Ideas and closely held information, designs and processes are often a business’s most valuable assets, and the law provides companies with tools to protect those assets.
Patent, trademark and copyright laws are the most widely known ways to protect new ideas, but, while lesser known, the laws protecting trade secrets provide the better tool for companies to protect their confidential intellectual property.
“Protecting one’s valuable trade secrets is not only a good business practice, it is also often necessary to maintain the protections afforded by trade secret law,” says Donald Tarkington, the managing partner of Novack and Macey.
Smart Business spoke with Tarkington about how to protect trade secrets and how to make sure departing employees don’t walk out with valuable information.
What information is covered by trade secret protection?
Trade secrets can include technical or nontechnical data, compilations of information, marketing or financial data, manufacturing processes and lists of actual or potential customers. It covers virtually any information that is sufficiently secret that it derives economic value from the fact that it is not generally known and that the business makes a reasonable effort to keep confidential. Even information derived from public sources may be a trade secret if accumulating that information requires significant effort.
Courts look to six factors in evaluating whether information is a trade secret: the extent to which the information is known outside the employer’s business; the extent to which it is known by employees and others involved in the business; the extent of measures taken by the employer to guard the secrecy of the information; the value of the information to the employer and to its competitors; the amount of effort or money expended in developing the information; and the ease or difficulty with which the information could be properly acquired or duplicated.
Do trade secrets need to be registered?
Trade secrets are not registered like a trademark or copyright. Nor are they applied for as with a patent. Unlike ideas that are patented, trademarked or copyrighted — which are protected even though they are publicly known — trade secrets are protected because they are secret and because their secrecy makes the information valuable. As long as the information is secret, used in the business and valuable, it will be protected if the business takes reasonable steps to keep it confidential.
Why is it important for companies to protect their business practices, products, services or intellectual property?
Trade secrets are, by definition, confidential and valuable. They are assets and should be protected. Businesses should be no more tolerant of someone taking their trade secrets than they would be of someone walking out the door with a valuable piece of equipment.
Protecting trade secrets is also important to preserving a business’s legal rights. Under the Uniform Trade Secret Act, information is not a trade secret, regardless of how valuable it might be, if the business does not make reasonable efforts to protect its confidentiality. Businesses’s efforts to protect confidentiality don’t have to be perfect. What is reasonable will depend on the size and sophistication of the parties, as well as the relevant industry. But a business must take affirmative measures to protect the secrecy of its information.
How can businesses protect their trade secrets?
There are several measures a business can take, including marking information as confidential, keeping information in a secure place, restricting access to those who need to use it, password-protecting electronically stored information, developing policies that require employees to keep the information secret and requiring anyone with access to sign a confidentiality agreement. For particularly sensitive information, businesses should work with their data processing professionals to restrict offsite access to electronically stored information and limit the ability to download or copy information.
How can businesses ensure departing employees won’t take trade secrets with them?
As long as information qualifies as a trade secret, the law precludes employees from using that information after they leave. The best protection, however, is to require employees to sign confidentiality agreements in which they acknowledge that the information they were given is confidential and that they will not disclose it if they leave.
Confidentiality agreements can even protect information that does not meet the strict definition of a trade secret. When one employee with access to secret information leaves, disable his or her password and e-mail access and take back company issued laptops. It is also a good idea to review the usage logs on the employee’s laptop and the company’s computer network to see if there is any unusual copying or downloading activity.
If a nondisclosure agreement is violated, what steps should a company take?
If a business learns that someone is disclosing trade secrets to third parties, it should consider taking action against that individual and against the former employee’s new employer. Possible actions include a suit for damages resulting from improper use of information and/or an injunction action against the former employee and new employer prohibiting the use or disclosure of the information.
Knowingly allowing trade secrets to be disclosed to third parties risks damaging a business’s claim that the information is a trade secret. Deciding whether to take action against a former employee or a new employer should be considered on a case-by-case basis, but one thing that should be taken into account is that allowing the trade secret to be disclosed could destroy the value of the information and destroy the business’s ability to seek protection of the information in the future.
Donald Tarkington is the managing partner of Novack and Macey. Reach him at (312) 419-6900 or email@example.com.
Businesses spend years establishing sterling reputations. Customer lists can take vast amounts of time to build, and confidential information such as costs, vendor lists and trade secrets are often the result of thousands of hours of work. Yet all of these things can be quickly lost if a departing employee engages in illegal conduct.
