Summary: This is the fourth and final installment in a series on trade secret and non-compete law in the employment context. Check out Part 1 here on non-compete agreements; Part 2 here on the key statutes and applicable common law; and Part 3 here on enforcement and litigation. This article focuses on some key points for helping companies prevent the theft, use, and disclosure of their trade secrets and for crafting enforceable non-compete agreements.
An ounce of prevention is worth a pound of cure in this area of the law. Ignoring the preventative measures outlined in this article (which are relatively simple and cost effective) may result in a company finding itself in a difficult (read: expensive) situation down the road. While there are a lot of other issues to look out for, these are some key steps to take and mistakes to avoid.
One size doesn’t fit all.
I stressed in Part 1 of this series that the law governing non-compete agreements is state specific. While a lot of the general principles are similar in the states allowing non-compete agreements, there are some critical distinctions that can ruin a company’s chances of enforcing a non-compete.
For example, in some states, like Florida, continued employment with an employee’s current employer without anything else is sufficient consideration to support a non-compete agreement. But, in many states, such as North Carolina, continued employment alone is not sufficient consideration to support a non-compete agreement. In states like North Carolina, there has to be additional consideration, such as a bonus, a promotion, or something else of value. Just like any other contract, a non-compete agreement that’s not supported by valid consideration isn’t going to be enforceable.
Another example is the appropriate geographic restrictions in a non-compete. Those restrictions need to be tailored not only to each specific company, but also to different types of employees. The enforceable geographic restrictions for a local family medicine physician are going to be different than the ones for a national-level salesperson. Those restrictions almost certainly aren’t going to be interchangeable.
There are a lot of other nuances like this that vary across jurisdictions. It’s therefore probably not a great idea to use a generic template found through an Internet search because it’s unlikely that it’s been tailored to the specific needs and circumstances of a given situation or the relevant state’s laws.
Trade secrets need to actually be kept secret.
This may seem like a no-brainer, but for a lot of companies and individuals it isn’t. A general definition of a trade secret is information that can be used in the operation of a business that’s sufficiently valuable and secret such that it could give an economic advantage to someone else having the information. When courts evaluate whether particular information constitutes a trade secret warranting protection, an important factor courts usually consider is whether the owner of the information took adequate steps to maintain the secrecy of the information.
Sometimes, no one’s thinking about this until it’s time to file a lawsuit against someone who’s alleged to now be using or to have used the trade secret. By then it might be too late.
Let’s say a company’s secret recipe for its specialty product is kept in one form: the original piece of papyrus on which the recipe was scrawled in hieroglyphics by the ancestors of the company’s president. Keeping it secret would likely involve a safe and some locked doors to which only one or two people have access.
But what if it’s the real world and the trade secret is stored only in an electronic format? Is it stored on the company’s intranet where most company employees can view it? Have the company’s servers and computers been adequately protected with proper security measures? Can the company prove that it appropriately restricted access through the use of metadata or otherwise?
If it takes extreme shenanigans to get to the information, the company’s probably doing it right. Most of the time, however, this is a real issue. For example, sometimes it may be difficult or impossible to retrieve metadata from cloud-based platforms sufficient to show restricted access. Make sure the information is adequately protected and that the adequacy of those measures is demonstrable.
Don’t delay, act today.
If a company suspects or knows that a former employee has taken trade secret or other confidential information or is violating a non-compete agreement, the company’s probably going to have a bad time.
As we discussed in Part 3 on enforcement, a company can seek injunctive relief to stop alleged violations of non-competes and to prevent the use or disclosure of its trade secrets. If stopping the violation is important (and the company doesn’t want to only pursue damages, which is a viable strategy in some scenarios), then moving to enforce the company’s rights quickly is key.
This is because when courts determine whether injunctive relief is appropriate, one of the factors they evaluate is whether the company will suffer irreparable harm if the alleged violation isn’t immediately stopped. If a company finds out about a purported violation but then waits several months before seeking injunctive relief, the court’s going to have a hard time believing that this information was really that important to the company. Courts will notice the lack of urgency and take it into consideration.
Conclusion
That’s it for this series on trade secret and non-compete law in the employment context. Now that we’ve discussed a lot of the core concepts, future articles will dive into more nuanced and timely topics.
Earlier: Protecting Your Secrets (Part 1)
Protecting Your Secrets (Part 2)
Protecting Your Secrets (Part 3)
Evan Gibbs is an attorney at Troutman Sanders, where he primarily litigates employment cases and handles traditional labor matters. Connect with him on LinkedIn here, or e-mail him here. (The views expressed in this column are his own.)
