Both retailers and bankers know
employees are likely to steal more of
their goods or money than an outside thief. The same is true of a business’s intellectual property.
Smart Business asked J. Robert Arnett II
of the Dallas law firm of Munck Butrus PC,
what a company can do to protect trade
secrets and other confidential information.
Can a company prevent an employee from
stealing trade secrets when the employee
leaves the company?
It is impossible to prevent all theft of
trade secrets by employees, but employers
can take steps to minimize the risk, including requiring employees to sign noncom-pete and nondisclosure agreements; training and educating employees about the
importance of protecting and not disclosing trade secrets and confidential information; limiting access to trade secrets and
confidential information to those employees who have a need to know, including
password protecting files and limiting
access to computer servers; conducting
exit interviews to remind departing
employees of their duty to not disclose
trade secrets and confidential information;
and checking what materials the employees are taking with them as they leave.
Some companies require terminated
employees to leave immediately, retrieve
their keys and passcards, disable their
computer network access, and have them
come back after hours to clean out their
offices under supervision.
Are noncompete and nondisclosure agreements valuable tools?
Yes, although they have their limitations
and are best used in combination. Non-disclosure agreements prohibit employees
from disclosing trade secrets and confidential information both during and after their
employment, while noncompete agreements prohibit the employee from competing or working for a competitor after their
employment ends. The noncompete agreement reinforces the nondisclosure agreement because it reduces, at least for a time, the former employee’s opportunity to use
or disclose trade secrets and confidential
information. You cannot stop a thief completely; however, these tools often discourage employees from such activities and
provide a stronger basis for seeking relief
from the courts if you are victimized.
What are the limitations?
Both have to be supported by consideration; the employee must receive something
of value in return for his or her promises.
Without consideration the agreements are
not enforceable. Noncompete agreements
also have to be reasonable as to time, geographic area and the scope of activities
restrained, and must be connected to, or
part of, an otherwise enforceable agreement. Historically, this has caused problems with enforcing these agreements
against at-will employees. If the employee
can be fired immediately without any reason, then the courts viewed the agreements as illusory, and nonenforceable,
because the employee wasn’t really getting
any consideration in return for his or her
promises. However, the Texas Supreme
Court recently decided that if the employer
promises to disclose trade secrets and confidential information and provide specialized training to the employee — and actually does so — that satisfies the requirement of consideration and a noncompete
designed to enforce the employee’s promise not to disclose becomes enforceable.
Aren’t trade secrets and confidential information the same thing?
Both require an element of secrecy, but
trade secrets are a narrower category. A
trade secret is information that is used in a
business and provides at least the opportunity for a competitive advantage.
Confidential information is any kind of
secret information about one’s business.
For example, a secret formula used in making your product is a trade secret. Your internal financial data is confidential information.
Trade secrets are entitled to greater protection. Courts are much more reluctant to
force a company to disclose its trade secrets
in a lawsuit. Trade secrets also are entitled
to greater protection after they have been
wrongfully disclosed. If a competitor innocently obtains your stolen confidential information there is not much you can do to
them. However, if a competitor innocently
obtains your stolen trade secret, you can
stop them from using it, and they will have
liability if they continue to use it after they
learn it was stolen.
Is it worth the time and expense of litigating
the theft of trade secrets?
The biggest factor is the value of the trade
secret to your ongoing business and the
potential damage if a competitor is using it.
There are basically two remedies: attempting to obtain an injunction to stop the competitor from using the trade secret or further
disclosing it, and seeking money damages. It
may be important to move quickly and seek
an injunction to minimize damage.
J. ROBERT ARNETT II has more than 20 years of experience in
business litigation at trial and appellate levels in state and federal courts, as well as before domestic and international arbitration
and is a shareholder in the Dallas law firm of Munck Butrus PC.
Reach him at (972) 628-3600 or [email protected].
