Brace Yourself, Resignations Are Coming. Is Your Company Ready?

resignationAnyone who has been running a business for a while knows that January is a high turnover month for employees. And while companies cannot prevent employee turnover, they can take four steps this month to prevent employees from walking out the door with confidential documents and company trade secrets. 

1. Make Sure Key Employees Have Valid Non-Competition, Non-Solicitation and Confidentiality Agreements in Their Files. 

Conduct an audit of your employees files to make sure that: (1) all key executives, employees with access to confidential databases or documents, and sales people have signed non-competition, non-solicitation and confidentiality agreements in their files; (2) such agreements meet the requirements of the Texas Covenants not to Compete Act; (3) the agreements are signed by a company representative; and (4) the company has an electronic version of the agreements so that if the hard copy gets lots, there is a back up.

2. Conduct Confidentiality Training. 

Set aside an hour or two to talk to employees about the importance of maintaining confidentiality of certain company information, go over the confidentiality policy, and answer any questions employees may have.  This way, if they leave, the policy will be fresh in thier minds and they will be more cautious in what they can and cannot share with their new employers. 

3. Verify That Company’s Document Management Systems and Databases Have Security Features Turned On. 

Task your IT person or department to look into what ERP, CRM, and document management systems the company is using and make sure all the security setting are turned on.  Such settings often include the following: (1) alerts when a large amount of data is downloaded; (2) restrictions on what can be printed or downloaded; (3) access restrictions for different employees within the system based on the need-to-know basis; (4)  back up features that allow the company to restore any emails or documents deleted by employees; (5) alerts when information is shared by employees outside the authorized company systems, and many others. 

4. Remind Employees During the Exit Process of Their Continuing Obligations to the Company.

Finally, when you do get a resignation notice, as soon as possible, meet with the employee to remind him or her about any non-competition, non-solicitation and non-disclosure requirements in their employment agreement and make sure the employee returns all of the company equipment and documents prior to leaving the company.  If you find out or suspect that the resigning employee might be going to a competitor, preserve their email accounts and devices issued by the company while you analyze whether their move may violate their restrictive covenants. 

Texas Bar Association Top Ten Legal Blogs in TexasAt Lewis Brisbois, we help companies design proper confidentiality procedures and policies, draft enforceable non-competition, non-solicitation and non-disclosure agreements, conduct confidentiality training with employees, and if trade secrets theft is suspected, help investigate it and prosecute it in courts around the country. 

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.

 

Three Key Factors in Enforcing Non-Compete Agreements

What distinguishes those companies that are successful in enforcing their non-compete agreements from those that are not?  Generally speaking, just three “no-brainer” factors:

1. They have good agreements.  A non-compete enforcement lawsuit is a breach of contract case.  Thus, those companies that have good agreements – the ones that set out reasonable restrictions, are clear and unambiguous, are signed by all the necessary parties, and are supported by proper consideration – have an advantage in court.  

The courts around the country scrutinize the language of non-compete agreements before deciding whether to restrict employees’ activities based on that language.  The more vague, incomprehensible, unreasonable the restraints in the agreements are, the less the likely the courts are to order employees to comply with them. 

2. They have evidence of violations.  Suspicions, rumors, or fear that an employee might be violating a non-compete agreement are not enough to support an injunction in court.  Those companies that are successful in enforcing their non-compete agreements usually come to court with some evidence that an employee either has already violated the agreement or intends to imminently do so.  The evidence does not have to be direct, i.e., employee admitting to someone that they are violating the agreement, and it may be circumstantial, but an application to enforce  an agreement must be supported by some evidence and not just a fear or speculation.

3. They move quickly.  Those companies that are successful in enforcing their non-compete agreements do not wait around to see how far an employee will go or what s/he employee might do.  Once they have evidence of a violation, they file a lawsuit within days of obtaining such evidence.  A swift action impresses upon a judge that the business is going to suffer irreparable harm unless the court steps in and enters an order preventing an employee from violating his or her non-compete agreement.

Keep in mind that all is not lost for those companies that do not have signed non-compete agreements with their employees as employees have certain duties to their employers even in the absence of an employment contract restricting their post-employment activities. 

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.

The Fifth Circuit Issues Its First Decision on the Defend Trade Secrets Act

trade secrets label on folder

Two and a half years after the Defend Trade Secrets Act (DTSA) became effective, the Fifth Circuit has issued its first opinion addressing the statute.  Earlier this month, the Court ruled that: (1) a party must “prevail” before it can recover any attorney’s fees under the DTSA and (2) a plaintiff’s dismissal of its claims without prejudice does not confer the “prevailing party” status on defendants. 

