Act now to ensure your company’s sensitive information never gets compromised.
By Kurt Leyendecker
In the world of intellectual property law, trade secrets have always been the issue that gets stacked behind patents, copyrights and trademarks. Transactional intellectual property lawyers don’t know quite what to make of trade secrets or, perhaps more precisely, don’t know how to make money off them.
Unlike patents, trademarks and copyrights, there is no mechanism to register trade secrets for federal protection. Because proper protection of trade secrets requires the development, implementation and policing of specific company policies, business owners who have more on their to-do lists than they have time to complete often push enacting a trade secrets policy down the list, intending to get to it eventually.
Broadly, trade secrets are confidential and propriety information held by a company that gives it a potential competitive advantage. Trade secrets can include critical manufacturing processes, certain product formulations (the Coca-Cola recipe is one famous example) and pricing models. Trade secrets also can include more mundane things, such as supplier and customer lists. The key to making such information a trade secret is simply keeping the material “secret”—restricting the access of the information to only those company agents who need to know it.
When an employee leaves a business and uses the knowledge gained at his or her previous employer, it’s not uncommon for the previous employer to cry foul, claiming the employee stole trade secrets. The cry often rings hollow, as the company never bothered to properly protect the information.
Protecting sensitive information can be invaluable. For instance, while non-compete agreements relative to most employees in an organization are legally frowned upon and largely unenforceable, this often is not the case when the basis of the non-compete is to prevent the misappropriation of trade secrets.
In many jurisdictions, including Colorado, non-compete agreements can be enforced against former employees who had access to sensitive trade secret information. Injunctions can be used to prevent companies that hire former employees or agents from making use of their former employers’ trade secrets.
Of course, these potential advantages are meaningless if the information is not properly treated as trade secret in the first place.
Recent changes in the law portend a brighter future and increased importance for the lowly trade secret. Business-method patents, the darling of the patent world for much of this century, are largely no longer considered patentable by the U.S. Patent Office based on a ruling from the Supreme Court last year. Courts also are invalidating business-method patents issued prior to the Supreme Court edict, much to the chagrin of the patent holders. Insomuch as a business’ business methods are internal and not publicly known, the only manner left to effectively protect such information may be trade secret.
President Obama recently signed a federal trade secrets act that provides a federal cause of action for trade secret misappropriation. Incidentally, the Defend Trade Secrets Act passed 410-2 in the House of Representatives, making this a rare circumstance of political consensus. The federal cause of action mirrors causes of action available in most states but makes suits between parties in different states a bit easier.
Furthermore, if the proper language is provided in its employment agreements, a company may be able to recover exemplary damages and/or attorney’s fees for willful, malicious or bad faith misappropriations. Certainly, the threat of having to pay large damages to a former employer can prevent a former employee from even considering the use of his former employer’s confidential information.
Many companies will never have reason to file for a patent, yet nearly all companies have information that if taken by a former employee and provided to a competitor could have a negative impact on the bottom line.
The cost of retaining a competent intellectual property attorney to develop and assist in implementing a trade secret policy is likely less expensive than obtaining even a simple patent. Still, too few companies consider the value of protecting this information until it is too late.