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.

Why Trade Secrets Protection is Even More Important in the Strong Economy

downloadIt is a well-known fact that when the economy improves, employee mobility rises as well. The most valuable employees – those with a specialized skill set and many years of experience in a particular industry – tend to stay within that industry while moving among competitors. Since such employees are usually given access to confidential information as part of their job duties, their move to a rival company often raises a concern of whether they will be sharing that information with their new employer. 

As 2016 was drawing to a close, a number of nationally known companies filed lawsuits to prevent their former employees from working for their competitors and/or sharing their confidential information. In December, Carolina Herrera sued Oscar De La Renta for hiring Herrera’s former Senior VP of Design despite her 6-month non-compete with Herrera. In January, Aria sued its Las Vegas rival, Cosmopolitan, and a former executive, alleging that she took confidential information about Aria’s high-roller clients in order to solicit them for Cosmopolitan. Earlier that month, Zynga, a mobile app gaming power house and creator of Farmville, sued two of its former employees for allegedly taking 14,000 files related to a new game Zynga was developing before going to work for its competitor. These are just a few examples that have received attention in the media.  In reality, similar situations develop all over the country on a daily basis.

In short, in the current market, any successful business, regardless of its size or industry, may be subject to trade secret theft not from foreign entities, but from its own departing employees. To prevent theft, or minimize the inherent damage that it carries with it, companies must have a process in place for protection of trade secrets and a plan of action for when theft is detected.

I have previously written about the simple steps any company can take to protect its trade secrets. In addition to these preventative steps, companies should be prepared to act quickly if a trade secrets theft is detected or suspected as time is of the essence, and not only from the practical standpoint of preventing dissemination of trade secrets, but from the legal standpoint as well. The more time passes between a company’s discovery of trade secret theft and any legal action, the less likely is the company to obtain an order from the court prohibiting the thief from using or disseminating the information.  Thus, being prepared to act quickly and having the resources to do so, can make e a difference in the company’s ability to stop the thief from sharing its confidential information with others.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Employers Should Consider Protection of Trade Secrets When Responding to EEOC Charges

imagesWhen responding to an EEOC charge of discrimination, employers should always separate and clearly mark any trade secrets or confidential information included in the position statement to the EEOC. This is especially important in light of the EEOC’s new procedures that provide for the release of employers’ position statements and non-confidential attachments to employees who filed charges or their representatives upon request during the EEOC investigation.

The new procedures apply to all EEOC requests for position statements made to employers on or after January 1, 2016.

During the investigation of a charge, the EEOC may request that the employer submit a position statement and documents supporting its position. The statements should discuss the facts relevant to the charge of discrimination and identify the specific documents and evidence supporting the position. See my previous posts on how to draft a position statement here, here, and here.

If an employer relies on confidential information in its position statement, it should provide such information in separately labeled attachments. After the EEOC reviews the employer’s position statement and attachments on a specific charge, the EEOC staff may redact confidential information as necessary prior to releasing the information to a charging employee or his or her representative.

According to the EEOC:

The position statement should refer to, but not identify, information the [employer] asserts is sensitive medical information, confidential commercial or confidential financial information.  If the [employer] relies on confidential information in its position statement, it should provide such information in separate attachments to the position statement labeled “Sensitive Medical Information,” “Confidential Commercial Information” or “Confidential Financial Information,” or “Trade Secret Information” as applicable.  The [employer] should provide an explanation justifying the confidential nature of the information contained in the attachments.  

What type of information is “confidential” that should be put into separately labeled attachments? According to the EEOC, the employer should segregate the following information into separate attachments and designate them as follows:

  • Sensitive medical information (except for the charging employee’s medical information).
  • Social Security Numbers.
  • Confidential commercial or confidential financial information.
  • Trade secrets information.
  • Non-relevant personally identifiable information of witnesses, comparators or third parties, for example, social security numbers, dates of birth in non-age cases, home addresses, personal phone numbers, personal email addresses, etc.
  • Any reference to charges filed against the employer by other charging parties.

The EEOC will review attachments designated as confidential and consider the justification provided.  Thus, employers should be judicious in what information they mark as “confidential” or “trade secrets information” and be able to explain why that information is designated that way. Disclosing such information to the EEOC without confidentiality or trade secret designation may later result in the company not being able to claim such information as “trade secret” under the Texas Uniform Trade Secrets Act.

Leiza Dolghih frequently advises employers on how to handle troublesome employees, assists with responding to EEOC charges and investigations, and litigates employment disputes. For additional information, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.