by Wm. Greg Bennett, Esq.
To protect a trade secret, it is imperative that the employer implement reasonable measures to prevent the misappropriation or disclosure of secret information. Each company’s situation will be different and the employer must implement such measures as are reasonable within the context of its industry and company. Examples of some specific protective measures that have been considered adequate are:
• Employer informed employees that certain documents were considered to be, and were treated as, trade secrets by the company and such documents were kept in a locked room;
• Employer placed proprietary notices on all trade secret documents, restricted physical access, had customers sign nondisclosure agreements, used copyright notices and encrypted all distributed data;
• Employer limited circulation of its customer lists and advised employees, in employment agreements and the employee handbook, that it considered the lists to be confidential; and
• Employer made all computerized customer data accessible only by code and hard copies were kept in a locked office. Salespersons worked in a restricted area, could not remove customer information from that area without permission, the customer information was locked up at the end of the work day and the trash was shredded.
On the contrary, some protective measures that have been determined inadequate to protect trade secrets are:
• Employer had nondisclosure agreements with a party known to disregard such agreements;
• Employer did not require suppliers to sign nondisclosure agreements and disclosed secret information to them without restriction, even though employees where required to sign nondisclosure agreements;
• Employer allowed a nondisclosure agreement to expire with a vendor, but continued to disclose trade secret information to that vendor and employees were not aware of the confidentiality restrictions;
• Employer did not restrict access to confidential information, did not identify alleged trade secrets to employees, allowed unguided tours of its facility, failed to mark confidential documents as confidential and left confidential information lying around.
As can be seen from the foregoing few examples (taken from actual court cases), what is required to protect a trade secret differs greatly from case to case, but the one common element is whether such actions were reasonably tailored to actually protect the confidentiality of the employer’s information under the circumstances.
Perhaps the most important trade secret protection an employer can put in place is a confidentiality agreement with every vendor and employee that protects the employer’s trade secret information. The confidentiality agreement should carefully tailor the definition of trade secret information to the needs of that particular business, including an agreement by the vendor/employee to not misappropriate, copy or transfer the company’s confidential information. The vendor/employee should be required to return all company property upon termination and acknowledge damages to the company if the agreement is breached including the right to obtain injunctive relief and attorney’s fees.
Once it is determined that information qualifies as a trade secret, it must be determined if the trade secret has been “misappropriated”. Generally, “misappropriation” is defined as the knowing acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means, accident or mistake. [Civil Code §3426.1(b)] Once it is established that a trade secret has been misappropriated, the UTSA grants the court the authority to enjoin its use and order its return and provides for monetary damages.
One exception to the definition of “misappropriation” is that the UTSA provides a “safe harbor” for former employees to inform their former employer’s customers of their new employment. As long as the former employee only notifies his former employer’s customers of his new employment through an announcement, there is no misappropriation; however, if the former employee solicits customers from his former employer’s trade secret customer list, the former employee has misappropriated the trade secret information
Wm. Greg Bennett, Esq. is an attorney with over 20 years experience in private business and commercial real estate transactions and litigation. Mr. Bennett is a partner in the law firm of Bennett & Bennett, APC with his wife, Kelly Bennett, Esq. who practices family law, is a professional mediator and the former Mayor of Murrieta. Mr. Bennett is also a partner in Mediation Law Group, Inc. an alternative dispute resolution provider specializing in civil litigation and divorce mediation. Mr. Bennett can be reached by calling (951) 719-3456 or emailing him at gregbennett@bennettandbennettlaw.com