Trade Secrets – A Primer

The protection of trade secrets is a growing topic of concern for our clients. These situations don’t usually involve elaborate thefts but rather concerns of misuse by former employees.

This primer is designed to help both employers and departing employees better understand trade secret concerns. This is not legal advice, but a guide to prompt better discussions with your legal advisor.

Trade Secret Litigation in the News:

Trade Secrets are a big deal. In Move v. Zillow two former employees of Move Inc. were accused of stealing trade secrets and attempting to cover their tracks by destroying stored files. Zillow settled that case for $130 million (GeekWire). Not every case is this large of course, but they are just as important to a small business as they are a large corporation. The issue can be something as simple as a former employee retaining a client list after departing from a company and then using that information inappropriately.

What is a Trade Secret?

In Washington state, there are a few common factors that help define what constitutes a Trade Secret. RCW 19.108 is Washington State’s adoption of the Uniform Trade Secrets Act. This Uniform Act aims to provide consistency amongst the states that choose to adopt all, or most of, the Act. Some common terms at issue when defining a Trade Secret are as follows:

  • Derives Independent Economic Value: This means the information must not be generally known or easy to obtain (by proper methods). If the information is easy to obtain or available to others, then it would not have unique, independent value because it is easily available to the public. A good example would be a recipe. If it is a secret recipe known only to a single restaurant, then there is unique value. If that same restaurant were to publish this recipe for the public to use, then the value is no longer unique to that restaurant. Other examples would be programs, procedures, or technological methods and techniques.
  • Protected: A company actually needs to take steps to protect its confidential information. If the company offers information to any member of the public (such as pricing, or inventory status), then the Company is not truly protecting that information. Likewise, if a company allows anyone in the public to obtain its “secret recipes”, or publishes its code or technological process then that information would not be a trade secret. Steps such as insuring remote access is cut off, files are secured, all devices returned by a departing employee, and confirmation of deletion of data are good to show a company is taking steps to protect its information.

The Most Common Source of Litigation for our Clients Involves Former Employees

Many companies take steps to protect their confidential plans, marketing goals, growth strategies, developing products etc. However, difficult situations can occur when a company allows its employees access to trade secrets to perform tasks but fails to adequately protect misuse of this information. A clear device usage policy, social media policy, and generally making confidentiality part of employee training is key.

Even more important is a clear and consistent policy for departing employees. From removing access to systems to making sure devices are returned and stored information is deleted, an Employer must be aware of the many ways confidential information can spread via technology. Whether a departing employee purposefully takes the information or just inadvertently forgets to delete old files from five years ago, technology assisted trade secret leaks are the first issue an Employer should try to tackle.

When All Else Fails, What Happens Legally?

There are many actions a company may take to protect a perceived threat of misuse of a trade secret. The appropriate action is highly contextual and can range from seeking immediate legal restraining orders on certain actions to cease and desist letters, lawsuits, and requests to preserve evidence. There then may be a question of just how much the misappropriation caused in damage, which depending upon the facts may be substantial.

New Causes of Action. In 2016, Congress passed the Defend Trade Secrets Act of 2016, 18 U.S.C. § 1836(b)(1). This is the first national legislation on the issue, but it is too early to tell how it will be interpreted by the Federal Court system because many of the remedies are similar to the State Courts. What should be considered are the additional remedies that the Act provides. Namely a nationwide injunction, and the seizure of property.

Preserving Evidence of Misappropriation:

This is a growing issue due to the massive amounts of electronic data now shared with employees across multiple platforms. Here is where a clear policy on returning or deleting confidential information is key. Too many lawsuits can spiral out of control when an employee inadvertently kept confidential information on a mobile device, laptop, or cloud account but then loses, misplaces, or even deletes that information due to legal threats. Even if that employee was free from fault the expense of unwinding such mistakes for both sides can be prohibitively costly.

If you are an employer, or company, do not wait until your trade secrets are taken, misused, or accessed. Have a clear policy ahead of time, and develop a plan for departing employees and the return or deletion of confidential information in their possession.

If you are a former employee, do not wait to be told to delete confidential information or access points to your employer’s system; ask your appropriate contact point at the company what to do. If you remain concerned about exposure, contact your attorney to discuss appropriate ways of eliminating any lingering problems.

Whether you are an employer or an employee knowing the common pitfalls is key. Consult with your legal advisor if you have specific questions or want to prevent disputes before they surface.

Noah Williams frequently advises and represents individuals and companies on trade secret related issues. He can be reached at (206) 624-6271.