Dunster Live, LLC v. Lonestar Logos Management Company, LLC involved a situation where the plaintiff, Dunster, having lost an injunction hearing in a trade secrets case in federal court, wanted to dismiss the case without prejudice and refile it in a state court sans the DTSA claim.  Under 41(a)(2) of the Federal Rules of Civil Procedure, if a defendant has already answered the lawsuit or filed a motion for summary judgment, plaintiff is required to file a motion with the court asking for a permission to dismiss its claims without prejudice. The district court granted Dunster’s motion to dismiss, and the plaintiff proceeded to file an almost identical trade secrets lawsuit but without the DTSA claim in a state court.

After the dismissal, Lonestar sought to recover its attorney’s fees of over $600,000 on the basis that Dunster had brought its federal lawsuit in “bad faith.” The district court denied Lonestar’s request for attorney’s fees holding that a dismissal without prejudice of Dunster’s claims did not make Lonestar a “prevailing party” under the DTSA.

Lonestar furter argued that Dunster sought to evade paying attorneys fees by strategically seeking a dismissal without prejudice once it realized that its lawsuit was doomed, and that the DTSA’s “bad faith” provision supported a fee award even when a defendant had not officially prevailed.  The DTSA’s provision upon which Lonestar relied states the following:

[i]f a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence, a motion to terminate an injunction is made or opposed in bad faith, or the trade secret was willfully and maliciously misappropriated, [a court may] award reasonable attorney’s fees to the prevailing party.  18 U.S.C. 1836(b)(3)(D).

The district court rejected this argument as well denying Lonestar’s request for attorney’s fees.

The Fifth Circuit affirmed the district court’s ruling finding that a dismissal without prejudice under the DTSA did not confer the status of a “prevailing party” on Lonestar, similar to other federal statutes that allow prevailing parties to recover attorney’s fees, such as the Equal Access to Justice Act, Patent Act, Civil Rights Act, or Individuals with Disabilities Education Act.

The Court also rejected Lonestar’s argument that the DTSA only required a showing of “bad faith” by a plaintiff in filing a lawsuit and not a showing that a defendant was a “prevailing party.”  It explained that “[a]llowing bad faith alone to support a fee award would improperly read the concluding language of Section 1836(b)(3)(D) – ‘the prevailing party’ – out of the statute.”  Thus, a party seeking attorney’s fees under the DTSA must establish both: (1) that it is a prevailing party and (2) one of the three qualifying scenarios described in 1836(b)(3)(D).

TAKEAWAY:  With the DTSA becoming effective on May 11, 2016, plaintiffs in Texas now have a choice of whether to seek redress for trade secrets misappropriation in state courts or federal courts.  Dunster makes it clear that as long as plaintiff has brought its DTSA claim in good faith in federal court, it may have a chance to change the strategy down the road and explore its claims in state court without facing the penalty of having to pay defendant’s attorneys fees as the result of dismissing its federal lawsuit without prejudice.

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.

The Two Steps All Small Businesses Can Take to Protect Their Trade Secrets

I-Too-Like-To-Live-DangerouslyDoes your business have a client list? A tested marketing strategy? A sales script? A proprietary business process? Those are just a few things that may give your company a competitive advantage over other similar businesses and may  be considered your company’s “trade secrets.”  

Now imagine one of your employees walking out the door and taking that information to a competitor because they offered him or her a slightly better compensation or using it to start their own copycat business. This happens on a daily basis.  Yet, when it does, many business owners are not prepared to deal with it and have done nothing to address it ahead of time. 

So, if your company does nothing else in 2019 to protect its trade secrets, it should do at least the following two things to prevent its competitive information from walking out the door with the next employee who leaves:

Have your employees sign confidentiality and non-competition/non-solicitation agreements. These agreements do not have to be complex, but they have to comply with the laws of the state where your company operates and possibly with the laws of the states where the employees work.  So, for example, if your company is based in Texas, but you have employees in other states, your confidentiality and non-compete/non-solicit agreements must meet Texas-specific requirements for such agreements and may also need to comply with the laws of other states. 

If you think these agreements are not enforceable, check our my prior post addressing the most common misconceptions about non-compete agreements.

Learn about the security features of the document management systems you use and implement them.  Many small businesses use Google, Microsoft 360, Dropbox or some other similar systems to maintain and manage company records.  All of those systems allow the administrator to: (1) set restrictions on which employees can access which information within the company; (2) track what the employees do with that information when they access it; (3) set restrictions on whether the employees can print, download, copy or share the information with other employees or people outside the company; (4) periodically change passwords to access the systems; and (5) many other features that can help business owners prevent their information being shared outside the company. 

