What are Trade Secrets?
Trade secrets are a form of intellectual property. Federal law and state law define trade secrets in similar ways. State law defines trade secrets as including all forms and types of scientific, technical, business, engineering, and economic information, and items such as prototypes, designs, formulas, plans, and patterns. Although the federal definition uses slightly different terminology, they essentially encompass the same things.
Both laws require that the owner of the secret makes concerted and ongoing attempts to protect its trade secrets and that the secret is not readily accessible to others unless they obtain it illegally. Moreover, a trade secret must have its own economic value to anyone that possesses it.
Some examples of trade secrets include formulas, marketing strategies, customer lists, vendor contracts, business models, production processes, engineering schematics, software programs, data, algorithms, and more.
What Qualifies as Misappropriation
of Trade Secrets?
The legal definition of misappropriation of a trade secret would include the unlawful, improper, or unauthorized use of the secret for unintended purposes. Certainly, someone else’s use of your trade secret for their benefit is not an intended purpose.
Misappropriation includes both the improper acquisition of the secret as well as sharing secrets with any party not entitled to know them. Moreover, misappropriation includes someone’s use of the secret despite knowledge that the information was probably acquired improperly.
Trade secret protections do not apply if the information was shared legally with another party and if you failed to protect it in that exchange. For example, suppose you share trade secrets with a potential buyer of your company in the due diligence period. However, you failed to enter into proper nondisclosure agreements with the potential buyer, and when the sale falls through, the buyer begins to use your trade secrets for its own gain. Trade secret protection may not apply in this case.
What Can Employers Do to Protect
Against Employee Misappropriation?
Employees are common violators of trade secrets, which is why non-disclosure agreements (NDAs) are a universally-used protection. A well-written NDA provides legal protection for an employer against current and past employee disclosure of trade secrets.
For example, imagine one of your employees has been privy to your company’s trade secrets as part of that employee’s job. You had that employee sign an NDA. If they leave your business to work for a competitor, and they violate the NDA by sharing those secrets, they misappropriate them. Moreover, the new employer, who should know the employee is disclosing trade secrets, is legally exposed as well.
In addition to creating comprehensive, binding, and challenge-proof NDAs and having employees execute them, there are some other steps you can take to reduce the risk of employee misappropriation of your company’s trade secrets:
- Create a corporate culture of checks and balances to monitor the risk of employee misappropriation.
- Restrict access to trade secrets, limiting only those employees who need to know and only to what they need to know to perform their jobs.
- Secure access to physical property, data, and computer networks among existing employees and immediately upon their departure.
- Review the history of digital and other interactions an employee engaged in when they leave the company.
- Hire new employees carefully, monitoring whether they make attempts to disclose to you any proprietary information from previous employers.
- Execute policies and procedures specifically designed to reduce risk.
What Legal Remedies Are There for Misappropriation of Trade Secrets?
If your proprietary information meets the legal definition of a trade secret, and if you have taken steps to protect it, you can file a trade secret lawsuit against an employee who shared a trade secret and perhaps against the competitor who benefitted from the misappropriation.
This type of commercial litigation can be filed in the appropriate Texas court under either Texas or federal law. Although both state and federal law provide protection of your trade secrets and remedies for their misappropriation, the basis for your pleading and the burden of proof will vary between the two.
Which avenue you choose to take will depend on multiple factors specific to your case. Reach out to an experienced business litigation attorney who has represented other clients in trade secret lawsuits.