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February 2016

Protecting Trade Secrets

Trade secrets are easily misappropriated because they represent nothing more than information, which can be memorized, scribbled down, emailed, or copied and quietly removed from company premises. Once trade secrets fall into the hands of a former employee or an unscrupulous competitor, they can quickly be put to use to the detriment of the company from which they were stolen. The threat of misappropriation increases exponentially as advances in technology make confidential information more accessible to employees. Correspondingly, litigation in this area is on the rise as employers attempt to prevent present and former employees from disclosing confidential information and trade secrets. The good news is that by taking a few simple steps, companies can help safeguard trade secrets and protect their competitive edge.

1. Identify and Label Trade Secrets

Companies should review and identify their trade secrets on an ongoing basis. This regular inventorying should include a determination of what trade secrets the company currently relies upon. In other words, what valuable information does the company keep secret to give it a competitive edge? Trade secrets typically fall into two broad categories: technical information and business information. Technical information may include manufacturing methods and techniques, processes and formulas, computer software, and designs. Examples of business information are cost and pricing information, manufacturing information, internal market analyses, customer lists, and the like.

Companies have a duty to use reasonable measures to safeguard their trade secrets. The first line of defense is to label documents containing trade secrets or other sensitive information as confidential. Labeling provides notice of what information can and cannot be disclosed. In conjunction with this, it can be helpful to develop a matrix that classifies employees, consultants, contractors, and vendors according to the degrees of access they have been given to sensitive information. It is also prudent to monitor access to protected information through passwords, network controls, and restricted access to physical files.

2. Develop Policies to Educate Employees About Trade Secrets

Employees play a critical role in protecting a company’s trade secrets. They generate and work with these trade secrets, and their actions often determine whether a trade secret is maintained as confidential. Companies should take steps to notify employees that certain information is confidential and explain what actions employees are expected to take to maintain that confidentiality. One of the most important methods of doing so is the implementation of an employee handbook that describes the categories of information to be treated as confidential and emphasizes that employees should err on the side of nondisclosure when in doubt. Regular employee training on confidentiality policies is also recommended.

3. Use Confidentiality and Other Agreements to Protect Trade Secrets

Most importantly, companies should require all employees to sign nondisclosure agreements in conjunction with their employment. Nondisclosure agreements prohibit an employee from disclosing confidential information beyond the limited circumstances outlined in the agreement and from disclosing trade secrets after leaving the company. These agreements put employees on notice that they may face legal consequences if they breach the agreement. For key personnel in certain industries, restrictive covenants provide another level of protection against disclosure of confidential information.

The beginning of 2016 presents the perfect opportunity for companies to determine whether they have the proper safeguards in place to protect trade secrets. As part of this process, Gordon & Rees attorneys are available to review employee handbooks and policies and ensure that enforceable nondisclosure and other agreements are in place. These simple steps can be instrumental in protecting a company’s trade secrets.

Employment Law

Chad A. Shultz

Employment Law