August 27th, 2018
Emma Schuering and Eric Packel at Polsinelli
This blog was written by Emma Schuering and Eric Packel at Polsinelli. Polsinelli authors hrsimple resources in Missouri, Kansas and Illinois. You can find the original blog post and their labor and employment blog Polsinelli at Work (which is excellent) on their website.
Identifying trade secrets: The first step to protecting employers' competitive advantage
Employers should be able to definitively identify their “trade secrets” and non-public information. Indeed, employers may miss out on opportunities for relief from misappropriation of their trade secrets by former employees and competitors if they do not take time to specifically identify and understand their trade secrets. Before an employer can effectively protect against the theft, disclosure, and misuse of its trade secrets, it must first clearly understand what is—and what is not—a trade secret. Once the trade secrets are identified, employers should take careful steps to protect trade secrets and confidential information from competitors, as well as departing employees.
What are trade secrets?
To begin, anything that gives an employer a competitive advantage may be a trade secret. Trade secrets are a subset of an employer’s confidential information, and can include information about customers or clients, business methods, pricing data, machinery, marketing strategies, techniques, formulas, processes, or virtually anything else that is secret, unique, and valuable to the employer. Considered this way, every employer inevitably has some potential trade secrets.
Another way to recognize possible trade secrets is by evaluating who has access to the information. For example, if the information is subject to measures to maintain its secrecy, such as limited physical or electronic access, it may be a trade secret. Alternatively, if the employer uses contracts with its employees and business partners to protect the confidentiality and limit the disclosure of the information, said information may very well be a trade secret, too.
What qualifies as a trade secret?
To qualify as a trade secret, the information must generally 1) be subject to measures to maintain its secrecy and 2) derive independent value from being secret. If the trade secret is not sufficiently protected or becomes public -- even inadvertently -- it could lose its status as a trade secret, decreasing its worth to the employer. But an employer cannot realistically be expected to adequately protect its trade secrets if it does not first know what it must protect. That is why it is so important for employers to regularly audit their trade secrets and update their protective measures, as needed.
Departing employees with access to trade secrets pose a significant threat to an employer’s trade secret security, thus necessitating a consistently-enforced protocol to off-board those employees and ensure compliance with any continuing post-employment obligations owed to the employer. However, upon discovering that a departed employee may be misappropriating trade secrets, courts expect swift action from the employer to protect its assets—including, early, specific identification of exactly what the employer considers as its stolen trade secrets.
With proper planning, including routine auditing of its trade secrets and protective measures, an employer can position itself for greater success if it chooses to pursue relief for the theft in court. Employers with questions regarding trade secret identification or protection should consult with competent counsel.