Yesterday, we took a closer look at the
oh-so-fascinating world of non-competes.
(Fascinating to me, maybe not to you, but as I’ve told you and will
continue to tell you, this stuff is really important). Today, the issue is trade secrets, which
definitely has more sex appeal.
What Is A "Trade Secret"?
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| Top secret liquid gold ... |
When lawyers talk about “trade secrets,” we’re
talking about business information that gives that business a major competitive
edge. Trade secrets are things like the Coca-Cola
formula, Google’s proprietary search algorithm, and the method by which books
are selected for the New York Times Best-seller List. Trade secrets are what make businesses unique
and make them a LOT of money. Lawsuits
ensue when departing employees or business owners take those trade secrets to a
competing enterprise and use them to their former employer’s detriment. Top-secret information and theft? Folks, this
is the stuff of commercial espionage!
But here’s the problem with a trade secrets
lawsuit: the plaintiff will NEVER be successful unless the “secret” it seeks to
protect is truly, truly secret. “Secret”
means unknown to others. I know this
sounds obvious but I see people mess this one up all the time. For example, consider the
plaintiff-corporation that claims that the profit margins for its specialized
machine are secret. What happens when
that same plaintiff publishes a price list and a list of suppliers? The profit margin isn’t so secret any
more. Another example: a customer list
downloaded by a departing employee the night before he quits. That employee did a really bad thing for
which he should be punished, right?
Think again. While it’s true that
taking something that doesn’t belong to you is morally wrong, if the
information was downloaded from a personal computer that the employer allowed the
employee to use to access all of this information, the law says that the
information isn’t secret. The key to a
successful trade secrets lawsuit is how the employer treated the information before it was stolen. Employers should be vigilant in protecting
information they consider to be “secret.”
It's Misuse, Not Possession That Matters.
Here’s another little hiccup I see in trade
secrets cases – the information is truly secret and the employee took it, but
there is no evidence the employee actually used
it. It is the “misappropriation” of a
trade secret that is illegal, not necessarily the possession of it. My favorite example of this is information
that salespeople must – as a matter of job security – keep in their heads. They could probably rattle off the names of thirty
customers off the tops of their heads. They
know where customers are located, what those customers’ needs are, and how to
best serve them. What is a business to
do when such a person leaves?
Such was the case in a recent lawsuit I
handled. There was no evidence that my
client had taken or used any information – but he had lots of business
information in his head. When I took the
deposition of his former employer’s corporate representative, I asked very specifically
what information my client had taken or used that belonged to his former
employer. Her response? “He has knowledge! So much knowledge!” Her fear was that in order to perform at his
new job, my client necessarily would use the information he learned while
working for her. It wasn’t any tangible information
she was worried about – it was the knowledge he had in his head!
Let me be clear: knowledge just isn’t enough. There is a very famous case from a federal
court based in Chicago, which stated that, “Any other rule would force a
departing employee to perform a prefrontal lobotomy on himself ….”[1] Employees get to take knowledge that is in
their head with them when they leave.
And there’s little an employer can do about it.
So what makes a good trade secrets case? I’m going to give you the wishy-washy lawyer
answer and tell you that it all depends on the facts. It depends on how secret the information was
kept in the first place, it depends on the role the departing employee had at
the old company and what role he will have at the new company. There is no right answer when it comes to
trade secrets, which is why lawyers who practice in this area love it so
much.
But there are things businesses can do to
protect their information. For that
little tidbit, you’ll have to come back tomorrow ….
Liza Favaro
Non-Compete Counsel
*
Disclaimer:
The ideas and opinions shared on this site are my own and are not attributable
to my employer. No amount of interaction on this site will create an
attorney-client relationship. If you have a legal question and you ask it here,
I will also answer it here (if I can), but such answers do not guarantee
results and do not create an attorney-client relationship. If you wish to
contact me directly, you may do so at efavaro@gmhlaw.com.
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