Safeguarding trade secrets

It is devastating for employers to
spend time and money to train
employees, expose them to market research, pay them to develop new
clients and products, and then see them
leave to work for a competitor or start
their own businesses in which they produce competing products based on
information obtained from their former
employer.

When that happens, it is often because
employees misappropriate trade secrets, which can have an adverse impact
on the employer’s competitive advantage and revenues and possibly lead to
costly litigation. Those scenarios can be
avoided if employers apply due diligence to safeguarding their trade
secrets.

Smart Business talked with David
Patterson, a partner with Godwin
Pappas Langley Ronquillo LLP, to learn
more about how business owners can
safeguard their trade secrets and how
doing so can benefit them.

Is there a clear definition of a trade secret?

Texas case law provides a definition,
but it is very broad. Loosely defined, a
trade secret is any proprietary information used in a business that gives a business owner a competitive advantage and
that has been kept a secret.

Do trade secrets have to be registered to be
protected?

No. There is no formal process or
governmental agency for registering
trade secrets. In some circumstances,
a trade secret may also constitute a
patentable invention, which can be
prosecuted as a patent in the United
States Patent and Trademark Office.
But, in doing so, the applicant must
disclose the entirety of the invention
or patentable trade secret, so to speak.
So the secret is out, and after 20 years
anyone can use it. Otherwise revealing
a trade secret without patent protection or a nondisclosure agreement
defeats its very purpose.

What are the key issues when an employer
gets involved in a trade secret dispute?

One key question in such cases is
whether the information is truly a secret.
Employers have to be able to prove that
it is, for example, by keeping the information locked in a desk or a file cabinet,
marking it confidential, and by letting
employees know that such information
is deemed confidential and proprietary.
This factors into the definition of a trade
secret in a court’s view.

Employers cannot leave information
openly displayed for anyone to see and
then claim that it is secret. They have to
make reasonable efforts to protect it.

What else can be done to protect trade
secrets?

Two of the more common safeguards
can be found in the form of nondisclo-sure and noncompete agreements. Both
are binding in Texas, if properly drafted.
The two often are combined in the same
document. In fact, the Texas Supreme
Court breathed new life into previously
unenforceable noncompete agreements
when it held in a case this past fall that
the transfer of confidential information to an employee was sufficient consideration to support the validity of a noncom-pete agreement, even if the information
is not provided until a later date.

At minimum, then, employers should
have their employees sign agreements
stating that they recognize they will have
access to confidential business information and that they will not disclose it to
anyone or use it for their own benefit.

Does an employee who develops information that is integral to a company’s operations have to sign it over to the employer?

While common-law ownership rights
may be asserted by an employer against
an employee who develops such information, it is advisable to cover this issue
in a written agreement. These agreements, sometimes called intellectual
property assignments, cover ownership
of information that is developed during
employment.

This is another area in which employers and employees can get into disputes.
The issue usually involves whether the
employee developed information in the
course and scope of his employment or
on his own personal time.

Employers need to be vigilant in drafting agreements regarding ownership of
what employees develop at work and
outside of work. Sometimes that is a fine
line to draw. Generally speaking, though,
if information is developed on company
time with company resources, the company owns it.

A broadly drafted agreement can help
to expand as far as possible an employer’s rights in any intellectual property
developed by the employee that relates
to the employer’s business. In any case,
employers should consult attorneys who
are experienced in intellectual property
and/or labor law to develop such agreements in an effort to protect their trade
secrets.

DAVID PATTERSON is a partner with Godwin Pappas Langley
Ronquillo LLP in its Dallas office. Reach him at (214) 939-4415
or [email protected].