When It Comes to Trade Secrets, Ignorance Is Not Bliss

Trade-secret misappropriation cases often involve bad actors who deliberately steal trade secrets. But perhaps just as frequently, trade-secrets are misappropriated by people who simply don’t know better. Many don’t even understand what a trade secret is, let alone that there are laws or other obligations prohibiting inappropriate use or disclosure of trade secrets.

I’ve personally seen this happen over and over. An employee leaves one company to join another in the same industry. He takes many of the documents he created at his old job. These documents contain trade secrets. In his mind, they are his documents. He created them, after all! And at his new job, he uses those documents on behalf of his new employer.

Now both companies have a problem. The former employer’s trade secrets are in a competitor’s hands. And the new employer has unwittingly exposed itself to significant liability.

Both companies are to blame for their problems. The first company did not educate its employees about their responsibilities and legal obligations regarding trade secrets and proprietary information, both while working for the company and after they leave. The second company failed to make sure that the new employee did not bring his prior employer’s trade secrets with him.

There are three primary tools for preventing this situation: contracts, training, and exit/intake interviews. Employees with access to proprietary information should sign a non-disclosure agreement that requires them to keep the information confidential. The agreement should provide that all information belongs to the company even if created by the employee, and must be returned upon termination of employment. And the contract should acknowledge that the employee is not bringing any proprietary info or trade secrets from her prior job.

But employees too often don’t read contracts before signing them. That’s where training comes in. During the on-boarding process, and periodically thereafter, use training sessions to reiterate your trade-secret policy.

Finally, use exit interviews to again instruct the departing employee about his post-employment obligations. Consider having him sign an acknowledgement that he has returned all info and is aware of these obligations. When hiring a new employee, talk with them up front about what info they have from their prior employer. Be sure to consult with an attorney if that discussion raises concerns.

I really believe that many misappropriation cases can be avoided by simply making sure that employees understand these issues. Too often, they do not.

 

Sometimes, a Non-Solicitation Agreement Is Enough

I’ve had a string of injunction hearings in trade-secret and restrictive covenant cases the last two months, which has prevented me from writing regularly. In several of these cases, the defendants signed nonsolicitation and nondisclosure agreements that did not include a noncompete. This type of contractual protection is worth considering.

Recently, there has been a lot of negative press about noncompete agreements that large companies like Jimmy Johns and Amazon have forced upon low-level employees. These situations show that a noncompete is not always necessary. When deciding what contracts you will require your employees to sign, think about each employee’s role and what level of protection you need.

For lower-level employees with limited or no access to your proprietary information, a nondisclosure agreement may be sufficient. Sales or customer-relations employees would likely require a nonsolicitation agreement as well. Generally, it’s worth considering whether to limit noncompetes to those employees who have ongoing access to (or perhaps created) your trade secrets.

There’s a tangible benefit to leaving out the non-compete clause. In my experience, judges are far more comfortable preventing a former employee from soliciting employees, as compared to preventing them from working in an entire industry. I like being able to say “Your honor, we are not asking you to prevent John Doe from working in this industry. In fact, we have no problem with him continuing to work for his new employer. All we are asking is that Mr. Doe not be permitted to use our confidential information or solicit our clients.”

In the end, if you only need to prevent solicitation, including a non-compete can do more harm than good.

Of course, non-compete agreements have their place. Figuring out which agreements to implement is a critical decision that you should not make alone. Consult with an attorney who can help craft an overall strategy for protecting your trade secrets.

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