Most businesses have trade secrets. These may consist of any information, including data, formulas, methods, techniques, drawings, financial information or lists of actual or potential customers and suppliers, that generates economic value to your business by reason of the fact that it is secret. To be a trade secret, you have to make reasonable efforts to maintain its secrecy.
Common examples of trade secrets a business could have could include its customer lists, financial plans, marketing plans, formulas, methods and the like. If your business services a particular area and plans to expand into a neighboring area starting on a particular date and plans to advertise in that area beforehand, a competitor would gain an economic advantage by knowing both that date and the new area. If you own a pizza parlor and your pizza has a unique crust that is gaining raves in the local community, the pizza parlor down the street would probably want to obtain your recipe. If you build web sites for businesses and have developed a unique template for doing so that cuts your development time, you have a trade secret.
45 states, including the District of Columbia, have adopted some form of the Uniform Trade Secrets Act that protects rights in trade secrets. Alabama and Massachusetts have their own trade secret statutes and New Jersey, New York, Texas, and Wyoming protect trade secrets under the common law. Under the Uniform Trade Secrets Act you can sue to enjoin or bar the actual or threatened theft of your trade secret and obtain damages for that theft which may include both your actual loss and the unjust enrichment received by the thief. If the theft is willful or malicious a court may even award you your attorney’s fees.
However, before you run out and sue for the misappropriation of your trade secret, you must take reasonable steps to keep that secret secret. Here are some actions that you should consider taking. This list is not intended to be all-inclusive.
Lock it up. If some of your employees (or independent contractors or consultants) are entitled to a little more information than others, password that information, make sure that only those individuals who are entitled to that information have that password and make sure that the only way to get at that information is by using that password. Put in writing instructions to keep that password secret and have everyone with access to that password acknowledge their receipt of that password and agree to keep that password secret in writing as well. Keep a copy of that writing and make sure that writing is signed and dated. A password can be a computer password, a combination on a lock, or the combination to get in the front door. If you don’t want certain employees coming in the building after hours, when your door is locked to your customers make sure that those employees can’t get in as well. Put passwords in your software and on your computers to protect the information inside from unwarranted intrusion. Don’t use passwords that can be easily figured out by strangers and don’t allow copies of them to be written down or lying around. A reminder, a password is useless if it can be bypassed by rebooting the computer.
Don’t put confidential information where everyone can see it. Your customer lists should not be sitting on your receptionist’s desk where anyone checking in can check that list out.
If an employee (or consultant or independent contractor or unpaid intern) leaves your employ, you’ve got to take away his access to your company’s information. That may mean changing all your passwords. Merely giving her password to her replacement without taking it away from her accomplishes nothing if she can still access your premises.
Make consultants, employees, independent contractors, your summer interns and even visitors, in certain circumstances, sign and date non-disclosure and confidentiality agreements. For example, if you’re a web developer and hire a student for the summer to help you, he’s in a position to gain access to your code, templates, customers and software vendors and if you hired really talented help could even hack into your systems. Make him sign and date a non-disclosure and confidentiality agreement. If you’re a contract manufacturer and invite potential customers to view your facilities, they should sign and date a non-disclosure and confidentiality agreement if they’re likely to see how you make what you make and whom you make it for.
New employees should agree in writing to keep your confidential information confidential. This writing may be a separate agreement or be included in an employee manual. If included in an employee manual, they should sign and date a separate page that states that they have read its terms and agree to abide by its terms and you and the employee should keep a copy of that agreement or page. You also need to make sure that your new employees aren’t bound by an agreement with their old employer to keep information confidential that they will need to use in their employment with you. You run the risk that those employees may get sued by their old employer and be barred from using the skills and knowledge that you hired them for.
When an employee leaves, have an exit interview…remind him or her of their duties to keep your information confidential. The non-disclosure and confidentiality agreements that they sign shouldn’t terminate when they do. Don’t give them an opportunity to misappropriate your information. Make sure that when they leave, they leave their keys, copier cards, sales or vendor lists, media containing any data and employee directories with you and return their laptops. Ask them, if they have brought work home in the past, to bring that work back before they leave.
In this era of laptops, PDA’s, e-mail and flash memory, it is no easy task to keep your secrets under lock and key. However, if you take “reasonable efforts under the circumstances to maintain their secrecy or confidentiality,” if they do get out, the law provides that you can get relief. However, if you don’t mind your business, the courts may not come to your rescue when trade secret theft occurs.