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Employee Defections and Theft of Trade Secrets

As a business owner, you are trying to stay ahead of your competition and look out for your customers. As part of that, you have products and procedures that are unique to your business you want to protect. You also have an exclusive client list that makes up the foundation of your business.

If you were to lose either of those to a competitor, it could be devastating to your business. If an employee offers to bring a competitor your client list or trade secrets, you may legal recourse.

There are ways for companies to protect themselves from thefts and employee defections. A business may have legal options to pursue a former or current employee who is selling or giving away trade secrets. To make sure you are well prepared, you should speak with a lawyer experienced in counseling businesses on how to safeguard proprietary and confidential information. At Sidney L. Gold & Associates, our team has extensive experience pursuing claims against former employees who are in violation of their restrictive covenant and non-compete clauses.

What Are Trade Secrets?

A trade secret is intellectual property that can include any formula, pattern, physical device, idea, process, or compilation of information that provides the owner of the information with a competitive advantage in the marketplace. A trade secret is expected to be kept private from the public or competitors.

Trade secrets vary depending on the business. They can include something as complicated as a computer algorithm, or something as basic as a cookie recipe. Other examples of trade secrets include the formula for an energy drink, marketing strategies, and a manufacturing technique.

Trade secrets are different from other intellectual property, such as a written song or a published work, in that they cannot be protected via a patent, copyright, or trademark. Since there is no way to protect these through the government, businesses are responsible for protecting their own secrets. Typically, businesses will include a clause in employees’ restrictive covenant or non-compete agreement to protect their trade secrets including valuable technical and confidential information. A trade secret can include the following:

  • Ideas: They can provide a business a competitive advantage giving them a head start on their competition. Examples of this include an idea for a new type of product or marketing approach.
  • Valuable business information: This can include marketing plans, cost and price information, and customer lists.
  • Negative know-how: This is information that was acquired during research and development on what not to do or what does not work optimally. There are instances in which this information is just as valuable as the techniques that work.
  • Unknown information: This is a wide-ranging category that includes all information that has value but is not known by competitors, such as a list of customers ranked by the profitability to the business.

What Laws Protect Businesses’ Trade Secrets?

Several states including Pennsylvania and New Jersey have adopted their own versions of the Uniform Trade Secrets Act (UTSA). The law defines and protects trade secrets. The specific of the definition of what constitutes a trade secret varies slightly state by state, but the law generally considers it to be a piece of information that has independent economic value by not being known and can be maintained a secret.

The UTSA is wide ranging, and it protects most information that gives a business a competitive edge, although the law anticipates that a company will take reasonable precautions to secure the information’s secrecy.

The law describes the prohibition of an employee obtaining trade secrets by what it refers to as improper means. The law describes these actions as theft, bribery, misrepresentation, breach, or inducement of a breach of a duty to maintain secrecy or espionage through electronic or other means.

The other aspect of the law that a company must prove under the law is that the trade secret obtained through improper means was misappropriated. That means that it was acquired by a person who understands the importance of the secret that they have obtained.

They can acquire a trade secret through proper means, but it becomes misappropriated if the person later uses it or discloses it in violation of an agreement they signed earlier to maintain confidence.

Another law that addresses the theft of trade secrets is the Economic Espionage Act of 1996 (EEA). This is a federal law that bestows significant power within the U.S. attorney general’s office to prosecute an individual or a company that engages in the stealing of secret information.

Punishments for violations under this law includes a fine of up to $500,000 for an individual and $5 million for a corporation. The individual could also face up to 10 years in prison if they are found guilty. Finally, the law authorizes the government to seize any property, assets, or funds that were earned because of the theft.

The EEA does not stop at the borders, as it also covers American citizens and corporations who engage in trade secret theft. The law also applies even if the theft took place in a foreign country but it was furthered here in the United States. Finally, if the theft is performed on behalf of a foreign government or agent, the corporate fines can double and jail time may increase to 15 years.

How Can a Business Protect Itself?

The law offers a variety of options for a company when it comes to protecting its own trade secrets, but a company must be proactive in protecting that secret. This includes ensuring that employees are bound by an effective and comprehensive non-compete agreement and perhaps limiting the number of people who know about the trade secret.

Following are some steps that companies should take when they want to protect their trade secrets. Those steps are as follows:

  • Identify trade secrets in the company.
  • Ensure that each employee signs and abides by a corporate non-compete agreement.
  • Provide physical security by setting up protocols for visitors, restricting access, and using video surveillance and security monitoring.
  • Provide cybersecurity by limiting computer access, monitoring emails and remote access, and keeping computer event logs.
  • Know insider threats, learning how thieves, competitors, and adversaries work.
  • Provide training for executives, employees, and contractors.
  • Appoint someone to supervise the plan.
  • Develop a plan to respond to minimize any damage and to deal with law enforcement.

Another common method that companies will use to protect their secrets, especially with those employees who are planning to leave the company, is through non-disclosure agreements (NDAs). These are agreements that an employee signs at the outset of their employment with a firm in which they promise to not reveal any specific information. The NDA will typically define what information it is looking to protect. It will also provide a timeframe for how long the employee is required to maintain that information.

As a business, these documents are invaluable ways to protect the company’s trade secrets and establish a specific violation should a former employee violate them. To protect yourself, you should be sure that you detail the information you are looking to protect as specifically as possible. The timeframe you are looking for should be spelled out and not left for interpretation. A skilled attorney can counsel you and draft enforceable and comprehensive NDAs, restrictive covenants, and non-compete agreements.

Courts have consistently verified that an NDA is an ideal way for companies to protect their information and have enforced them in court.

How Can a Company Act Against an Employee Who Stole Trade Secrets?

The UTSA gives company legal options if a former or current employee misappropriates trade secrets. Primarily, the company and go to court to obtain an injunction against the individuals from continuing to disclose or use the information they obtained.

The original owner of the secret can also seek financial damages from the person who stole it, claiming that their act harmed the business and cost them money. To prevail in court, the business must prove that the alleged confidential information provides a competitive advantage. They must also demonstrate that the information is really maintained in secrecy.

The original owner of the secret must also show that the individual either improperly obtained the secret or that they improperly disclosed the secret.

Why Work With a Lawyer?

An experienced attorney will help you establish adequate protections of your trade secrets and incorporate procedures to enable those secrets to remain private. A lawyer will help you draft your NDAs and restrictive covenant agreements so that they provide for the protection you need when hiring new employees.

A lawyer can help with monitoring your current employees to verify that they are not attempting to access aspects of your company that are off limits to them. A lawyer will also help verify incoming employees, particularly those who might come from a competitor, to make sure they are not in violation of any agreements with their previous employer that could make your company liable.

Philadelphia Employment Lawyers at Sidney L. Gold & Associates, P.C. Work With Companies to Protect Their Trade Secrets

In this fast-paced world, your trade secrets could be the lifeblood of your company. You want to safeguard them at all costs. Our Philadelphia employment lawyers at Sidney L. Gold & Associates, P.C. will work with you to help you develop protections to keep your secrets safe. We will also go after those employees who attempt to steal your secrets for their own personal gain. Call us today at 215-569-1999 or contact us online for a free consultation. Located in Philadelphia and Pennsauken, New Jersey, we serve clients throughout South Jersey and Southeastern Pennsylvania, including Wilkes-Barre, Scranton, Northeast Philadelphia, Bucks County, Chester County, Delaware County, and Montgomery County.

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