Q: Our business has devoted a great deal of time, money and resources in developing unique and competitive internal operations and methods and in building special customer relationships and goodwill. How do we protect ourselves and what remedies do we have if our rights are violated?
A: Congratulations! Fortunately, there are many effective ways to protect your valuable work product. The key, of course, is knowing how to maximize the available legal protections and to avoid squandering the remedies at your disposal. You wouldn’t believe how many times a new client comes in with a dicey problem that could have been completely avoided or substantially minimized had timely legal advice been implemented sooner. Taking the right steps now can make the difference between a secure business environment and disaster. In short, knowledge is power.
You have often heard of the term ‘trade secrets.’ How does that relate to protecting your company’s valuable information? The law provides special powerful protection to this type of information. Despite popular belief, trade secret protection is not limited to just unique product formulas. Generally, trade secret protection can be afforded to a host of business methods, devices, techniques, data and compilations that you have developed, are not known outside your company and provide you with a competitive advantage in your industry. The key, however, is taking prudent steps in your company to restrict access to this unique information and to maintain its confidentiality. If you don’t treat the information as confidential or restrict it to only those who need to know it to do their jobs, the courts are not likely to afford you special protection or to recognize special remedies against those who use it without your consent.
So, the way to put your company in the best position of protecting its valuable information is to implement some basic controls and procedures. This will not only bolster your legal rights but will also help to prevent others from misappropriating your proprietary information. Here are some basic steps:
• Identify information used by your company that you consider special, unique, important and/or developed through time and effort. One typical example is a customer list that is not readily available through public directories or other means and that contains special information about your customers.
• Once you identify what you think should be protected, restrict access to this information to only those who need to know it to perform their jobs. If this information is on your company computer system, you should require special passwords or authorization to access it and be particularly vigilant in overseeing remote access through home computers or laptops. It would be beneficial to post ‘Confidential’ and similar notations on the information itself (whether on the electronically stored information or hardcopies).
• Require all employees/agents/consultants who have access to this information to sign confidentiality agreements acknowledging the secret nature of the information, agreeing to maintain it as confidential and identifying how it is to be used. Naturally, these agreements should be carefully crafted by experienced legal counsel.
• Act promptly if you discover that anyone unauthorized to access the information has obtained it or if any breach of confidentiality has occurred. Seek legal advice as soon as possible. If you delay or fail to act once you know of unauthorized dissemination, the courts are likely to find you waived your rights or did not actually take the required steps to establish that the information in fact constitutes a trade secret to begin with.
Agreements Restricting Activities Post-Employment
In addition to maintaining confidentiality over your valuable information within your company, it is also prudent to take action to prevent misuse of the information you developed over the years by those who no longer work for you.
One of the special things about convincing a court that your information deserves trade secret protection is that you can get a court order stopping others from using this information without your consent — even if you don’t have a legal agreement that restricts others in what they do after working for you. The law recognizes that those outside your company have no right to exploit your trade secrets and can both be prevented from using them, and held responsible to you for any money you lose as a result of their misuse of your trade secrets.
Nevertheless, although you don’t need an actual agreement restricting the activities of those who leave your company in order to prevent unauthorized use of your trade secrets, it is certainly prudent to obtain appropriate agreements to enhance your rights and fortify your protections. Such agreements are intended to prevent someone who previously worked for you from unfairly competing against you after leaving your company by using your valuable information and/or exploiting relationships that you have spent a great deal of time and money cultivating. These agreements are often known as ‘non-compete,’ ‘non-solicitation,’ and/or ‘restrictive covenants.’ Those terms are rather onerous-sounding, so it is not recommended that your company refer to them as such in your effort to convince courts to enforce them. A better, and actually more accurate and descriptive, name for them is ‘Confidentiality, Business and Customer Protection Agreements.’ In any event, regardless of the name you give them, courts traditionally scrutinize such agreements because judges are not eager to prevent someone from earning a livelihood. It is essential, therefore, that any agreement you implement is carefully constructed by experienced legal counsel to incorporate the most up-to-date court doctrines. These agreements will generally be recognized only if they are tailored to protect the legitimate interests of your company, such as the misuse of your trade secrets and/or exploitation of the special customer relationships you have developed over time — and only if they are reasonably limited in geographical scope and time. These agreements typically prohibit working for competitors for a set period of time, in a certain area and/or prevent soliciting your employees to leave or your customers. By taking into account the latest court decisions, it is possible to implement enforceable agreements that will give your company powerful remedies should your rights be violated.
In situations where key or important employees or agents stop working for your company, there are additional prudent steps you can take to enhance your rights and protect your company:
• Implement consistent procedures requiring those who are leaving to return all company property, information, data, etc., including anything taken out of the office, and to confirm in writing that everything has been returned.
• Give those leaving written reminders that they have a legal obligation (by virtue of the agreement they entered into with your company and/or by operation of law) to refrain from using any of your valuable information and/or, where applicable, competing against your company, or soliciting its customers and/or employees.
• If possible, learn where those who leave your company intend to work thereafter. If you believe such work would violate your rights (including as outlined above), promptly seek legal counsel. Both those who leave your company and their new employers could be responsible for any damages you may suffer — whether by use of your valuable information and/or any monetary loses you may sustain.
• If you learn at any time that those who worked for you misused your information or in some way were acting in a manner that was detrimental to your business or exploited opportunities that your company should have taken advantage of, you have many additional remedies, including seeking any ill-gained profits made in violation of your rights and obtaining back any compensation paid. Employees and agents who work for you have ‘fiduciary’ duties requiring them to act in your companies’ best interest. As a result, you have remedies for any violation of those duties.
The Law Protects Those Who Protect Themselves
These are just some of the many legal remedies available to preserve the valuable work product that your company has painstakingly developed over the years. It is important to take advantage of your legal rights and protections by implementing appropriate policies and procedures. Protect yourself and the law will be there to protect you as well.
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