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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.
Use Nondisclosure and Noncompete Agreements
A business that shares confidential information with employees, customers, vendors, partners, or others should be sure that the information is covered by a nondisclosure agreement, which will give rise to liability for breach of contract in the event the information is misused or wrongfully disclosed. In many cases, a carefully crafted non-compete agreement with employees and executives will be appropriate and even critical for keeping a company's information from falling into the hands of a competitor.
Conduct Exit Interviews
A best practice is to conduct an exit interview with any employee leaving the company. Exit interviews provide an occasion to remind an employee of his or her post-termination obligations and help avoid later allegations that the employee is unaware of his or her obligations. An exit interview can also be an opportunity to gather facts about potential risks posed by the employee's next position.
Trade secrets can be among a company's most valuable assets, and technology has made trade secret misappropriation shockingly easy. Reasonable confidentiality measures such as those outlined above can be highly effective in preventing misappropriation. Such measures will also make a business more likely to obtain court relief in the unfortunate event that trade secret misappropriation occurs.
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:
Trade Secrets Include Technical Knowledge
With patent protection subject to increasing pressures and challenges, more businesses are looking to trade secret law to protect innovation. Protectable technical information includes, among other things:
Know What You Have and How to Protect It
Most businesses have actual or potential trade secrets. In many cases, trade secrets—whether classifiable as "business" or "technical"—are among a company's most precious assets. A trade secret attorney can help your business inventory its trade secrets and implement policies to maximize their value, help prevent devastating damage, and facilitate recovery in the event of theft of misuse.
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.
Neither action—connecting with former colleagues and publishing a job posting—would seem to constitute a solicitation all by itself. But what about the two actions taken together? The former employer argued that the contacts and the job posting did run afoul of his non-solicitation agreement, particularly when considered alongside the defendant's supposed modus operandi of making LinkedIn connections as a first step in recruiting its employees. The idea, apparently, was that the former branch sales manager was wrongly using connection requests to lure his former colleagues to the job posting.
The court disagreed. Ruling in favor of the former sales manager, the court reasoned:
The generic e-mails did not contain any discussion of Bankers Life, no mention of ASB, no suggestion that the recipient view a job description on Gelineau’s profile page, and no solicitation to leave their place of employment and join ASB. Instead, the e-mails contained the request to form a professional networking connection.
The court explained further:
Upon receiving the e-mails, the Bankers Life employees had the option of responding to the LinkedIn requests to connect. If they did connect with Gelineau, the next steps, whether to click on Gelineau’s profile or to access a job posting on Gelineau’s LinkedIn page, were all actions for which Gelineau could not be held responsible. Furthermore, Gelineau’s post of a job opening with ASB on his public LinkedIn portal did not constitute an inducement or solicitation in violation of his noncompetition agreement.
In short, the former employee's connection requests were generic in nature, and did not so much as mention his new company or the job opportunity there. Any further steps taken by former colleagues at his old company—such as accessing his profile and viewing the job posting—were their responsibility alone.
Accordingly, there was no solicitation, and no violation of the agreement.
It might be tempting to look for a categorical rule permitting or forbidding the use of LinkedIn across the board by those subject to a non-compete or non-solicit agreement. But LinkedIn invitations, messages, and postings are like any other form of communication. They can be innocuous, or they can violate one's obligations to a former employer, depending on the content and context. As with most aspects of non-compete law, the permissible use of social media requires a fact-specific analysis. The Bankers Life opinion provides some useful guidance in this developing area of law.
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.
Law and the Creative Economy is the blog of lawyer Maxwell Goss. This blog is for informational purposes only.