Additionally, many other programs, applications, CRM and ERP systems, sales databases, etc., have their own settings that restrict how  the sensitive and proprietary information contained in them can be shared within and outside the company.  Business owners should determine who within the company should have access to which parts of each system, limit such access on the “need-to-know” basis and set the systems to either prevent individuals from downloading, printing, emailing or otherwise exporting the information out of the system, or alerting the company when such actions are taken.  Regardless of whether a business sets the alerts or restrictions, at a minimum, each company system should keep track or log what employees are doing with respect to the sensitive information they use in the course of their work.

Additionally, anytime you consider purchasing a new document management systems, or an ERP, CRM, sales system or databases, consider not only whether it matches your business needs, but also what security measures it offers in terms of tracking and limiting access to the system by the employees.

BOTTOM LINE: Large companies can dedicate a lot of resources to protecting their trade secrets – resources that are not available to small businesses.  However, every small business has the resources to implement the two steps described above.  If you, as the owner of the company, do not take the time to put the proper employee agreements in place and to educate yourself about the security measures available to you and use them, the employees will know the security gaps and will be in position to exploit them when presented with the right incentives. 

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.

Is Credit Card Information Stored by a Restaurant a “Trade Secret”?

Credit Card Data BreachA federal district court in Colorado recently ruled that customer credit card information was not a “trade secret” under the federal Defend Trade Secrets Act (DTSA).

This case arose out of a 2017 data breach of Chipotle Mexican Grill, Inc.’s computer system and point of service (POS) terminals which resulted in the theft of customers’ credit card and debit card data. As the result of the breach, several financial institutions had to replace their members’ credit and debit cards and refund fraudulent payments. Consequently, they sued Chipotle for negligence, unfair competition, and a violation of the DTSA, on behalf of themselves and other financial institutions. 

Plaintiffs argued that the credit card information of their members was a “trade secret” under the DTSA because: (1) it was plaintiffs’ financial data; (2) they had taken reasonable measure to keep it secret; and (3) the data had independent economic value, and that Chipotle misappropriated it in violation of the federal statute.

The district court noted that the question of whether the credit card information was a trade secret was a question of first impression as neither plaintiffs not Chipotle cited any authority clearly addressing this issue. However, it concluded that because the credit card information simply created an access mechanism for the members’ accounts, it had no independent value.  In other words, the value of the credit card information derived from the thing that it was intended to protect – a bank account.  See N. Star Media, LLC v. Winogradsky-Sobel, 2011 WL 13220157, at *10-11 (C.D. Cal. May 23, 2011); State Analysis, Inc. v. Am. Fin. Servs. Assoc., 621 F. Supp. 2d 309, 321 (E.D. Va. 2009); see also MicroStrategy Inc. v. Bus. Objects, S.A., 331 F. Supp. 2d 396, 429 (E.D. Va. 2004)(expressing skepticism that a CD key is a trade secret); Tryco, Inc. v. U.S. Med. Source, L.L.C., 80 Va. Cir. 619 (2010) (“Courts have repeatedly held that collections of numbers and/or letters, whose only value is to access other potentially valuable information, do not by themselves have independent economic value.”).

The court reasoned that the payment card data (including cardholder names, credit or debit card numbers, and corresponding CVVs) was similar to passwords and usernames that provided access to something of value, i.e. an individual’s line of credit with a financial institution or money in an account with a financial institution. Absent a connection to either a line of credit or a bank account, payment card data was simply a string of alpha or numeric (or indeed other typographical) symbols, and, thus, had no independent economic value.

Because the court concluded that the credit card information was not a trade secret, it did not address whether a misappropriation occurred during the breach or whether Chipotle could be liable under the DTSA. 

Leiza litigates trade secrets and non-compete agreements disputes in a variety of industries.  If you are a party to a dispute involving a non-compete agreement or theft of confidential information, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

A Study Concludes Mentioning “Trade Secrets” in Form 10-K Leads to More Cyber Breaches

screen-shot-2012-11-01-at-8-08-46-amA recently-published study* concluded that companies that mention the existence of trade secrets in their publicly filed Form 10-K disclosures are 30% more likely to become victims of cyber attacks. Among those companies, the probability of a cyber attack is even higher for younger firms, firms with fewer employees, and firms operating in less concentrated industries.

Considering that trade secrets consist of all forms and types of “financial, business, scientific, technical, economic, or engineering information” and, along with other types of intellectual property, may constitute more than 80% of a company’s value, their theft can severely damage the company’s value or even bring its demise.

