Trade secrets are crucial information that helps one business distinguish its products or services from the competition. Even if not actively used by a company, the mere ownership of trade secrets can provide tremendous value to the owner.
For example, the formula for Coca-Cola is perhaps the classic trade secret. Less obvious examples, however, are formulas tested by the Coca-Cola Co. that are not used in marketed cola. Those formulas are likely trade secrets because the Coca-Cola Co. gains value by preventing its competition from reaping the benefits and know-how of its trial and error. Critically, information once considered trade secret may lose protective status if reasonable protective measures are not taken.
Smart Business spoke with Steven R. Press, shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, about information considered trade secret, how best to protect trade secrets and what to do if your secrets have been misappropriated.
What is considered a trade secret under Georgia law?
Georgia law defines a trade secret as information including, without limitation, formulas, programs, devices, methods, techniques, financial data, product plans, or a list of actual or potential customers or suppliers that is not commonly known by or available to the public and which (1) provides economic value from not being generally known by or readily available to others who could benefit from its disclosure and (2) is protected from disclosure by reasonable efforts.
Trade secrets are protected under Georgia law without a contract. Unlike trade secrets, confidential information in most circumstances may only be protected by an enforceable contract.
What are some procedures that should be in place to protect trade secrets?
- Require background checks on potential new hires to confirm reasons for termination and past adherence to nondisclosure obligations.
- Require nondisclosure agreements as a condition to employment.
- Circulate an employee handbook describing information claimed as trade secret and the duty to protect such information, with each employee acknowledging in writing that he or she has reviewed it.
- Frequently remind employees about what is considered trade secret and obligations to maintain secrecy.
- Restrict access to certain paper documents.
- Password protect computers and restrict access to certain parts of the server.
- Restrict physical access to certain offices and cabinets, and lock cabinets and offices containing trade secret information.
- Mark documents, either paper or electronic, as trade secrets.
- Restrict out-of-office access to trade secret information.
- Install standard office security, such as locks or alarms, and place protection devices on certain or all software.
- Only include employees with need-to-know information in meetings during which trade secrets will be discussed.
- Develop nondisclosure agreements with suppliers, vendors and customers.
- Remind terminated employees of their post-employment trade secret obligations and provide a copy of the nondisclosure agreement upon termination.
- Conduct forensic investigations on computers used by terminated employees.
- Hire outside firms to conduct a trade secret audit of your company’s trade secret policies and procedures.
While all of these alternatives have value and are achievable, at a minimum, there is no good excuse for failing to require every employee to sign a nondisclosure agreement.
How can you develop nondisclosure agreements, and what should be included?
You have to think about what gives your business a competitive advantage over others. In most circumstances, your agreement should cover a number of different areas, including:
- Information about customers or potential customers
- Corporate financial information
- Vendor and service provider information
- Information about current and future products including projected sales figures, project timelines, inventory reports and cost and expense reports
- Marketing strategies and long-term goals
- Technology used by your company
How will you find out a trade secret has been misappropriated?
The three most common ways are (1) a current employee shares a conversation had with the former employee regarding the former employee’s intentions; (2) a competitor that hired your former employee discloses that your former employee offered to share your trade secrets; or (3) a competitor employs your former employee and starts marketing products quicker than fair competition would allow.
What do you do if a trade secret has been misappropriated?
Trade secret status may be lost if you find out secrets have been misappropriated and you take no legal steps to prevent further misappropriation. The most common action is to sue your former employee and former employee’s new company seeking damages for past misappropriation and injunctive relief to prevent further misappropriation. Depending on the circumstances, criminal charges for theft of trade secrets may be warranted. The best approach is to take all steps possible to prevent the misappropriation from happening and, if necessary, aggressively litigate against all who participate in the misappropriation.
Steven R. Press is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (404) 221-6534, (678) 662-7388 or email@example.com.