The typical scenario is like this: A sales employee with three years of experience under her belt and endless hours of contact with your clients gets an offer from another company or the itch to go out on her own. She decides to leave and, in the days before her departure, she burns her Microsoft Office contacts database onto a disk, and gathers up the documents and papers relating to her work over the past three years. Within two weeks of her departure, the company hears from other account managers that she is calling and visiting with clients and prospects of her former employer on behalf of her new company — and she is taking accounts. One of the options available to her former employer is to sue her for the misappropriation of trade secrets. The question is whether the former employer will stop the former employee, retrieve the information she took with her, and win the case.
Although it oversimplifies the issues in a trade secret case, this question comes down to two broad issues: (1) what is the information; and (2) what did the former employer do, if anything, to keep the information secret and confidential. As to the first issue, state law generally defines the categories of information that can constitute trade secrets expansively. Nearly anything that is not readily ascertainable by legitimate means — including customer contact and preference information — can constitute a trade secret under the law. The law of every state — states like New Hampshire that have adopted the Uniform Trade Secrets Act and states like Massachusetts, New York and Pennsylvania which have developed a common law definition — requires an employer claiming an interest in or misappropriation of trade secrets to take measures that are reasonable under the circumstances to preserve the secrecy of the information.
What is "reasonable under the circumstances"? The cases make it clear that "reasonable" and not "Herculean" efforts are required. Fundamentally, courts and juries expect employers to take certain steps that fairly apprise their employees (and, if appropriate, their vendors and business partners with whom they share information) that there is an expectation that business information will be kept confidential; the company considers the information to be the company's property and a trade secret; and the information is important and cannot be shared with or disclosed to anyone outside the company.
Return to the scenario above: Assume that the company does not have a written confidentiality policy or require all employees to execute non-disclosure agreements. Documents are not stamped or marked "confidential" and employees typically take copies of customer lead and data sheets on sales calls. Indeed, in the environment placing heavy pressure on these employees to sell the company's products, copying and taking the documents on calls is an understood practice, tacitly encouraged by the sales managers who need the troops to produce. The company, however, does require manager-level employees and officers to sign non-disclosure and confidentiality agreements, and these managers are verbally charged with the responsibility to educate the sales force on keeping information pertaining to the customers confidential. Computers housing the customer-specific information — prices, volumes, margins, contract termination dates and the like — are password-protected. Under the law, has the former employer taken measures that are "reasonable under the circumstances" to protect the information it now claims was stolen and misused? The answer is somewhere along a continuum of "possibly, but probably not."
Protecting a company's valuable information from use and disclosure by departing employees remains an important, and often-litigated, issue in our economy. It is all the more remarkable, therefore, that the scenario described here is all too common Indeed, this scenario is taken from the facts of an actual case in which a jury found that the employer had not taken reasonable steps under the circumstances to preserve the secrecy and confidentiality of the information. Although a few measures — such as the requirement of non-disclosure or non-solicitation agreements for all sales employees and others handling the information — would have made the difference, companies that care about protecting the sort of information at issue need to adopt an overall, consistent trade secret and confidential information strategy.
There are many steps a company can take to protect confidential and proprietary information. Here are the preferred basics of such a strategy:
1.Require incoming employees to sign, as a prerequisite of employment with the company, a non-disclosure agreement at a minimum, or a non-disclosure and non-solicitation agreement, which set forth the categories of information that the company considers to be confidential; to be its property; to be handled only for company business purposes, with care and without duplication; and which must be returned to the company upon the employees' cessation of employment.
2.Require non-disclosure agreements with third-parties, such as visitors, vendors and potential licensees and buyers.
3.Develop a written "Trade Secret and Confidential Information Policy" as part of the company's employee handbook or manual, which advises all employees to safeguard company information and prohibit the taking of such information from others. Have incoming employees acknowledge receipt of the policy in writing.
4.Stamp documents, plans, drawings and reports "confidential," thereby educating the employees on a regular basis that the company values and safeguards the information gleaned during the product development processes and sales cycles.
5.Establish and maintain a working policy under which managers and employees actually discuss what information is confidential and should be protected. In this manner, the company will have created ongoing conditions and practices that enable the company to identify the information it wants to protect, and which will need to be identified in any litigation with a departing employee.
6.Establish and maintain policies that oversee and monitor the publication of "white papers" and trade presentations to ensure that employees do not unwittingly disclose information the company deems confidential. Departing employees often point to white papers and seminars given to trade organizations as evidence that the company did not value or consider confidential the very information it now asserts is a trade secret.
These policies and practices can, and should, be underscored at the time of an employee's departure with an exit interview. The exit interview can be used to remind employees of their non-disclosure or non-solicitation obligations (No. 1, above), the company's overall policy and their prior receipt and acknowledgement of it (No. 3, above), and their obligation to return all materials (No. 1, above), especially those marked "confidential" (No. 4, above). In the event a manager and the departing employee have recently worked on a development project or a sales effort with an existing customer or prospect, the manager should attend the exit interview to help describe specifically the information that the employee is obligated not to use or disclose in ensuing new employment. At the end of the interview, have the employee acknowledge in writing the exit interview itself, and the topics and obligations that were discussed.
Adoption of these practices is a necessary step to protect confidential and proprietary information and to succeed in preventing misappropriation through litigation. A company can eliminate some, perhaps much, of the uncertainty of litigation by working with their counsel to develop and shape these policies and create an environment that values and protects the company's sensitive information.
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