materials, who do they report their concerns to that person who would be in
charge of the investigation? Given the
technical nature of such trade secrets, the
“mystery employee” will be selected by
the audit firm to possess the necessary education and work experience to be placed
in a position where access to trade secrets
would be granted.
Once the audit is complete and improvements made, the security procedures in place and documentation of the
audit itself are evidence for use in court
of the “reasonable efforts” you use to
protect your trades secrets. Why is this of
value to you? When the dark day occurs
that you run to court to prevent use of a
misappropriated trade secret, you will
need as much evidence as possible pre-prepared for immediate use in arguing
that preliminary injunction to stop the
thief’s use of it that day is appropriate to
protect your interests. The case you make
for this type of suit is usually built on circumstantial rather than direct proof of
misappropriation. And, obtaining a preliminary injunction is generally considered by courts as “extraordinary relief”
which means the burden is on you, the
applicant/plaintiff, to convince the judge
in short order of: 1. the likelihood that
the applicant will prevail on the merits at
the final hearing; and 2. the extent to
which the plaintiffs are being irreparably
harmed by the conduct complained of.
From some past court cases, you must
first meet the burden of these two points
before the court considers other factors
used in issuing an injunction. Regarding
point one, remember, a trade secret must
be a secret, and all that evidence of secrecy protection will help in establishing
the quality of the case you will make at
the final hearing. And, when asking for
preliminary injunctive relief, an “
unexplained delay” can fatally damage your
assertion of “irreparable harm” (criteria
2 above, and generally the most important), so spending a week to document
your secrecy procedures after the fact is
not a good plan.
The other criteria considered by the
court includes: 3. the extent to which the
defendants will suffer irreparable or
greater harm if the preliminary injunc-
tion is issued; and 4. whether the injunction serves the public interest. Given that
injunctive relief may impose some pretty
stiff economic disruptions on the defendant, such as in the case of preventing a
“[A]t the end of the
day, you don’t want
to go to court. It’s
too expensive! The
desirable outcome
from a professional
trade secret audit is
to put the FOG (the
fear of going to fed-
eral court) into the
hearts and minds of
those who have ac-
cess to your propri-
etary information.
former employee from working for a
competitor or impoundment of materials that may demonstrate the trade secret, you need to be loaded for bear
when arguing on points 1 and 2 to outweigh the concerns of point 3. Keep in
mind that all these considerations are
useful in court when acting to prevent
just the threat of misappropriation, such
an accidental or mistaken disclosure
(e.g., disclosure that is not loudly public
and widely available, yet) that could lead
to use by a competitor, and you want to
stop the movement of trade secret information now before events go any further.
If a trade secret is inadvertently or intentionally disclosed, then it loses its
protection as a trade secret, forever. All
these efforts to protect and document
your trade secrets provide evidence to
defend against counter-claims that you
were making an unjustified misappropriation claim.
Secrecy and the difficulty of discovery
may add to the trade secrets value
though the law in this area is shifting
somewhat. Compensatory monetary
damages generally are based on your
losses and/or gains by the thief during
the time the information was a pro-
tectable trade secret and the time the
thief used it to his competitive advan-
tage. Alternatively, a court may assign a
reasonable royalty for use of your trade
secrets. Punitive damages may be issued
up to twice the compensatory damages
and reimbursement for attorney’s fees
may occur depending upon a successful
showing of misappropriation that was
“willful and malicious.” Examples of
“willful and malicious” actions include
the defendant using what they are aware
might be or know to be a trade secret,
or obtaining and then transferring trade
secret information in violation of a con-
fidentiality agreement after deciding not
to pursue a business opportunity with
you and not telling you (i.e., they string
you along and keep you talking about
your technology to rip you off). Again,
making sure that the protective steps de-
scribed above to keep your trade secrets
under tight physical and contractual
control will provide evidence in court of
where a breach occurred, and whether
that misappropriation qualifies as “will-
ful and malicious.”
But at the end of the day, you don’t
want to go to court. It’s too expensive!
The desirable outcome from a profes-
sional trade secret audit is to put the
FOG (the fear of going to federal court)
into the hearts and minds of those who
have access to your proprietary informa-
tion. And that is where the “protective
wall of paper” comes in—a series of con-
tracts, non-disclosure agreements, exit
interview documents, etc. to discourage
any potential bad actors from walking
away with that which is not theirs. Next
month in Part II of this series, we will dis-
cuss how to review and build this “pro-
tective wall of paper.” CW
