevent its |
| whether or not they are employees, to sign a legally | | | | unauthorized use, and possibly some compensation |
| binding nondisclosure agreement (NDA). Failure to do | | | | could be claimed.v In a "completed |
| this often leads to the loss of trade secrets, | | | | misappropriation," the damage is complete and |
| especially in cases where a person has no duty of | | | | irreversible. In this case, trade secret information has |
| confidentiality to the Project of the secret. | | | | been lost irretrievably. For example, a competitor has |
| If an employee is not aware that he actually has | | | | gained and fully exploited another's trade secrets. In |
| trade secret information, it is quite possible that he | | | | this situation a lawsuit should be filed and payment of |
| could inadvertently reveal such information to | | | | profits sought. |
| competitors or the general public. An important part | | | | |
| of protecting trade secrets is to raise employee | | | | Hiring employees from competitors |
| awareness of the issue, and make sure confidential | | | | Hiring someone who has worked for a competitor |
| areas and documents are clearly identified and labeled | | | | and who, most likely, has had access to the previous |
| as such. | | | | company's trade secrets places the new employer |
| No company can guarantee that all of its employees | | | | (or more usually, the new manager) in a problematic |
| will be happy at work. Occasionally, disenchanted | | | | situation. There may be compelling reasons to hire |
| employees will actively try to harm the company. | | | | the employee, but it places definite obligations on the |
| One way of doing this is by revealing confidential | | | | manager to handle this employee carefully, so that |
| information. The best protection against this is to | | | | trade secret law is not broken. The manager has no |
| have a comprehensive program to protect trade | | | | right to access trade secrets that rightly belong to |
| secrets. It's important that employees have access | | | | the previous employer. |
| to confidential information only on a need-to-know | | | | When placed in the difficult situation of managing |
| basis. In the event of trade secrets being divulged, | | | | such an employee, a manager has to put themselves |
| this makes it easier to pinpoint the perpetrator of | | | | "in the shoes" of the new employee to try to |
| the leak. | | | | understand how to avoid compromising situations. |
| Practical steps to protect trade secrets | | | | The manager should also think of the position of the |
| There are many practical steps that can be taken to | | | | former employer. The objective of this exercise is to |
| protect trade secrets: | | | | avoid, intentionally or otherwise, breaking trade |
| - Identify confidential material clearly. | | | | secret law. |
| - Limit people on a need-to-know basis. | | | | Practical steps |
| - Use NDAs or other appropriate agreements. | | | | It can be difficult for a operations manager/ Project |
| - Maintain appropriate physical security. | | | | sponser to think of things from the new employee's |
| - Maintain appropriate computer security. | | | | perspective. However, there are a number of |
| - Conduct exit interviews. | | | | practical steps that can be taken. For example, the |
| Companies should regularly conduct audits to | | | | manager should clarify with the employee the terms |
| determine what information is to be regarded as | | | | of any NDA (or any other agreement) she may have |
| confidential. This should then be clearly labeled as | | | | signed with her previous employer. |
| confidential, highly confidential, top secret, and so on. | | | | The manager should explain to her the legal obligation |
| Companies should grant access to trade secret | | | | she is under not to abuse her former employer's |
| information on a need-to-know basis. That is to say, | | | | trade secrets. She may not be aware of all the legal |
| employees should only have access to confidential | | | | obligations, or she might be aware but be careless or |
| information if they need it to do their jobs. | | | | thoughtless about the issue. This is a good |
| Manufacturing processes with sensitive areas should | | | | opportunity to review (or explain) the concept of |
| be "compartmentalized." This reduces the danger of | | | | intellectual property, and point out the substantial |
| an employee or contractor passing on a substantial | | | | penalties that can be imposed for its misappropriation. |
| amount of information to a competitor, and damaging | | | | The manager should determine, in general terms, the |
| the company's business. Another advantage of | | | | sensitive areas in which she previously worked, and |
| compartmentalizing information in this way is that, if | | | | relate them to similar areas in the current operation. |
| trade secret information is misappropriated, it makes | | | | This will give an idea of where not to deploy her. |
| it easier to trace the source, and increases the | | | | Another good idea is to contact former employers to |
| chances of a successful legal action. | | | | determine the trade secret issues which are at stake. |
| Using nondisclosure agreements (NDAs) or other | | | | This is useful if the employee was not properly |
| appropriate legal agreements is one of the most | | | | briefed at the exit interview, or if there was no such |
| effective actions that a company can employ to | | | | interview. It might even be possible to determine |
| protect its trade secrets. Even though employees are | | | | ways in which both former and new employers could |
| bound by law to protect the confidentiality of their | | | | agree to compromise on certain trade secret issues |
| employer's trade secrets, it is still a good idea to get | | | | in a way which is mutually beneficial. |
