How small business lawyers can protect their company’s secrets: Some tips

For many general counsel lawyers, the first time they worry about trade secret protection is the day a key employee with intimate knowledge of the company’s most important trade secrets departs to work for a competitor. Unfortunately, the time to worry about this scenario was the day you hired them. If the company has failed to have the right agreements, policies, training, and plans in place during their employment, it could mean a rough day in the office when they walk out the door. Fortunately, there are things you can do to buttress the company’s ability to protect its trade secrets. Here are some practical tips:

What is a trade secret?

Your boss probably thinks everything the company does is a trade secret. Unsurprisingly, that is not the case. A trade secret is:

  • Something not generally known to the public
  • Where reasonable efforts are made to keep it confidential
  • Confers some type of economic value to the holder by the information not being known by another party 

What constitutes a trade secret can vary by state or by country. A good shorthand is, any information you would not want your competitors to have. Examples include new business models, customer and supplier information like pricing, marketing strategy, processes and formulae, and similar information.

Keep it secret

If the company does not take appropriate steps to keep sensitive information confidential it can lose the ability to claim it as a trade secret. For example, the company has handed out copies of its future marketing plans to customers without a non-disclosure agreement in place or failing to label the plans as “confidential.”

Courts typically look at the following factors:

  • Extent to which the information is known outside of the company.
  • The measures taken to guard the secrecy of the information.
  • The value of the information to competitors.
  • The extent to which the information is known throughout the company’s employee base.

Money or effort spent by the company to develop the information and how easy would it be for others to duplicate the information.

Prepare a list

Stop whatever you are doing right now and start an inventory of all the company’s trade secrets. Interview key company employees and executives about what they believe are trade secrets and match what they say against the definition above.

With a trade secret inventory, you can:

  • Identify what steps are needed to keep those specific items confidential and protected
  • Be clear with the business what items are not trade secrets

Put the right agreements in place

There are several key agreements to have in place and regularly update as necessary. Courts want to see such agreements in place as part of their analysis of whether the company took the proper steps to maintain confidentiality. The core agreements include:

  • Non-compete agreements
  • Non-solicitation agreements
  • Non-disclosure/confidentiality agreements
  • Telecommuting agreements to ensure the employee is aware of expectations around confidentiality when they work remotely

The enforceability of these types of agreements — especially non-competes — can vary widely depending on the jurisdiction, so a one-size-fits-all approach is not smart. Ensure that each of the agreements you are putting in place is enforceable in the jurisdictions you care most about.

Have the right policies in place

The right policies help educate employees and prevent leaks of your trade secrets and can convince a court that the company is properly protecting its trade secrets. These include:

  • Properly marking confidential materials
  • Social media policy
  • Limiting disclosures to "need to know"
  • Visitors to the offices
  • Policies around proper storage/disposal of confidential material
  • Password and information security
  • Removal of confidential information from the premises
  • Bring Your Own Device requirements
  • Procedures around providing confidential information to third parties

Training matters

Agreements and policies are important, but if your employees are not taught how to protect trade secrets, you may not be able to convince a court that you are appropriately protecting trade secrets. A comprehensive training program will go far in that regard. Training should include examples of things your company considers trade secrets and should be conducted for all new hires and yearly for other employees. Regular email reminders from the legal department about trade secrets and confidentiality are helpful as well.

Mark as “Confidential”

An easy way to ensure confidential documents and materials are treated as such is requiring that employees clearly mark such materials as “Confidential” to make it absolutely clear the materials are trade secrets and extra care is needed.

Proper exit interviews

An exit interview process for departing employees is important. Work with the HR team to ensure:

  • Departing employees receive a copy of any agreements signed during their employment and that they sign a document acknowledging any ongoing obligations.
  • Reminders about the post-employment obligations of the employee.
  • Determining whether an employee has any company information at home or stored on any non-company cloud system.
  • Determining if the employee is going to work at a competitor. If so, and there is applicable no non-compete in place, consider a short, non-hostile letter to the competitor explaining the departing employee’s ongoing confidentiality obligations.
  • Employee surrenders all company property and signs an acknowledgment that they have returned all such items (and that no copies exist anywhere).
  • Termination of all passwords, access to systems/email, identification badge/access to buildings, parking cards, etc.
  • If there is reason to suspect the employee, perform a search of their company email, hard drive, computer files, and voice mail for any improper activity.

Be prepared

You should have a plan in place for what to do when your trade secrets are threatened:

  • A strong relationship with HR, Information Security, and Internal Audit is helpful. Work in concert to ensure plenty of communication in the event anyone sees, feels, or hears of trouble. Get this group together in advance to map out in writing what to do and how everyone will work together if there is a trade secrets issue.
  • Have your outside counsel advisors lined up in advance.
  • Have a system in place to quickly locate any agreements signed by the breaching employee, applicable policies, etc.
  • Know whom to call to terminate system access, revoke passwords, and building access.
  • Think through the potential legal claims available to you in the most important jurisdictions.
  • Be ready to contact the party that received your confidential information and ask that your trade secrets be returned immediately and destroyed, along with an acknowledgment that they have done so.
  • Develop contacts at local law enforcement and the FBI in the event of a computer crime or theft of trade secrets.

When it comes to trade secret protection, prevention is key because once a trade secret is revealed, it may be too late to undo the harm.

Need a model NDA? How about a non-compete?

Then check out the Startups and Small Businesses collection in Practical Law for these-and other agreements-that protect your business