When There Is No Way To Stop Your Trade
Secrets From . . . Literally . . . Walking Out The Door
By Steve McDaniel, JD, PhD
Technology Litigators
One of your highest level man- agers, one with complete access to all your inside information
and trade secrets, quits and immediately
heads over to your direct competitor. He
does not have a covenant-not-to-compete, and maybe not even a binding
non-disclosure agreement (shame, shame,
shame) that you can try and wag over his
head. Worse yet, some of the competitive
nuggets rattling around in this guy’s head
include strategic planning specifically
aimed at wresting larger market share
away from your competitor/his new employer. Some of this strategic planning includes a launch of new formulations you
have innovated that will “cure” the problems that your sales force routinely hears
being leveled by customers at the other
paint company. While he hasn’t spilled the
beans yet as far as you know, and you’ve
admonished him not to do so, a duty he
swore to uphold, you still have very grave
concerns that Mr. I’m-Outta-Here cannot
but help but disclose your trade secrets.
Talk about having a bad day in the C-suite—all those golf games, talking
through all the strategies you both
planned to try, and you never had a clue
he was job shopping! It doesn’t get much
worse than this if you’re a paint and coatings company and you rely heavily on the
trade secret assets surrounding your formulations and marketing program. But, as
we enjoy self-inflicted flogging, let’s focus
on this worst-case-scenario because, in its
severity, it highlights the critical areas of
concern when you conduct professional
strength trade secret audits.
As discussed in prior articles, it is arguable that you should have tried to get a
legally enforceable covenant-not-to-compete out of this employee the day he
signed on. Enforceable covenants are approached state-by-state, and must be tailored to specific facts surrounding the
employment. You probably are not going
to be successful in preventing your chief
polymer chemist from becoming a field
salesman for your competitor, no matter
how much better a salesman he might be
due to his in-depth knowledge of the resin
systems. And, it goes without saying that
this covenant should be paired with a
non-disclosure agreement whereby each
key employee agrees not to disclose trade
secret information he acquired during his
employment with you. The departing employee and his new employer should be
made aware that you are watching, and if
your trade secret information is used, you
will hold them liable. There are semi-cour-teous ways to do this, such as during the
requisite exit interview and a follow up
letter copying the new employer. All of
this should have been routinely re-enforced by periodic training of key employees, including the guy who is just
about to take a hike, about how to prevent and detect trade secret misappropri-ation on the philosophy that he can’t say
we never told him so.
Still what are you going to do? Well,
there is a ray of hope, albeit a very slim one.
And it is one that you may find peeking out
of the paper fortress you have hopefully
created to protect your trade secret assets
during your routine auditing processes.
But, first, some inclement weather
news. If you reside in the “sunshine” states
of California or Florida, that little ray of
hope has been virtually rained out. In
Massachusetts, North Carolina, and New
York, you have a slightly better chance of
sunshine in certain circumstances. Texas
and a handful of other states have yet to
give us a clear forecast, so take an umbrella. One thing is for certain. Sorting
these jurisdictional issues out BEFORE
you hire key personnel is a smart move.
quire a temporary injunction, followed by
more permanent injunctions, this “slim
ray of hope” is based in a very large part
on how well you have established your
trade secret protection program. You will
use this iron-clad program to show the
court that the departing employee’s new
gig will inevitably lead him to rely on your
well-protected and valuable trade secrets—ergo it being called the “Inevitable
Disclosure Doctrine” of trade secret law.
The court is going to have to weigh your
legitimate rights to protect your trade secrets against the employee’s rights to get a
job that uses the skills and knowledge he
has legally acquired in working for you.
Dicey. And, the Court will gladly toss the
case out if there is any significant chink in
your trade secret protection armor.
But, let’s assume that you have conducted a professional-strength trade secret
audit, that you are armed for bear, and that
you are not entirely foreclosed from seeking injunctive relief, i.e., your case arises
outside California and/or Florida. Can you
prevent this guy from gutting your trade secret assets? Maybe. Here are some of the
factors that are typically taken into account.
As you read down through them, think
back on your own trade secret protection
program. Do you have information ready
