Trade Secrets: Keeping Your Lips Sealed

The theft of proprietary information costs U.S. companies tens of billions of dollars each year, according to a survey by the American Society for Industrial Security, Alexandria, Va., and PricewaterhouseCoopers, New York. Nevertheless, the survey reveals, most firms have not designed and implemented an effective trade secrets program.

A trade secret generally is defined as “any formula, pattern, device or compilation of information which is used in one's business, and which gives [the owner] an opportunity to obtain an advantage over competitors who do not know or use it.” [North Atlantic Instruments Inc. v. Haber, 188 F.3d 38, 44 (2d Cir. 1999)] Typical trade secrets in the waste industry are customer and pricing information, equipment manufacturing processes and marketing strategies. Some states, by law, protect trade secrets, as well as various nondescript confidential and proprietary data and information. For its part, in 1996, Congress criminalized the misappropriation of protectable business information in the Economic Espionage Act, 18 U.S.C. § 1831, under which offenders can be jailed for up to 15 years.

These days, employees come and go at a faster pace than ever before. Some workers leave a job not only with a box of photos and desk accessories, but also with one or more disks containing the employer's trade secrets. Particularly when an employee occasionally works from home, the company's confidential files easily can be copied and stored on a home computer.

Honest employees who do not intend to use or disclose a former employer's trade secrets at a new job still may be troublesome. If the new job involves substantially similar responsibilities at a company that directly competes with the former employer, the worker may not be able to do his job without relying on trade secrets from the former work. As a result, judges have granted injunctions without proof of misuse of trade secrets from an old job.

A company's biggest assets are not always the data and information in its files. While some state laws prevent an employee from using or disclosing a former employer's trade secrets, they do not prevent a worker from seeking employment with a competitor. Key officers and employees probably know the most important information about a business. Moreover, it's likely that the company will have spent a lot of money recruiting and training these individuals. Thus, even an employee who resigns without taking any proprietary information and joins a competing company still may injure his former employer if he lures away or recruits former colleagues.

Besides the key employee who departs — with or without trade secrets, and with or without co-workers in tow — a company may lose its valuable business information through sheer neglect. How often have we read or heard about high-ranking government officers and employees who take laptop computers from their offices and laboratories, and where classified information ends up in the wrong hands?

“Employees come and go at a faster pace than ever before. Some workers leave a job not only with a box of photos and desk accessories, but also with one or more disks containing the employer's trade secrets.”

Although the same kinds of incidents in the private sector receive relatively little publicity, the business community has done its share of carelessly handling sensitive information. If someone, sitting shoulder-to-shoulder with a stranger on an airplane, creates a marketing plan on his computer, how can the person be sure that the stranger is not a competitor who, without eyestrain, has a “front-row seat” for the new strategy? If, elsewhere on the same flight, two people carry on an unguarded, audible conversation on a contemplated acquisition, who is to blame if a competitor or other interested outsider happily gobbles up the news? If a company undertakes a confidential project and develops sensitive data or information with help from consultants or temporary workers who have not signed a nondisclosure statement, can the company later legitimately complain about information leaks?

A company that eventually might want help from the courts in protecting its trade secrets should consider taking steps to minimize potential losses, with an in-house employee training program, trade secret inventorying, access monitoring, and gate-keeping for post-employment restrictions. As stated by a federal appeals court, “The more the owner of the trade secret spends on preventing the secret from leaking out, the more he demonstrates that the secret has real value deserving of legal protection, that he really was hurt as a result of the misappropriation of it, and that there really was misappropriation.” [Rockwell Graphic Systems Inc. v. DEV Industries, 925 F.2d 174, 179-180 (7th Cir. 1991)]