| employees with access to such information to sign | | | | An employee, in general, spends more time working |
| NDAs. | | | | with colleagues than with his or her manager. It's all |
| Maintaining appropriate physical security is an | | | | very well if the manager understands the implications |
| important part of protecting trade secrets. This can | | | | of an employee revealing trade secrets learned from |
| take many different forms, depending on the nature | | | | a previous employer, but this could be useless if |
| and size of the business. Confidential documents | | | | another employee succeeds in coaxing such |
| should be locked away when not in use, and signed | | | | information from the new employee. All employees |
| out when needed. Access to sensitive areas can be | | | | should be aware of the damage that can be done if |
| restricted to appropriate personnel, using swipe cards | | | | trade secrets are misappropriated. |
| or security guards. Closed-circuit television (CCTV) | | | | The successful employment of people who have |
| and other electronic surveillance systems may also be | | | | worked for competitors depends, to a large extent, |
| used. | | | | on all employees--colleagues, managers, and new |
| Because information technology (IT) is now so | | | | hires--being aware of the importance of trade secret |
| integral to most businesses, it is very important that | | | | and intellectual property issues. |
| appropriate security measures are applied to all | | | | Resolving trade secret disputes |
| computers and networks used. Sensitive information | | | | There are four main methods of resolving trade |
| should only be accessible to employees who need it, | | | | secret disputes: |
| and passwords should be changed regularly. Extreme | | | | 1. negotiation, |
| care should be taken when networks are connected | | | | 2. mediation, |
| to the Internet, due to the dangers of hackers | | | | 3. arbitration, and |
| gaining access. Up-to-date firewall and anti-virus | | | | 4. litigation. |
| technology is vital. A small company may not have | | | | |
| the IT resources to effectively protect its network | | | | - Direct negotiation between the two parties in a |
| from the many possible dangers. It may be | | | | trade secret dispute is often the best way to find a |
| necessary to outsource this work to a reputable IT | | | | resolution, especially if the misappropriation has been |
| company if internal resources are insufficient. | | | | discovered at an early stage. Many settlements are |
| An employer should always conduct an exit interview | | | | made after a cease-and-desist letter has been |
| with a departing employee who has worked in a | | | | delivered or a lawsuit has been threatened. Most |
| sensitive area. It is a good opportunity to remind the | | | | companies want to avoid the expense and bad |
| employee of obligations imposed by any NDAs | | | | publicity of litigation. While negotiation is often the |
| signed, and to clarify what is, and is not, regarded as | | | | best way to resolve a trade secret dispute, it still |
| trade secret information. It is also a good idea to | | | | usually involves intense discussions between the |
| have a similar interview with a contractor who is | | | | parties and their lawyers. The process is similar to |
| ending a relationship with the company. | | | | contract negotiation, with offers and counter-offers |
| Types of Trade Secret Agreement | | | | being made until agreement is reached. When this |
| Three types of trade secret agreement | | | | happens, a lawyer drafts a settlement contract that |
| There are three main types of trade secret | | | | sets out details of payments, return of documents, |
| agreement: | | | | possible royalty arrangements, and all other pertinent |
| 1. Nondisclosure agreements, | | | | matters. |
| 2. Noncompete agreements, and | | | | - Mediation is an informal process in which an impartial |
| 3. Nonsolicitation agreements. | | | | third party, the mediator, assists both sides in the |
| | | | | dispute to reach an agreement. Sometimes the use |
| 1. A nondisclosure agreement—also called an NDA | | | | of mediation is stipulated in nondisclosure agreements. |
| or confidentiality agreement—is a contract in which | | | | Mediation is a good way to resolve trade secret |
| the parties promise to protect the confidentiality of | | | | disputes as it is inexpensive and allows the concerned |
| secret information they learn during employment or | | | | parties to resolve the dispute themselves. |
| another type of business transaction. NDAs can be | | | | |
| used to protect any type of trade secret or | | | | - In arbitration, an impartial third party negotiates with |
| confidential information. For example, a nondisclosure | | | | the two sides and delivers a ruling on the dispute. |
| agreement can prohibit someone from disclosing a | | | | This ruling is usually final and binding. Again, a |
| secret invention, an idea for a new marketing | | | | nondisclosure agreement can specify the use of |
| campaign, or confidential financial information. NDAs | | | | arbitration. This method can also be used even while |
| are particularly important for independent contractors | | | | litigation is proceeding--if it is successful, the litigation |
| and consultants, as these people do not owe a duty | | | | can be dropped. |
| of confidentiality to a company. NDAs may be the | | | | - Litigation should be the final resort in trade secret |
| only way to guarantee confidentiality in such cases. | | | | disputes. It is an expensive, complex, and |
| Sometimes, an employee or independent contractor | | | | time-consuming process. Even in small cases, legal |
| is so important to an employer that her | | | | fees can be between $100,000 and $200,000 per |
| departure—particularly to work for a | | | | party. Large cases that proceed to a verdict can |
