Engaging in unprotected business
By Beth McDaniel
Technology Litigators
Unfortunately, it happens all the time. So let’s discuss completely careless and unprotected business relations,
as uncomfortable as that may be . . .
John P. Eggseck finally meets that
special employee he’s been looking for,
Miss Ima Crook…she’s intelligent,
charming, sophisticated, well-endowed
with experience and with a lust for
knowledge. She’s perfect! Perfect for the
position of mid-level managerial position in his coatings company, that is. In
the throes of this exciting encounter, the
parties enter into a relationship. They
pledge their trust in each other and mutual respect. No pre-employment agreements are signed, (they don’t want to get
bogged down in all that negativity).
John proceeds to disclose to Ima his innermost (trade) secrets, he exposes himself (technically), he teaches her
(manufacturing) techniques she never
knew, and he spends late nights sharing
with her his hopes and dreams (
profor-mas and projections) for the future.
All is going along well, until- BAM!!
John discovers Ima’s run off with another paint manufacturer. But before
she leaves, she cleans out John’s trade secret files and makes off with his latest
formulation…all that he has left… on a
thumbdrive in her front pocket. Now,
living off of John’s blood, sweat and
tears, the two cheaters are carrying on
together in bliss, while John beats his
head against his office wall for not having obtained a formal employment
agreement, a Non-Disclosure or Non-Compete Agreements. All the while,
Miss Ima Crook is sharing John’s most
valuable trade secrets with his biggest
competitor, and capitalizing on his innovation to his competitor’s advantage.
This leads us to the question…
What happens when you engage in
unprotected business?
Last month, we discussed the situation where a high-level employee with
no non-compete agreement walks off
with trade secrets. In this article, we will
explore the situation where your trade
secrets have been absconded in the
hands of a mid-level employee, only to
discover that you have failed to contractually protect yourself. No Non-Disclosure Agreement (NDA) exists to set out
the limitations on disclosure of your
trade secrets and remedies for misappropriation. You have no Non-Compete
Agreement to prevent her from taking a
comparable position with your direct
competition. Should this misfortune
befall you, are there legal remedies on
which you can rely to help protect that
which is yours?
Where there is a contract between the
parties, to the extent it is consistent with
public policy, a court will look to the
contract to govern the parties’ intentions.
But where there is no contract, trade secret law can offer protection by operation of law. The term “by operation of
law” refers to the application of legal
principles to a relationship to which the
parties have not previously contracted.
Trade secret by operation of law would
also be applied in a situation in which an
existing contract does not adequately
cover the issues between the parties or
fails for some contractual reason.
In the event there is not a contract
setting out the terms related to the protection of trade secrets, there may be independent civil liability under the
Uniform Trade Secrets Act (UTSA). All
but four states (Massachusetts, Texas,
North Carolina and New York) have
adopted the UTSA or some version of it,
and in 2012 the UTSA was introduced in
the Massachusetts state legislature, but
as of this time has not been enacted. For
ease of this discussion, we will focus on
the UTSA and not the common laws of
the states who have not adopted it.
The UTSA’s definition of “trade secret” is information, including a formula, pattern, compilation, program,
device, method, technique or process,
that has actual or potential economic
value from not being generally known to
the public or to other persons who can
obtain economic value from its disclosure or use and is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy.
So, in order to prove damages for
misappropriation of a trade secret, one
must first prove there was a trade secret
in the first place. But according to the
definition, one element of a trade secret
is that its owner has taken reasonable
efforts under the circumstances to maintain its secrecy. An NDA and Non-Compete are evidence of such protective
measures.
But in the absence of such agreements,
the UTSA maintains that there are other
reasonable efforts to maintain secrecy,
such as advising employees of the existence of a trade secret, limiting access to
a trade secret on a “need to know basis,”
and controlling plant access.