Similarly, competitors can spread false information in a desperate effort to steal clients, or poach one of your employees. When these things happen, enterprises need immediate help. Yet they are often unsure whether the courts can move fast enough to assist them, as years can pass between the time a lawsuit is filed and a judgment is entered.
“Businesses can obtain valuable relief from the courts in emergency situations,” says Richard L. Miller II, a partner with the business litigation firm Novack and Macey LLP. “In such situations, it is important to promptly seek assistance from a lawyer who has prosecuted these types of claims. If you wait too long, or do not properly establish your case, you can lose protections that can be literally priceless.”
Smart Business spoke with Miller about how a business can obtain assistance from the courts in emergency circumstances.
Why is it important to act quickly in these situations?
To convince a judge that you have an emergency, you must demonstrate that you behaved in a manner consistent with that. Thus, as soon as you learn of a crisis, find a skilled litigator who has experience in seeking emergency relief. Then make sure that he or she has an adequate amount of time to devote to your case, which will require a great deal of immediate attention.
If you delay taking action, the harm that you fear may be completed before counsel can present your case to a judge. And if your reputation has already been destroyed, or your customer list has been published, there may be nothing a judge can do to help you in the short term.
What is the process to obtain a temporary restraining order (TRO)?
You must first initiate a lawsuit. Your lawyer will draft and file a complaint, which will contain the facts relevant to your case. You will sign a statement swearing that its allegations are accurate.
Your lawyer will also prepare a short emergency motion that asks the court to issue the TRO that will prevent the defendant from engaging in the conduct that will harm your business. Further, your counsel will draft a memorandum that explains, in detail, why the motion should be granted.
These materials usually can be prepared in a few days. Once they are filed, your lawyer should be able to present your motion to a judge within a day or two thereafter.
How does a business show that it is entitled to emergency relief?
Under Illinois law, in order to obtain your TRO, you do not need to meet the same standard as you do to win your case in its entirety. Rather, you must satisfy four elements.
First, you must show that you have a protectable interest. Generally speaking, a legitimate, threatened business interest entitles you to protection.
Second, you must demonstrate that you will suffer irreparable injury if the TRO is not granted. This is easily met under Illinois law because once a protectable interest is established, it is presumed that an irreparable injury will follow if it is not protected.
Third, you must convince your judge that you have ‘no adequate remedy at law,’ meaning that a monetary award after the fact will not make you whole.
Fourth, you must establish that you are likely to succeed on the merits of your case. Still, you merely must present a ‘fair question,’ which, once established, entitles you to have your rights preserved. These are the four keys to obtaining a TRO.
How will a case unfold in court?
Once your initial documents are filed, your case will be immediately assigned to a judge who is responsible for deciding emergency motions. Your motion will be argued at a nonevidentiary hearing, at which no witnesses are called and no evidence is considered, other than your sworn complaint.
Barring exceptional circumstances, your lawyer will be required to give the defendant notice of the hearing. If counsel for the defendant appears, he or she will be allowed to argue that you have not satisfied one or more of the elements necessary to obtain a TRO.
If you prevail, a TRO will be issued that prohibits the defendant from engaging in the offending conduct. However, this does not mean the case is over. If an agreement to keep that restraining order in place is not formed, a preliminary injunction hearing must be scheduled.
Discovery will then be taken, perhaps including interrogatories, document requests and depositions. Thereafter, at the preliminary injunction hearing, the parties will present evidence. The judge will then decide whether to enter an injunction that will protect you until a final trial can be held.
The key to obtaining emergency relief is to have a qualified attorney act quickly. When a party prevails at the TRO stage, the opponent often settles the dispute rather than attempting to convince the judge, who has already ruled in the plaintiff’s favor, to change his position at the subsequent preliminary injunction hearing.
Richard L. Miller II is a partner with the business litigation firm Novack and Macey LLP. Reach him at (312) 419-6900.
Most lawsuits never actually go trial, nor are they resolved by motion. Instead, they are resolved by settlements negotiated by the parties’ attorneys. Unfortunately, many attorneys are not as familiar with the rules of settlement as they are with the rules of evidence.
“Written settlement agreements should reflect the parties’ agreement and intent,” says Timothy J. Miller, a partner at Novack and Macey LLP. “But written settlement agreements also should protect against unintended consequences.”
