This is the final installation of our four part discussion of intellectual property. Last month, we discussed patents and their protections.
When someone thinks of a trade secret, they may think of the Kentucky Fried Chicken recipe, or the Coca-Cola formula. But trade secrets can be more commonplace pieces of information such as a client list, business plan, and corporate minutes. California considers a trade secret to be any information which a company actively works to keep confidential, and which would lose value if it was widely known. This definition provides for a wide array of information to be considered trade secrets.
Trade secret theft, or misappropriation, can be as simple as a former employee taking your client list and using it to contact potential clients on behalf of a new boss. In some cases, it can be so extreme as to be considered corporate espionage. One common trend in recent cases is that this type of theft is committed by employees. In order to be found liable for misappropriation of trade secrets, a company will have to prove an employee (1) acquired the information by improper means, and (2) used the information or disclosed it to a third party. An employee makes an improper acquisition if he acquires the information through theft, bribery, misrepresentation, or breach of a duty to maintain secrecy, to name a few ways.
When a company is the victim of an employee who misappropriates trade secrets, the initial goal is to try and keep the disclosed information as secret as possible. The law provides a couple of ways to do this. For example, a company can file a temporary restraining order against the disclosing employee, asking a court to order the employee to destroy and/or unpublish any disseminations of the information, stop using the information, and to stop disseminating or using the information. A company may also file an application for a preliminary injunction (typically after the issuance of a temporary restraining order).
Unfortunately, in some cases, by the time a company discovers its trade secrets have been misappropriated by an employee, it is simply too late to remove the information from the realm of public knowledge. In those cases, temporary restraining orders and preliminary injunctions will likely not be worth filing. Instead, these companies will seek to recover damages against the misappropriating employee. A company in this situation can recover the amount of money the company lost, including its loss of sales or goodwill, or the amount by which the misappropriating employee was enriched by using or disclosing the trade secret information. For example, if a former employee takes your client list and successfully steals away some of those clients, you may recover the amount of revenue you would have earned had you been able to serve those clients or the amount the former employee earned from those same clients. In addition, if the misappropriation is found to be willful or malicious, you can recover punitive damages. A misappropriating employee’s new employer who uses or benefits from the misappropriated information may also be liable.
While this award can end up being quite high, finding yourself litigating over this type of claim is not desirable. Instead, there are ways to protect your trade secret information to both deter would-be misappropriating employees and to better position yourself in the event an employee does misappropriate the information. First and foremost, companies should be executing enforceable contracts with its employees which include provisions regarding confidential and trade secret information. We published an article last month about a recent court decision regarding restrictions on these types of provisions. Second, companies should be creating, promoting, and enforcing policies regarding the usage of electronic devices, internet use, and use of the company’s email system. All of these things are commonly used to misappropriate trade secret information. Third, when employees are both hired and leave the company, they should be reminded of their obligations to keep the company’s trade secret information secret. Fourth and finally, companies would be well served to have a plan in place to respond to any misappropriations of their trade secrets. This can help ensure the company is able to act quickly and possibly retain the value in the misappropriated trade secret’s being not widely known.
If your company has information which you think may be trade secret information, if you would like to revise your employment contracts with respect to their confidentiality provisions, or if you would like to discuss a legal plan to respond to any future misappropriations, call the attorneys at Navigato & Battin.