The economic turndown of the early 21st century, coupled with technological advances that have made it easier to download massive amounts of information in minutes, has resulted in increased litigation by employers against employees who steal their employers' trade secrets or confidential and proprietary information and seek to use this information for the benefit of their new employers or themselves. With the transitory workforce of today, when employees remain in one place for an average of between 3 and 4 years, it is even more important than ever for companies to identify and take steps to protect their trade secrets and other proprietary information from misappropriation and disclosure.
What type of information qualifies as a trade secret?
Whether or not your company's information qualifies as a trade secret is a fact-intensive inquiry. Many states, including Wisconsin, have developed laws or adopted the provisions of the Uniform Trade Secrets Act (UTSA), which defines the type of information that will be treated as a trade secret. For information to be deemed a "trade secret" within the meaning of the UTSA, the information must "derive independent economic value" and not be "generally known" or "readily ascertainable" by others who can benefit from this information. In addition, the UTSA requires that the company who is seeking to protect the information take efforts that are "reasonable under the circumstances to maintain its secrecy." Assuming the employer successfully establishes that its information qualifies as a trade secret, in litigation, defendant ex-employees often resort to attacking the steps that a company takes to protect its trade secrets as insufficient to show that the information is in fact, a secret.
What steps should employers take to protect trade secrets from disclosure?
Depending on the type and form of the information a company wants to protect, there are a variety of steps that can be taken to avoid disclosure by current and former employees.
- Confidentiality Agreements. A carefully worded confidentiality and non-disclosure agreement between the employer and employee will go along way to show that your company takes its trade secret information seriously. Confidentiality agreements will also discourage disclosure by current and former employees.
- Electronic Information. If the information is only available in an electronic form, limit the number of individuals who have access to this data to those employees who have a legitimate, business reason to know the information. Require that each employee with access have separate passwords that are updated on a regular basis. Monitor the number of times employees log on for this information and scrutinize excessive or unusual frequency of access or any information that is downloaded or emailed.
- Information in Hard Copy. Depending on the size of your business, information such as customer lists, account information, and prospects can be manually recorded. If this is the case, review where this information is contained in the office. This information should be kept in a location that is separate from common areas, such as reception desks or areas to which members of the general public have access. Again, this information should be available only to those who have a legitimate reason or business need to know the information. Designate a trusted individual as the "keeper" of the information and, at night, instruct the "keeper" to return the data to a locked office, file cabinet,or other secure location. In addition, limit the number of individuals who have keys, passcodes, or other means of access to this information.
What remedies are available if my company's tradesecrets are disclosed?
Depending on your jurisdiction, the remedies available to a company that is faced with actual or threatened disclosure of trade secrets generally include injunctive relief and monetary damages. If an employee leaves your company and takes your customer list or downloaded files with him, you can file a complaint in court and request an injunction, a court order, requiring the employee to return the misappropriated materials and to cease and desist from using them. Further, money damages representing your company's loss of business and the ex-employee's "unjust enrichment" as a result of his or her actions may also be available, but you must be prepared to prove damages, as it is a lawsuit and you, as the employer, will bear the burden of proof. Finally, your company may be entitled to recover its attorney's fees and costs which it incurred as a result of bringing the lawsuit, under both the UTSA and Wisconsin contract law, assuming that you have a confidentiality or nondisclosure agreement in place that provides for the recovery of attorney's fees. Establishing appropriate protocol and policies for protection of your company's trade secrets will reduce the possibility of disclosure and provide your company with protection in the event of disclosure.
If you have any questions regarding establishing a confidentiality policy or need assistance with developing strategies to protect your company's proprietary information, please contact Jeff Morris at 414.277.5659 / jxm@quarles.com or your Quarles & Brady LLP attorney.