Safeguards needed to save trade secrets

:IL;

:Jul 13, 2005;

:Focus;

INTELLECTUAL PROPERTY

Business owners who fail to proactively protect vital information risk losing it.

by Kelly Lucas klucas@ibj.com

    Companies invest a great deal of time and money into cultivating business. Caught up in the day-to-day rigors of their industry, many fail to take the steps necessary to protect the data they gather along the way. Recognizing what constitutes a trade secret and ensuring its confidentiality is vital to long-term success.

    A trade secret can be anything not generally known that provides a business with an advantage, explained lawyer Thomas Henry of Woodart Emhardt Moriarty McNett & Henry. It can include customer lists, personnel information, financial data, marketing strategies for products and services, business methods, and other information developed through an investment of company resources.

    Protection under Indiana’s Trade Secrets Act is contingent on whether the information provides an economic advantage to its owner and whether reasonable steps have been taken to keep the information secret.

    “Most businesspeople have no idea how much of their ‘business information’ is legally protected under the Trade Secrets Act,” explained Lewis & Kappes lawyer Peter French.“Under the Indiana Trade Secrets Act, the time, effort, and energy you put into your business is recognized as a trade secret. All you have to do is spend a reasonable amount of effort to protect it.”

    In 1993, the Indiana Supreme Court in Amoco Production Co. v. Laird said that where the duplication or acquisition of alleged trade secret information requires a substantial investment of time, expense, or effort, such information may be found “not readily ascertainable” as a trade secret. To determine if information is readily ascertainable, French said, you have to look at the time, effort, and energy that goes into compiling it. The effort that goes into compiling the information, he added, is what has value.

    The law, however, provides no definition for “reasonable” when it comes to determining how far companies must go to protect confidential information. It is an area of law that is very fact sensitive, lawyers agree.

    If business conduct is reasonably designed to maintain secrecy of the information and to teach the employees the nature and importance of the secrecy, a trade secret can be supported, explained Henry in his recently published book, “Overview of Patents, Trademarks, Copyrights and Trade Secrets in the Business Setting; A Reference Guide for the Indiana Employer.” Published by the Indiana Chamber, the book provides an in-house trade secret program employers can follow in an effort to meet the “reasonableness” threshold.

Confidentiality agreement

    One of the first things employers should do in the effort to protect guarded information is require all employees who have access to confidential information, and in some cases vendors or suppliers the company does business with, to sign a confidentiality agreement.

    While it is possible for a company to have a template or blanket statement to use as a starting point, to have maximum enforceability each agreement should be tailored to include specific information that should not be disclosed, explained Ice Miller lawyer Michael Wukmer. Not all employees should sign the same agreement. A mistake many businesses make, he explained, is to borrow language from an old agreement or one another company has used and assume it will be enforceable.

    Anyone exposed to a company’s confidential information should sign a confidentiality agreement, added Ice Miller lawyer Melanie Harris. If some, but not all, sign agreements, she said, it might appear that the company did not employ adequate protections. Neglecting to have a comprehensive approach could hurt the company when attempting to show that reasonable efforts were taken.

    It is an area where most lawyers agree an ounce of prevention goes a long way.

    “Each person at a company needs to be treated differently,” Henry said. “The ones doing development work are typically attuned to the sensitivity of information, while the salesperson’s job is to get out there and entice the customer on the latest and greatest. They want to share information quickly.”

    In addition to defining confidential information and trade secrets at issue, Wukmer and Harris advise that confidentiality agreements should also include (1) an acknowledgement that the employee will have access to confidential information; (2) a prohibition against the use and disclosure of confidential information other than in the course of the employee’s duties with the business; (3) a statement that the confidential information is the exclusive property of the employer; (4) a provision that prevents the employee from using the confidential information in any manner after termination; and (5) a mandate that the employee return all confidential information, including copies, upon termination.

Restrictive covenants

    Restrictive covenants, including covenants not to compete and non-solicitation restrictions, are also recommended approaches to preserving trade secrets.

    Many lawyers say that one of the best ways for a company to protect its trade secrets is to prevent an employee from taking a position with a competitor. But, they caution, no-compete documents must be carefully drafted.

    For a covenant not to compete to be enforceable, it must be reasonable to the length of time, scope of activities, and radius of the geographic area that is restricted.

    Well-drafted agreements are the key to enforceability and protection against use of a company’s confidential information, Wukmer said.

    “Courts will enforce these because if a company has an employee who has left and in a position to steal relationships, the company should have a reasonable amount of time to get someone else in to re-establish those relationships,” Wukmer said. “If documents are well-written you can do that. If not, you are going to lose every time.”

    Some employees, while they may be honest and hard working, just don’t understand that the business secrets they’ve acquired and the relationships they’ve built while working for an employer belong to that employer, not to them, French explained. That message, he said, must be made clear to employees.

    It is a line that often appears blurred, reiterating the need for detailed documents.

    “There is a case from Illinois that basically says employees aren’t required to do a frontal lobotomy when they leave a job; you don’t have to forget all you know,” French said.

    The best strategy, many lawyers agree, is to have procedures in place throughout an employee’s tenure with a company reminding them of their obligation to preserve trade secrets. When hired, employees should be made aware of the existence of confidential information, a handbook outlining company policy and what is expected of the employees should be distributed, and an agreement should be signed.

    Throughout employment, posted notices should be made available reminding employees of confidentiality policies, and employers are advised to take advantage of annual reviews as an opportunity to remind employees of procedures regarding trade secrets and to update employee agreements if the scope of an individual’s job has changed. An exit interview should be used as a last opportunity to remind the employee of company policy and collect any confidential documents he may possess.

    In situations involving employees at higher levels in the company, French said it may be advisable to enter into a separation agreement that acknowledges the existence of a non-compete agreement and reiterates that all documents and information related to trade secrets have been returned. If problems between the

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