The study analyzed a total of 39,992 10-Ks from about 7,500 companies. Of those, 12,542 mentioned trade secrets, and 591 became victims of a cyber breach.  The authors searched the companies’ Form 10-K disclosures for words such as “trade secrets” and “trade secrecy” and then analyzed the frequency of cyber breaches of such companies with those whose Form 10-K disclosures did not mention such words.  Those who mentioned the key phrases often did so in the context of listing what types of intellectual property they had in their portfolio and what measures they were taking to protect their trade secrets.  

According to the study, companies feel safe mentioning “trade secrets” in their public filings without revealing the nature of such trade secrets and, often, discuss the protection measures they take to protect this intellectual property, such as non-disclosure agreements with employees. However, according to the authors, even mentioning the existence of trade secrets increased the probability of a cyber attack by 30%. 

BOTTOM LINETrade secrets only have value as long as they stay secret, so once they come into a competitor’s hands or become publicly available, their value is often destroyed.  In light of the study, the companies may want to omit mentioning trade secrets in their public filings and press releases and reserve the discussion of their trade secrets protection measures for the confidential correspondence with their shareholders. 

*The study was done by Michael Ettredge and Yijun Li of the University of Kansas School of Business, and Feng Guo of the Iowa State University College of Business.

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.

Is it a Crime to Take Employers’ Trade Secrets?

corporateFew employees realize that when they take their employers’ trade secrets with them when leaving their jobs they may be exposing themselves to criminal liability under the Economic Espionage Act, which makes it a crime to steal trade secrets when: (1) the information relates to a product in interstate or foreign commerce (which is virtually any product now days) or (2) the intended beneficiary is a foreign power. 

Of course, the overwhelming majority of employees do not take trade secrets for the purpose of selling the information to a foreign government; however, they can still be guilty of trade secrets theft if they were aware that the misappropriation would injure their employer, as the owner of trade secrets, to the benefit of someone else.

When is Trade Secrets Theft a Crime?

Under the Economic Espionage Act, a criminal defendant is guilty of trade secrets theft and can be fined and imprisoned for up to 10 years if:  

  1. The defendant stole, or without authorization of the owner, obtained, destroyed or conveyed information;
  2. The defendant knew this information was proprietary;
  3. The information was in fact a trade secret;
  4. The defendant intended to convert the trade secret to the economic benefit of anyone other than the owner;
  5. The defendant knew or intended that the owner of the trade secret would be injured; and
  6. The trade secret was related to or was included in a product that was produced or placed in interstate or foreign commerce.

What is a “Trade Secret” Under the Statute? 

The definition of a “trade secret” under the statute is very broad.  It means all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if (A) the owner has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.

A recent indictment of six former and current Fitbit employees, who used to work for its rival Jawbone, demonstrates what conduct may result in criminal charges under the Economic Espionage Act. These six individuals were indicted on the grounds that they “knowingly received and possessed the Jawbone trade secrets, knowing them to have been stolen and appropriated, obtained, and converted without authorization, with the intent to convert the trade secrets to the economic benefit of someone other than Jawbone, and intending and knowing that the offense would injure Jawbone.” 

Specifically, the indictment states that after these employees had resigned from Jawbone and signed certifications stating that they had returned all of Jawbone property, they continued to possess the following trade secrets – while working for Jawbone’s direct competitor – Fitbit:

  1. Chinese user market study of Chinese consumers and their motivation, influences, preferred brands, reasons for buying fitness trackers and shopping methodologies. 
  2. Vendor and pricing list for international suppliers, compounded over time through trial and error, including competitive negotiated pricing and their specialized skills or equipment. 
  3. Schematics, design specification and detailed description of unreleased products. 
  4. Quantitative and qualitative studies of Jawbone users’ characteristics, reasons of using such trackers and a multitude of other factors useful in product development.

BOTTOM LINE: Companies should educate themselves and their employees on what types of information such companies consider to be their trade secrets and educate employees on what consequences they will face if they take that information to the competitors.  If a trade secrets theft is detected, companies should assess whether the theft is serious enough to pursue criminal charges against the thief.  

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.

 

2018 Mid-Year Non-Compete Laws Update

Map_of_USA_showing_state_namesMore and more states are amending their non-compete statutes to make them more employee-friendly.  This trend, spurred by the White House report that highlighted the prevalence of non-compete agreements among low-skilled workers coupled with the revelation that some of the largest  employers, like Jimmy John’s and Amazon, were requiring their sandwich-makers and warehouse employees to sign non-compete agreements, has continued into 2018.  