There are significant pitfalls associated with settlement agreements, so business owners would be well served to understand what they potentially face when settling a lawsuit.
Smart Business spoke with Miller about settlement agreements and what owners should know when entering into them.
What is one of the biggest concerns that a business owner should have when entering into a settlement agreement?
In most cases, a business owner enters into a settlement agreement thinking that a dispute is being fully and finally resolved and that he or she is ‘buying peace.’ Thus, any business owner contemplating a settlement should be certain that the settlement will actually end the dispute.
What is one way in which a ‘settled’ case can come back to life?
In settlement negotiations, parties may say or write things that they hope will lead to an agreement. A business owner who wants to make certain that a case is really over should take steps to make sure that statements made during negotiations cannot resurrect the dispute. Some negotiators lie. Sometimes they exaggerate to induce the other party to settle. Other times, a negotiator may mistakenly say something that is not true. Even when no lies are told, parties can have different memories of statements made during negotiations. Those statements can provide fertile grounds for resurrecting disputes that a business owner thinks have been resolved.
How can you avoid having statements made during settlement discussions hurt you?
Your lawyer should make certain that everybody agrees going into the negotiations that the case has not been settled until a written settlement agreement is signed by all parties. Then, the written settlement agreement drafted to reflect the agreement should contain strong nonreliance and integration clauses.
A nonreliance clause is a provision that says that the parties are not relying on any statements made, or writings exchanged, during negotiations unless they are specifically included in the written agreement. Such a clause should also provide that the parties are relying on their own judgment and investigation and have had the advice of independent counsel. It helps to stop later claims that a business owner lied during negotiations and that the opponent relied on such alleged lies.
An integration clause says that the written agreement is the entire agreement of the parties. This clause will stop somebody from claiming that some part of the agreement is not contained in the written agreement. For example, in an employment dispute, a business owner may pay a former employee to dismiss a claim. An integration clause may protect the owner from claims that the owner also agreed to give the employee the job back.
What if a business owner is relying on statements made in the settlement negotiations?
Nonreliance and integration clauses mean that statements and promises not contained in the written agreement probably will not be considered by a court. But this applies to the business owner, too. If an owner is relying on a statement made in negotiations, that should be included in the agreement.
Are there potential problems with releases in settlement agreements?
Usually, the purpose of a settlement is for both sides to give up, or ‘release’ their claims against each other. Sometimes, however, releasing claims against one party may have the unintended effect of releasing claims against other unnamed parties. There is an old rule that the release of one wrongdoer releases everybody liable for the same harm. Many lawyers believe this rule has been abrogated by statute, but this is only partially correct.
Illinois has abrogated the rule that a release of one joint tortfeasor releases all tortfeasors. What many lawyers do not recognize is that this applies only to tortfeasors. As a result, the common-law rule that an unqualified release of one who caused a monetary loss precludes a claim against other parties who caused the loss continues to apply to, for example, co-obligors on a contract and claims for joint breaches of fiduciary duty. If there are other parties that a business owner does not want to release, an attorney can address this issue.
Will a release bring total peace?
Not always. A general release might not be deemed to release claims that one party claims it did not know about when it signed the release. A business may be able to protect itself by providing in the written document that the parties are aware they may have claims against each other they do not know about, and the release is intended to bring total peace and release even unknown claims.
Are there other issues to be aware of?
Certainly. If a party with whom a business owner has settled sues again on that settled claim, in blatant violation of a settlement agreement, the owner could still have to pay lawyers to defend the suit. A provision in a settlement agreement providing for attorneys’ fees to be awarded to the prevailing party in a dispute wherein the settlement agreement is raised as a defense may help protect against such problems.
Timothy J. Miller is a partner at Novack and Macey LLP. Reach him at (312) 419-6900 or firstname.lastname@example.org.
The Internet gives many people the false sense that they can say whatever they want about a person or business with no repercussions. This is due, in large part, to the nature of the Internet, which allows people to express their opinions anonymously and seemingly without accountability.
“Internet message boards and review sites provide a venue where users — customers and pretenders alike — can offer anonymous evaluations and judgments about restaurants, hotels, medical and legal professionals and businesses,” says Mitchell L. Marinello, a partner with Novack and Macey LLP. “Unfortunately, sometimes these reviews cross the boundary between mere opinion and defamation.”
