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ARE YOUR TRADE SECRETS PROTECTED?

April 12, 2012

Imagine a former employee leaves to compete against your business and does so with your product design and customer list. Clearly, you would expect compensation. Fortunately for you, the Uniform Trade Secrets Act (UTSA) has been adopted in 46 states and protects your trade secrets against misappropriation. Under the UTSA, a trade secret includes information such as a formula, pattern, device, or technique that derives economic value from not being known. You may be entitled to injunctive relief, damages, attorney’s fees and costs, and, in the case of intentional misappropriation, double damages.

 

But you won’t be compensated just because your employee took advantage of information. The UTSA requires that a trade secret is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Consequently, protection of your trade secrets requires affirmative measures. Did everyone in the company have access to the product design? Or did you fail to communicate to your employees that the customer list is considered a secret? If so, you may not be entitled to protection under the UTSA.

 

The solution is to act preemptively and protect yourself with a carefully and narrowly drafted confidentiality agreement. Given the importance of protecting business information, the agreement should be unambiguous, and signed and dated by the employee.

 

What should you include in the confidentiality agreement? First, think of information that, if disclosed, could provide a competitor with a distinct business advantage or adversely affect your business. For example, most businesses want to protect passwords, customer lists, potential acquisition or merger candidates, pricing strategies, and similar information.

 

Second, do not be too broad. Many employers and their legal counsel are overzealous in drafting confidentiality agreements with broad language that encompasses widely known information. While such drafting may feel like a safety net, broadness compromises even legitimate trade secrets. If an employee can prove that some information in the agreement was never really secret, then the agreement no longer proves the secrecy of any information it purports to protect.

 

The last thing any business wants is to create case law interpreting what it means to take “efforts that are reasonable under the circumstances.” A clear, definitive confidentiality agreement will not leave any doubt.

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