Protecting Your Company's Trade Secrets from Disclosure

Trade secret protection is broad and cheap. It requires little more than reasonable efforts to keep proprietary information secret. Having programs and policies in place to do just that is a vital component of trade secret protection.

Internal Protection

Employees have an implicit duty to keep information belonging to the employer confidential. Nevertheless, you want to make that duty explicit by means of a proprietary information agreement, in which the employee agrees, among other things, that all important information received during the course of employment is confidential and a trade secret of the employer, not to be disclosed. In addition to this general, sweeping confidentiality provision, you should identify for your employees, to the extent possible, the specific information you consider to be confidential, proprietary, or a trade secret.

Keeping trade secrets also requires developing policies to secure company premises. You need to worry not only about strangers in the building, but also about invited guests such as customers and independent contractors. Can they gain access to areas containing sensitive information? Locked doors and security clearances may seem like extreme measures, but they might be necessary to show diligent efforts at keeping information confidential. Protecting computer data from prying eyes may require short-timed screen savers and automatic logouts, in addition to general data security measures that restrict access to files, such as password protection.

External Protection

Your company's trade secrets might be revealed whenever someone from the company interacts with prospects, customers, industry analysts, investment analysts, advisors, or competitors. To the extent practicable, every time you ship your product or demonstrate your service, you should do so under a nondisclosure agreement. You should review marketing materials and other literature circulated outside the company to ensure proprietary and confidential information is either labeled as such or omitted. If you discover a leak or misappropriation, take remedial or enforcement measures so as not to damage your claim to trade secrecy against future misappropriators.

Keeping the Clamps on Departing Employees

When you restrict your employees' ability to disclose trade secrets after they leave, you run up against employment law principles that protect a person's freedom to earn a living. You'll need to take a lot of care before deciding whether to sue a former employee for misappropriation. You certainly don't want to get overzealous: in a state such as California, a court may award reasonable attorney's fees and costs to a prevailing defendant if a claim of misappropriation of trade secrets is made in bad faith. (Cal. Civil Code section 3426.4.).

So, what should you do when you learn that a key employee is leaving for a competitor? If you're in full protection mode, you'll want to terminate the employee sooner rather than later, regardless of notice period. Limit or terminate the departing employee's access to company premises and networks. In an exit interview, discuss with the employee and confirm in writing the details of any noncompete obligations, whether you think they will hold up in court or not. Request return of, and inventory, all company information and property in the hands of the employee.

In some states, the doctrine of inevitable disclosure allows for an injunction against competition by departing employees, even in the absence of actual misappropriation of trade secrets, based on the presumption that the departed employee's duties with the competitor cannot be performed without disclosure of your trade secret. In other states, the actual or threatened misappropriation must be more demonstrable before you can succeed. Seeking a temporary restraining order and/or preliminary injunction is a good idea in any case, as it bolsters your showing of efforts to protect the alleged secret from disclosure.