Trade secrets need to be kept secret. Obvious as this point may seem, it is often overlooked. A company with valuable information—customer data, unreleased products, engineering specifications, unique manufacturing methods, to name just a few possibilities—must treat it like the precious asset it is.
Sensible security measures will make it less likely that an employee, vendor, partner, or competitor will steal or misuse a company's trade secrets. Equally important, in the event legal action ever becomes necessary, the court will require the trade secret owner to show that it too reasonable steps to maintain the secrecy of its information. Here are five things your business can do to protect itself.
Five Ways to Protect Trade Secrets
Identify and Label Confidential Documents
The first step a business should take is to work with an attorney to inventory business and technical information eligible for trade secret protection. Once identified, key documents and files should be clearly marked as "CONFIDENTIAL" so that there can be no mistake that the company regards them as confidential. Such labeling will be more effective if the company is selective in what it designates.
Restrict Access to Information
Do all employees need to be able to review, for example, a company's pricing, cost, and margin information? If not--and in all likelihood they do not—the company should strongly consider protocols limiting access to those whose job responsibilities actually require them to access such information.
Implement Employee Confidentiality Policies
A business with valuable trade secrets should ensure that its employee handbooks and policy manuals carefully address matters of confidentiality. The company should communicate clear guidelines for when, how, and for what purposes an employee may access the company's confidential information. Written policies are invaluable for promoting confidentiality and documenting any breaches.
When many think of trade secrets, they think of the formula for Coca-Cola, KFC's 11 herbs and spices, or Google's search algorithm. But the world of trade secrets goes far beyond these famous examples. In fact, chances are good that your business, large or small, has trade secrets worth protecting.
What Is a Trade Secret?
Trade secrets enjoy strong legal protections, and the importance of trade secrets is growing. Under federal law and the laws of most states, a trade secret is competitively valuable information that:
Trade Secrets Include Customer and Business Information
Trade secrets are not the exclusive domain of tech companies. Businesses in every industry gather and use information every day that can potentially be protected under trade secret law, including:
Different states take different approaches to the payment of referral fees between attorneys. I am fortunate to practice in Michigan, where referral fees are permitted, within certain limitations.
I think it's important for colleagues and clients to know where I stand on attorney referral fees. As I have said, before, I believe the referral fees are a win-win-win. When done right, they are:
Referral fees are particularly important for smaller law firms and solo practitioners--and the clients who hire them. Large firms essentially have a parallel system: A client will call a lawyer at the firm, and if that lawyer is not suited to the matter, the lawyer will pass it on to a colleague within the firm with the necessary expertise. And both will be compensated—the first lawyer for originating the work, the second for performing the work. Referral fees allow smaller firms and their clients to enjoy similar benefits.
I am pleased to announce that the State Bar of Michigan's Litigation Journal has published my article, Pleading and Proving a Defamation Case. I write in the article:
Defamation is notoriously tricky to plead and prove. In Michigan, defamation must be pled with specificity. Only statements of fact, not opinion, can be defamatory, and the plaintiff bears the burden of proving the statement’s falsehood. The very nature of the conduct (words) and injuries (reputational harm) can create unique evidentiary hurdles. And free speech protections under the First Amendment give rise to defenses that may defeat an otherwise viable claim."
The article explains how to properly allege defamation, discusses privileges that may shield a speaker from liability for an otherwise defamatory statement, and explores the rules for "unmasking" anonymous defendants -- i.e. the standards that courts use to decide whether to force a third party (such as an internet service provider) to disclose the identity of an anonymous blogger or commenter.
Defamation is a fascinating and still-developing area of law. It has taken on heightened importance in the era of the Internet and social media, when anyone can reach a worldwide audience with the click of a button. If you would like to read the whole article, you may find it HERE.
LinkedIn has become an essential tool for many professionals. The site provides a platform for making business connections, sending direct messages, gathering marketplace information, and posting updates and content. But the very features that make the site useful for business and career development can also stir up trouble where non-competes and non-solicits are involved.