| competitor—would cause a great deal of harm. In | | | | cost many millions of dollars. Trade secret disputes |
| such a situation, an NDA will not be sufficient to | | | | can take years to resolve in the courts. They can |
| protect the business. Instead, the employer should | | | | have a very negative impact on businesses and |
| ask, or require, the worker to sign a | | | | employees. They are especially difficult for smaller |
| 1. A noncompete agreement. This takes nondisclosure | | | | companies engaging with much larger ones. Often, by |
| one step further by prohibiting the worker from | | | | the time a verdict is delivered, the importance of the |
| performing services for a competitor (or competing | | | | disputed trade secret may have diminished. The |
| directly) for a specified period of time after leaving | | | | major winners are usually the legal teams. |
| the company. Noncompete agreements are not | | | | Uniform Trade Secrets Act--Definitions |
| enforceable against employees in certain jurisdictions, | | | | The following is an extract (Section 1. Definitions) |
| and an employer may have to use a combination of | | | | from the Uniform Trade Secrets Act to clarify the |
| NDAs and nonsolicitation agreements instead. | | | | meaning of terms used in the act. |
| | | | | Uniform Trade Secrets Act with 1985 Amendments |
| 1. A nonsolicitation agreement is an agreement in | | | | SECTION 1. DEFINITIONS. As used in this [Act], |
| which the worker promises not to solicit clients or | | | | unless the context requires otherwise: |
| customers, for her own benefit or for the benefit of | | | | |
| a competitor, after leaving the company/ Project. A | | | | (1) "Improper means" includes theft, bribery, |
| nonsolicitation agreement can also contain a promise | | | | misrepresentation, breach or inducement of a breach |
| by the worker not to solicit fellow employees to | | | | of a duty to maintain secrecy, or espionage through |
| leave with her if she quits. A nonsolicitation | | | | electronic or other means. |
| agreement may be part of a larger employment | | | | |
| agreement such as a noncompete agreement or | | | | (2) "Misappropriation" means: |
| NDA. But it doesn't need to be. If a company doesn't | | | | (i) acquisition of a trade secret of another by a |
| care about an employee competing against it but just | | | | person who knows or has reason to know that the |
| wants to avoid losing customers and clients, a | | | | trade secret was acquired by improper means; or |
| nonsolicitation agreement alone may suffice. | | | | (ii) disclosure or use of a trade secret of another |
| What NDAs can protect | | | | without express or implied consent by a person who |
| ü Nondisclosure agreements can be used to | | | | (A) used improper means to acquire knowledge of |
| protect a very wide variety of confidential | | | | the trade secret; or |
| information. Everything from business strategies to | | | | (B) at the time of disclosure or use, knew or had |
| physical devices can be considered as a trade secret | | | | reason to know that his knowledge of the trade |
| and protected by an NDA. At the same time, there | | | | secret was |
| are situations where confidential information can not | | | | (I) derived from or through a person who had utilized |
| be protected by an NDA. And there are some cases | | | | improper means to acquire it; |
| where information may or may not be protected, | | | | (II) acquired under circumstances giving rise to a duty |
| depending on the circumstances. | | | | to maintain its secrecy or limit its use; or |
| ü Many processes, such as chemical and | | | | (III) derived from or through a person who owed a |
| manufacturing processes, are considered trade | | | | duty to the person seeking relief to maintain its |
| secrets and can be protected by an NDA. Formulas | | | | secrecy or limit its use; or |
| and recipes are also often considered trade secrets | | | | (C) before a material change of his [or her] position, |
| and can similarly be protected. For example, the | | | | knew or had reason to know that it was a trade |
| formula for Coca-Cola and the recipe for Kentucky | | | | secret and that knowledge of it had been acquired |
| Fried Chicken are trade secrets protected by NDAs. | | | | by accident or mistake. |
| ü Physical devices and machines can be | | | | |
| protected by NDAs if they are maintained as trade | | | | (3) "Person" means a natural person, corporation, |
| secrets. This may be the only way to protect them | | | | business trust, estate, trust, partnership, association, |
| if they do not satisfy the requirements for a patent | | | | joint venture, government, governmental subdivision |
| to be granted. Even if the option exists to protect | | | | or agency, or any other legal or commercial entity. |
| such objects using a patent, they can still enjoy trade | | | | |
| secret protection while waiting for the patent to be | | | | (4) "Trade secret" means information, including a |
| granted. Designs and specifications can be protected | | | | formula, pattern, compilation, program, device, |
| as trade secrets. For example, a complex | | | | method, technique, or process, that: |
| manufacturing device could be protected like this, | | | | (i) derives independent economic value, actual or |
| especially if the design is not unique enough to | | | | potential, from not being generally known to, and not |
| warrant a patent. | | | | being readily ascertainable by proper means by, other |
| ü Business strategies such as advertising and | | | | persons who can obtain economic value from its |
| marketing campaigns can be protected by NDAs. | | | | disclosure or use, and |
| Business plans and announcements of new products | | | | (ii) is the subject of efforts that are reasonable |
| can also be protected by this method. A business | | | | under the circumstances to maintain its secrecy. |