McAfee & Taft tIPsheet - March 2013: Keys to ensuring the secrecy of trade secrets

by McAfee & Taft

“Three can keep a secret if two are dead.”  — Benjamin Franklin

In the shrinking world of social media, privacy seems to be an all but forgotten concept. But in the world of business, trade secrets are critical to success. Trade secrets may be generally defined as information of economic value that is not generally known to others or easily ascertainable. Inherent in trade secret status is the protection and maintaining secrecy of proprietary information. So, in an age of Internet viruses, database breaches and tweeting employees, it is paramount that companies catalog and contractually protect their trade secrets, as well as limit trade secret exposure to key employees who are trained to identify and protect corporate secrets from accidental disclosure or theft.

A 2010 study of federal court cases done by the Gonzaga Law Review showed that 85% of trade secret cases allege a former employee or business partner as the misappropriator, making internal controls and contractual agreements the easiest (and perhaps the cheapest) safeguard against trade secret loss.

Recent judicial opinions show courts are reluctant to protect companies that fail to protect their secrets with written agreements. For example, the Seventh Circuit recently affirmed summary judgment in favor of a defendant alleged to have misappropriated the trade secrets of its competitor after negotiations between the competing entities for a proposed business venture failed. During venture talks, the plaintiff disclosed proprietary designs to the defendant but failed to have the defendant sign a confidentiality agreement. The appellate court found lack of a written agreement to be a failure to take “reasonable” measures to protect the alleged secrets, which is a requirement of most trade secret laws. Another employer lost its trade secret claim in a California district court case where it alleged a competitor misappropriated trade secrets by hiring the plaintiff’s former employee. The district court found in favor of the defendant competitor, relying on the fact that the plaintiff employer failed to have its former employee enter into a confidentiality agreement regarding the alleged trade secrets.

Written agreements regarding corporate social media accounts are also critical. Recent district court cases involving disputes over social media illustrate the need for unambiguous agreements under which the employer owns and controls all social media used to market the business. For example, in a 2012 case out of Colorado, an employer sued a competitor after the competitor hired the plaintiff’s former employee who took a MySpace® account with the names and contact information of the plaintiff’s customers to the competitor. A written agreement clarifying the ownership, control and content of the corporate social media accounts would have likely avoided lengthy and expensive litigation and prevented the potential disclosure of the plaintiff’s trade secrets.

So, although your company can’t adhere to Benjamin Franklin’s recommended tactic in maintaining secrecy, it isn’t impossible to protect against trade secret misappropriation. The key: “secrets” must be kept a secret and businesses must take appropriate action to ensure secrecy. Identifying corporate trade secrets is a recommended first step. Drafting and updating confidentiality agreements and employee polices protecting and securing confidential business information are also recommended to aid in employee and judicial protection of your company’s proprietary information. Businesses should also implement and execute social media policies delineating corporate ownership and content over social media accounts to prevent disputes over the company Facebook® account and help prevent disclosure of proprietary information.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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