When they do, they can cause great damage, because they can linger on the Internet for years. But if a company is the victim of Internet defamation, it has remedies. Through diligent effort, a company can identify the defamers, take action to have defamatory statements removed from the Internet, require the defamers to pay damages and obtain injunctions prohibiting the defamers from doing it again.
Smart Business spoke with Marinello about Internet defamation and what a company can do to protect itself.
What is the definition of defamation?
In Illinois, defamation is divided into two categories: defamation per se and defamation per quod. Illinois recognizes four categories of statements that constitute defamation per se: words that impute the commission of a criminal offense; impute infection with a loathsome communicable disease; impute an inability to perform or want of integrity in the discharge of duties of office or employment; or impute a lack of ability in his or her trade, profession or business. Statements that constitute defamation per se are thought to be so obviously and materially harmful to the plaintiff that injury to his or her reputation may be presumed.
Statements are defamatory per quod when the defamatory character of the statement is not apparent on its face and extrinsic circumstances are necessary to demonstrate its injurious meaning; and where the statement is defamatory on its face but does not fall within one of the limited categories of statements that are actionable per se. Unlike a defamation per se action, a plaintiff bringing a defamation per quod claim is not presumed to have suffered damages and instead must plead and prove special damages in order to prevail.
What is the difference between nonactionable opinion and defamation?
Even if the words used could be considered defamatory, they must be statements of fact or mixed statements of fact and opinion to be actionable. This is determined by considering the totality of the circumstances and whether the statement can be objectively verified as true or false.
An opinion can be defamatory if it implies that undisclosed defamatory facts are the basis for the opinion. Such statements are considered to be mixed statements of opinion and fact and are actionable.
To determine if a statement is opinion or factual, Illinois courts consider whether the statement has a clear meaning for which a consensus of understanding exists; whether it is verifiable, i.e., capable of being objectively characterized as true or false; whether the literary context would influence the average reader’s readiness to infer that a statement has factual content; and whether the broader social context or setting in which it appears signals a usage as either fact or opinion.
A defamatory statement will not be characterized as nonactionable opinion unless it meets a stringent standard: only statements that cannot reasonably be interpreted as stating facts are protected. A statement of fact can also be protected as opinion if it is an obvious exaggeration.
What should you do once you learn you’ve been defamed?
The first step is to evaluate the comments and the amount of publicity they are likely to receive and make a judgment about how harmful they are and what should be done. Overreacting to negative comments can create more bad publicity or cause a disgruntled critic to become even more vocal. At the first instance, Internet defamation needs to be treated like a public relations problem.
The second step may be to ask the site if it will remove the statements. Sometimes, such comments violate a site’s policies. Defamatory comments also can be resolved over time if you believe they will be drowned out by positive comments from people pleased with your goods or services. You cannot sue the Internet provider for allowing defamatory statements to be published on its site, as Internet sites are immune from defamation suits under federal law. If the statement is so harmful that legal action is contemplated, you need to determine who posted the statements. It may be necessary to file a petition for pre-suit discovery and then to serve a subpoena on the Internet site requesting the poster’s identity.
Posters may try to prevent you from learning their identities by filing a motion to quash the subpoena, alleging they have a First Amendment right to remain anonymous. Although certain types of anonymous speech are protected, there is no constitutional right to defame. The Illinois Appellate Court recently held that it is overly broad to assert that anonymous speech, in and of itself, warrants constitutional protection. Thus, such motions should fail. All private businesses and individuals have a right to protect their reputations.
What defenses and privileges do defendants have in defamation cases?
Illinois courts recognize several privileges and defenses, including substantial truth, the fair reporting privilege, the innocent construction rule and nonactionable opinion. A successful plaintiff will likely have to overcome one or more of these.
What damages can be recovered for defamation?
There have been substantial monetary judgments issued for defamation. The judgment can include both compensatory and punitive damages.
Mitchell L. Marinello is a partner with Novack and Macey LLP. Reach him at (312) 419-6900 or MMarinello@novackmacey.com.
Previously, the Illinois Rules of Evidence were scattered across several sources, making it difficult and inefficient to deal with them.
The Illinois Supreme Court began to change that in November 2008 when it created a Special Supreme Court Committee on Evidence to address the fact that most Illinois rules of evidence were “dispersed throughout case law, statutes and Illinois Supreme Court rules, requiring that they be researched and ascertained from a number of sources.”
