Trade Secrets include information, such as a formula, pattern, compilation, program, device, method, technique, or process that must derive independent economic value (actual or potential) from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use, and the trade secret owner must take reasonable steps to maintain the secrecy of the information. The most classic and well-known example of a “trade secret” is the formula/recipe for Coca-Cola Classic.
The public policy behind protecting trade secrets is to ensure fair competition among businesses and to promote innovation. As a society, we have determined that it would be unfair to allow a business to use another business’ proprietary business information to compete against them. We wish to motivate entrepreneurs to have new ideas, create new products and offer new services or do any of these things in an innovative way. This is how we move forward as a society not just economically but also culturally.
In today’s business, a common trade secrets issue arises when an employee is terminated or quits and then uses certain information that he or she gains while employed in his or her new job. A common example is when a sales employee takes the “customer list” with him or her. While you might think that a “customer list” is always going to be considered a trade secret, the statutory analysis must be applied nonetheless. What if the customer list is published on the company’s website? Or, what if every single employee had unrestricted access to the customer list on the server no matter whether that employee was the receptionist, the graphic designer or the sales person? When we refer to the customer list and our desire to protect it, we are not talking about the identity of the customer usually. Instead, what we are really talking about is something else like the specific needs of the customer, the right contact person at the customer, and the pricing and terms offered to that customer.
When we talk about “protecting trade secrets,” we are talking about preventing the misappropriation of trade secrets and the enforcement of your rights once misappropriation has occurred. This may involve petitioning for injunctive relief like a temporary restraining order, or a lawsuit for monetary damages.
Despite all the stories of hacking and corporate espionage in the news, the greatest risk and threat to your trade secrets lies with your own employees and your competitors that lure them away. The best way to protect a trade secret is to share it with the fewest number of people possible. Since that is not always feasible, the best practices for preventing employee theft of trade secrets include:
- Routinely marking written and electronic materials as “Confidential Information” and then treating them as such;
- Requiring third parties to execute a “Non-Disclosure Agreement” or “Confidentiality Agreement” prior to sharing confidential or proprietary information with them;
- Requiring all employees to sign written employment agreements that contain covenants not to disclose confidential information or solicit customers and employees following departure from the company;
- Providing every employee a written employee handbook or employee policy manual which contains policies with respect to the protection of company trade secrets among other provisions;
- Requiring attendance at regular employee training sessions concerning the identification of trade secrets and the proper handling and protection of trade secrets;
- Limiting the use and presence of personal computing devices like smart phones, tablets and laptops at the workplace; and
- Regular workplace monitoring including personal computer searches and email searches
Having the right attorney on your side to help you identify items that qualify as trade secrets and to advise you on the best way to protect those trade secrets is invaluable as the loss of the protection that California law provides your trade secrets can be devastating to your business.
If you suspect that a third party has stolen your trade secrets, you may have recourse against them. However, the stakes are very high in trade secrets litigation which requires a tempered approach that actually analyzes whether you had a trade secret in the first place, evaluates the evidence you have of the misappropriation of your trade secrets, determines the likelihood of a successful outcome of litigation and counsels you with respect to alternatives. Trade secret litigation is hotly contested, high-stakes litigation where the loser can ultimately be out of business.