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.
What business practices might constitute “reasonable efforts to maintain
secrecy?” Trade secrets physically labeled “Confidential” and physical barriers to secret information, such as
restricted access and locks on doors and
desks are good signs. Password restrictions on company computers and restricting the ability of employees to
print, copy, download or send files are
not only good business practices, they
provide further evidence of trade secret
protection. We have recommended before that employees’ should be notified
that they are subject to monitoring of
their work emails, computer usage and
phone calls in order to lower their expectation of privacy in the workplace.
Hopefully, for our friend John, under
the UTSA in his state, a court would
view some combination of these practices sufficient to be considered reasonable efforts under the circumstances.
In several previous articles, we have
referred to intellectual property audits (IP
Audits). A professional IP Audit can give
you the assurance your company is doing
what it can to protect your valuable trade
secrets, and also be an indication you are
protecting your trade secrets.
You might be asking yourself why a
Non-Disclosure Agreement, or NDA, is
even necessary if you have taken other
steps towards confidentiality. Remember, a properly drafted NDA is in and of
itself an indication that you took certain
steps reasonable under the circumstances
to protect your trade secrets. Moreover,
if you do end up in a lawsuit, you have
no action in contract, but only in tort if
you have no agreement. This may limit
your damages. Furthermore, it’s easier
for an employee to make a defense that
he did not know it was a trade secret or
wasn’t sure how to treat trade secrets in
the absence of an agreement setting out
these terms.
What if there’s a proper NDA but no
Non-Competition Agreement? John P.
knows that the intelligence he gave Ima
Crook is so intertwined in her under-
standing and knowledge of her business
that she can’t even avoid disclosing that
confidential information in the per-
formance of the same job duties at the
new paint manufacturer competitor.
That’s where the Doctrine of Inevitable
Disclosure may kick in. You may recall
we discussed this doctrine in the Octo-
ber 2012 IPaint article titled, “When
there’s No Way to Stop Your Trade Se-
crets From…Literally…Walking Out the
Door.”
Under this Doctrine, which is recog-
nized in some, but not all jurisdictions, a
court may prevent a former employee of
one company from working for a com-
petitor in a similar position, if the nature
of the new position is such that it would
inevitable require the use or disclosure
of trade secrets of the former employee.
The seminal case on the Doctrine, a
7th circuit case, PepsiCo. v. Redmond, is
illustrative of the application of this doctrine. In that case, a former PepsiCo employee, (Redmond) went to work for
Quaker Oats Company, manufacturer of
Gatorade, a product in direct competition with Pepsi’s All Sports drink. Redmond made no actual threat of use or
disclosure, but the appellate court stated:
Again, the danger of misappropria-
tion in the present case is not that
Quaker threatens to use PCNA’s secrets
to create distribution systems or co-opt
PCNA’s advertising and marketing ideas.
Rather, PepsiCo believes that Quaker,
unfairly armed with knowledge of
PCNA’s plans, will be able to anticipate
its distribution, packaging, pricing and
marketing moves. Redmond and Quaker
even concede that Redmond might be
faced with a decision that could be influenced by certain confidential information that he obtained while at
PepsiCo. In other words, PepsiCo finds
itself in the position of a coach, one of
whose players has left, playbook in
hand, to join the opposing team before
the big game.
As always, seek legal counsel to determine if this remedy is available in
your state.
In addition to civil remedies for trade
secret misappropriation, many states
provide criminal penalties, and stiff ones
at that, for misappropriation. Further,
there can also be criminal penalties for
receiving stolen information. So, in
some states, the threat of jail time might
make Ima less attractive to Casanova
Competitor, and serve to suppress its
urge to capitalize on your trade secrets
to its advantage.
The underlying lesson here is don’t
get caught with your pants down. Practice protected business by routinely using
NDA’s and non-competes with your employees. But, if you do discover a hole
in your prophylactic Wall of Paper, good
business practices under the UTSA may
provide you the protection you need to
avoid an unwanted theft. CW
