The business world is littered with the carcasses of companies which, after they shared their confidential information and trade secrets with a non-competitor, such as their client, supplier, or vendor, were undercut by that party, who all of a sudden realized that they could profit from the information by cutting out the middle-man.
How can companies prevent this from happening? Here are the five basic tips on avoiding being blindsided by your own business partners:
- Never share your entire confidential information or trade secrets with anyone, no matter how sure you are that they won’t compete with you in the future. This is a no-brainer, but limiting the access to the confidential information on a “need-to-know” basis is the easiest, yet the most underutilized, protection measure.
- Only disclose the information once the vendor/supplier/client signed a non-disclosure agreement. Simply put, do not share any sensitive information under you have a signed NDA in hand. The NDA should state, among other things, that the vendor/supplier/client will make sure its employees are bound/will obey the NDA.
- Only share the information through a virtual data room, which allows you to track who accessed the information, when they did so, and what they did with it. Some virtual data rooms allow you to set alerts for when a large amount of data is downloaded or printed. Such virtual data rooms also allow you to control the various permission settings to prohibit or limit the download or copying of the information and to limit access to certain individuals, rather than the entire companies or departments.
- Consider using software that allows you to track the information once it leaves the virtual data room. Some programs on the market allow you to track who has access to your information and what they do with it even after it leaves the virtual data room. For extremely sensitive information, such measures may be worth the extra cost.
- Use data encryption when sharing confidential information outside the virtual data room. The encryption can now be done automatically and it prevents anyone who does not have an encryption key from reading the message – all they will see is a random collection of characters.
BOTTOM LINE: In Texas, to claim trade secret protection, the owner of trade secrets must show that he/she took “reasonable measures” under the circumstances to keep the information secret. What constitutes “reasonable measures” is often a point of contention in lawsuits involving trade secrets misappropriation. As the owner of trade secrets, you never want to be in a position where you cannot point to at least some measures you took to protect the confidential information. Thus, the above steps are not only a great business practice, but they can also help in court if a company ends up suing its vendor/supplier/client for misappropriation of its trade secrets.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.