A number of courts have grappled with the impact of social media sites like LinkedIn on non-compete and non-solicit agreements. Most recently, in Bankers LIfe and Casualty Company v. American Senior Benefits, LLC et al, an Illinois appellate court considered whether a former branch sales manager for a life insurance company violated his agreement not to solicit company employees when he used LinkedIn to make connections with former colleagues after he left to work for a competitor.
Merely inviting a former co-worker to connect on LinkedIn seems a far cry from an improper solicitation—although I have seen lawsuits and cease-and-desist letters based on grounds even flimsier than this. "Non-solicit" does not mean "cut off all contact whatsoever." In this case, however, there was a small twist: The former sales manager had also published a job posting for his new employer on his LinkedIn page that could be viewed by those with whom he was connecting.
Last year I launched an organization for lawyer, judges, professionals, and academics called the Society for Law and Culture. Through engagement with the best of philosophy, literature, history, theology, and the arts, the Society aims to strengthen the ties between law and culture and promote a renewed sense of law as a vocation and humane profession.
The next Annual Gathering of the Society for Law and Culture will be held May 19, 2018 at the Russell Kirk Center for Cultural Renewal in Mecosta, Michigan. As with the Society's inaugural gathering, attendees are expected from around the country. The Society has confirmed an amazing roster of distinguished speakers to address the theme, "Moral Imagination and the Law."
Please watch the Society for Law and Culture website in coming months for more details. If you would like to receive periodic updates about the Society, please email me.
Too many employers play games with sales commissions. They delay payment. They use flimsy pretexts to withhold payment. They use accounting tricks to lower the amounts paid. They hold commissions over the heads of their salespersons to keep them in line.
Fortunately, Michigan law affords robust protections to sales professionals. Under the Sales Representative Commission Act (SRCA), an employer that fails to pay a commission when due is liable for damages—and double damages it the failure was intentional. Notably, no showing of bad faith is required. To be liable for double damages, the employer simply must have withheld money owed to the sales representative on purpose. In addition, a sales representative who is forced to sue to recover a commission is entitled to recover the legal fees expended in obtaining a judgment against the employer.
(Note: Though this post focuses on employment relationships, Michigan law regarding sales commissions applies equally to independent contractor and other agreements.)
What If an Agreement Does Not Specify When Commissions Are to Be Paid?
Whether unintentionally or by design, some sales representative commission agreements are not models of clarity. In particular, an agreement may not make it clear when payment of a commission to the sales representative is actually due. The SCRA addresses this common situation. Under the statute, past practices between the parties shall control, and if there are no past practices, then courts must look to industry custom to determine when payment is due.
Many businesses require top executives and sales professionals to sign non-compete agreements. These individuals typically have access to vital trade secrets or customer relationships that could be used to damage the business if the person leaves to work for a competitor or set up a competing venture.
Increasingly, however, non-competes are used with low-level employees such as fast food workers, customer service representatives, and hair stylists. This practice has met with a flurry of criticism. (For some recent examples, see here, here, and here.) One prominent critic contends that non-competes enable employers to “use the threat of litigation to constrict wages and employee mobility,” and that “[w]orkers bound by noncompetes cannot rely on outside offers and free-market competition to fairly value their talents.”
An opinion from the Michigan Court of Appeals sheds light on the subject. The case, BHB Investment Holdings, LLC v. Ogg (Feb. 21, 2017, unpublished), involved franchises of two competing swim instruction chains, Goldfish Swim School and Aqua Tots. Goldfish Swim School of Farmington Hills (“Goldfish”) sued a part-time instructor who was terminated and went to work for Aqua Tots Canton (“Aqua Tots”) in alleged violation of his non-compete and non-solicit agreements. Goldfish also brought claims against Aqua Tots. The instructor earned $12.50 per hour at Goldfish and $11 at Aqua Tots.
Law and the Creative Economy is the blog of lawyer Maxwell Goss. This blog is for informational purposes only.