Thus, on the heels of changes implemented in 2017 by California, Illinois and Nevada, which amended their non-compete laws to help protect employees’ right to change employers, in the first half of 2018, Utah, Idaho, and Colorado, enacted their own versions of employee-friendly laws.

UTAH – Now Restricts Use Of Non-Competes In Broadcasting Industry

In March 2018, Utah amended its non-compete statute to restrict the use of non-compete agreements in broadcast journalism.  Specifically, employers may enforce non-compete agreements against employee in the broadcasting industry only if: (1) the employee receives a salary of at least $913 per week or $47,500 a year; (2)  the non-compete clause is part of a written employment agreement with a term of less than four years; and (3) the employee was terminated “for cause” or he/she breached the employment agreement in a manner that resulted in his or her separation.

IDAHO – Has Modified Standard of Proof For Non-Compete Enforcement Actions

This March, Idaho repealed an 2-year old amendment to its non-compete law that was added back in 2016.  The amendment created a rebuttable presumption of irreparable harm with respect to “key employees” and “key independent contractors,” thus putting the burden on these employees to prove that they had no ability to adversely affect the employer’s legitimate business interests as a result of their competitive employment.  

The 2018 bill repealed this rebuttable presumption of irreparable harm. Therefore, Idaho has effectively placed the burden back on companies to establish a likelihood of irreparable harm before an injunction in a breach of non-compete case can be issued.

COLORADO – Now Prohibits Physician Non-Competes for Rare Disease Patients

Colorado generally allows non-compete agreements with physicians when certain conditions are met.  The 2018 amendment to the non-compete statute added a paragraph to permit physicians to continue to treat patients with rare disorders without liability, even when providing such service would otherwise violate their non-compete agreements. Thus, the amendment protects physicians and their new employers from damages for providing care to patients with a rare disorder, as defined in accordance with the criteria developed by the National Organization For Rare Disorders, Inc., or any successor organization. 

Many other states are considering amendments to their non-compete statutes and we are likely to see more changes in that area of the law in the second half of 2018.  The days of one-size-fits-all non-compete agreements for multi-state employers are gone, and now companies need to make sure that their non-compete agreements are compliant in all the applicable jurisdictions. 

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.

 

 

An Injunction in a Theft-of-Trade-Secrets Case Cannot Prohibit a Party From Using Publicly Available Information

downloadCompanies suing for trade secrets theft often want not just the monetary compensation for the stolen trade secrets, but also a court order – an injunction – prohibiting the other side from using the stolen information.  

In order to be enforceable, however, under the Texas Rules of Civil Procedure, an injunction must be “in clear, specific and unambiguous terms” so that the party enjoined can understand the duties and obligations imposed by the injunction and so that the court can determine whether the injunction has been violated.  Additionally, an injunction cannot prohibit a defendant from doing something he has a legal right to do, e.g., use publicly available information along with the trade secret information. Thus, a court order prohibiting a defendant from using trade secrets must be broad enough to cover all possible circumstances while narrow enough to include only the illegal activities.   This is easier said than done.

In a recent case, the Houston Court of Appeals reversed a permanent injunction order which could be read to cover both – the trade secret data and publicly available information.  In TMRJ Holdings, Inc. v. Inhance Techs., LLC, the injunction at issue prohibited defendant from:

(1) “using, disclosing, transferring, or possessing, in whole or in part, [plaintiff’s] trade secret information,” which was defined as “compilation of specified data” for various plaintiff’s processes; and

(2) “operating, manufacturing, designing, transferring, selling, or offering for sale” certain processes that “contain, are based on, or utilize, in whole or in part, [plaintiff’s] trade secrets.” 

The Court concluded that the injunction was not specific enough because failure to define “specified data” and the general description of “trade secrets” did not give adequate notice of the prohibited conduct to defendant.  Specifically, the injunction did not distinguish between the unique, protected elements of plaintiff’s data compilations, processes, or equipment from that which plaintiff’s competitors use throughout the industry.  As the result, the Court reversed the permanent injunction in this case and remanded it to the trial court to consider in light of its opinion. 

TexasBarToday_TopTen_Badge_VectorGraphicCONCLUSION:  In trade secrets theft cases, in addition to proving the elements of an injunction, plaintiffs must also make sure the injunction order’s language is specific enough, without giving away the trade secrets information, to provide defendant with a clear notice of what it can and cannot do.

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.

5 Tips for Minimizing Trade Secrets Theft by Clients, Contractors and Vendors

Watching YouThe 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.