“The new codification of the Illinois Rules of Evidence is significant for three reasons: efficiency, certainty and uniformity,” says P. Andrew Fleming, a partner with the business litigation specialty firm Novack and Macey LLP. “The new rule provides efficiency because there is now primarily one easy-to-find source for all rules of evidence in Illinois. A single, codified rule provides more certainty than the common law, which often required litigants to piece together the rules from a collection of case law. And, the new rules provide uniformity because, for example, they should help to eliminate any disagreements between trial court judges or first-tier appellate courts in Illinois over the rules of evidence.”
As a result of the committee’s work, the new codification went into effect on Jan. 1, 2011, so companies would be wise to take the time to fully understand its impact.
Smart Business spoke with Fleming about the new codification of the Illinois Rules of Evidence, and how it could affect you and your company.
Have there been any changes since the new codification went into effect?
Yes, but for the most part, the committee attempted to incorporate Illinois rules that already had been clearly adopted in cases or statutes. So, pre-existing Illinois law — at least when it was clear and well developed — remains largely the same.
For example, when it comes to the admission of expert testimony, the Illinois Supreme Court adopted in 2002 what is known as the Frye test for admissibility, which means an expert’s opinion must be based on generally accepted scientific principles or techniques.
Incidentally, Illinois evidentiary law — even after codification — is different in this respect than a number of other jurisdictions on this point. Indeed, many other jurisdictions (including the federal courts) follow the rule set forth by the U.S. Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) and its progeny.
Under Daubert, courts may allow experts to base their opinions on reliable and sound theories, even if those theories are new or cutting edge and have not had sufficient time to become generally accepted.
What are some of the changes?
The committee intended that the codified rules incorporate generally accepted rules from other states and the federal courts when they did not conflict with settled Illinois evidentiary law. The rules also eliminate a few things that the committee believed were unsound or relics of the past.
For example, under prior Illinois law, statements made during settlement negotiations might have been admissible unless they were stated ‘hypothetically,’ but the new rules do away with that. Generally, under the codified rules, statements made during settlement talks are now inadmissible with or without any such qualifications.
Of course, you still have to be careful about what is said during settlement negotiations for a variety of reasons because statements made during settlement talks can be admitted for certain purposes and can often come back to haunt a client. For example, if Party A represents that a particular fact is true during settlement negotiations, but later it turns out that that representation was untrue, Party B can seek to set aside and rescind the settlement agreement. In addition, Party A could be held liable for fraud.
There are other changes. For instance, when parts of writings or recordings are used by an opponent, the codified rules now allow the other party to require other parts of that writing, recording or other writings/recordings that ‘ought in fairness’ to be considered at the same time. The committee recommended this change even though prior Illinois law was thought to have limited admission to parts of the same writing or recording.
Further, as noted by the committee, the codified rules now make it clear that attorneys no longer need to show witnesses prior inconsistent statements before they are cross-examined on those statements and, with respect to statements of then-existing mental/physical conditions, the codified rules eliminate the requirement that declarants must be unavailable to testify before such statements can be admitted.
The federal courts have long had codified rules of evidence. Are the Illinois rules the same?
Not always. In fact, it would be a mistake to assume that the Illinois rules are the same as the federal rules. For example, Illinois and the federal rules differ when it comes to expert opinions. Moreover, according to the committee, Illinois common law did not recognize the present-sense impression or learned treatise exceptions to the hearsay rule even though they are recognized as hearsay exceptions under the federal rules. Thus, the codified Illinois rules do not expressly recognize these hearsay exceptions. There are also a number of other instances where the rules differ.
Are there any unresolved issues?
Yes. For example, there is a case pending in the Illinois Supreme Court that might resolve a conflict in the lower courts concerning whether actions taken to make a product less dangerous (before the product caused any harm) could be admitted into evidence.
Some lower Illinois courts have said yes; others have said no. The question is scheduled to be resolved by the Illinois Supreme Court. If it is, then the Illinois Supreme Court’s pronouncement on this issue likely will be codified into the Illinois Rules of Evidence.
P. Andrew Fleming is a partner with the business litigation specialty firm Novack and Macey LLP. Reach him at (312) 419-6900 or email@example.com.
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