Tips to protect Company trade secrets
[The following is not legal advice and should not be relied on as such]
The heart and soul of many Companies are their trade secrets (think the Coca-Cola formula, a proprietary algorithm, or even customer lists and other sales/consumer data). Here are five things every Company should think about regarding trade secrets and trade secret protection:
(1) Trade secret law is governed at the state level. Most states have adopted some formulation of the “Uniform Trade Secrets Act,” which, in general terms, requires that trade secrets be (1) kept secret and (2) provide economic value to the Company on account of the secrecy. However, some states have not adopted the Uniform Trade Secrets Act, including New York. Companies engaged in possible disclosure of trade secrets should check local law to make sure that the disclosure complies with trade secret law in that jurisdiction, so that trade secret protection is not lost.
(2) Assuming the Company is compliant with trade secret law, trade secret protection is generally indefinite. Thus, Companies should consider their intellectual property strategy with respect to their proprietary data and decide which of their confidential information may be appropriate for public disclosure in a patent application that may eventually expire after the term of the patent, and what is more appropriate for private, indefinite use.
(3) Companies that wish to disclose trade secrets (for example, to a potential investor or strategic partner), should always sign a tight non disclosure agreement to ensure that any trade secrets disclosed will be kept secret by the other party. Absent an NDA, such disclosure may result in the loss of trade secret status.
(4) Companies should ensure that their employees and independent contractors do not walk away with Company trade secrets when they leave, or inadvertently disclose the trade secrets upon departure. Best practice in this area includes doing an exit interview with departing employees to ensure they will comply with any confidentiality obligations, and to discuss what the Company considers proprietary and particularly sensitive.
(5) Companies that believe an employee may have walked away with trade secrets must take affirmative, immediate steps to contain the damage, or else they risk permanently losing trade secret protection over what was taken. Companies, for example, should seriously consider seeking a permanent injunction if they fear trade secrets have been taken or potentially disclosed, which is a court order prohibiting any further disclosure. In California, where non-competes are almost impossible to enforce and are generally void, employees can work for competitors immediately after departing a Company; in such situations, it is critical that Companies restrict access to shared proprietary data (such as data in DropBox or Box folders, email accounts, Google Drive accounts, etc.) immediately after an employee departs. Companies should be wary of, and police for, employees who begin to access such materials after departure.