As illustrated by the recent lawsuit by America’s Test Kitchen against celebrity chef Christopher Kimball, companies in a variety of industries are vulnerable to losing their trade secrets.
Although it is a common misconception that trade secret issues usually apply to high-tech companies, every type of business has potential trade secrets. While state laws as to what constitutes a trade secret vary, confidential information, processes, techniques, methods, programs, formulas, patterns, and the like — data that gives a company an edge over its competitors — can potentially constitute a trade secret. In addition to the protections offered by state laws, the recently passed federal Defend Trade Secrets Act also provides new mechanisms to protect against trade secret theft.
To qualify for protection as a trade secret, however, the information at issue must genuinely be a secret — it cannot be known by the competition and cannot be publicly known or available. Additionally, a trade secret must involve a unique process or methodology. Examples of protected information can range from secret recipes to the way a home goods chain organizes its wares or the color schemes used in display windows.
Employers seeking to avoid potential loss of trade secrets should bear in mind the following:
- Trade secret information must be treated like the valuable information that it is. Courts are unlikely to find that a former employee misappropriated trade secrets, if the company itself did not treat the information as valuable and confidential.
- Steps to protect your business’s valuable information include: (1) informing employees about the aspects of your business that constitute trade secrets; (2) implementing the use of confidentiality agreements; (3) keeping trade secrets under password protection; (4) marking documents that are or include trade secrets “confidential”; (5) limiting access to trade secrets to only those who need the information in order to do their jobs; and (6) implementing policies that make clear that employees have no expectation of privacy on company devices.
- Employers must also be proactive in monitoring departing employees, including: (1) requesting that the employee turn over all confidential information in their possession; (2) requiring prompt return of all company-issued computers, phones, and other devices; and (3) requiring departing employees sign a “termination certificate” stating under penalty of perjury that they have not taken any trade secrets. When in doubt over a departing employee’s actions, consider a forensic analysis of their company-provided hardware in order to ensure that valuable information has not been misappropriated. The key is to take prompt reasonable steps to protect the confidential information.
- When it appears that an employee has engaged in trade secret theft, the employer should take prompt action, including sending a cease-and-desist order followed by prompt legal action, if necessary. Failure to take action in one circumstance may undercut future claims against employees who steal similar trade secrets. In other words, a court may conclude that if the information at issue is indeed valuable and secret, the company would have sought to enforce its rights the first time.
Finally, make sure your employee contracts and similar documents outlining employees’ confidentiality obligations are up to date an enforceable.