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Protecting Your Proprietary Business Information: Get a Fresh Start

By: Benton Williams

As employers head into 2019, one item that should receive serious attention is the protection of proprietary business information and trade secrets. The continuing expansion and sophistication of technology, coupled wih worker mobility, present new risks for employers to manage, and the new year is a perfect time to review policies and procedures.

The risk a worker will leave the company and take its employer’s sensitive electronic data—like client lists, business plans, and other competitive intelligence—is a serious one that continues to grow. The vast majority of lawsuits asserting claims of trade secret misappropriation involve employees and business partners.[1] For example, 66% of the lawsuits filed under the Defend Trade Secrets Act[2] involve a current or former employee of the trade secret’s owner.[3] Claims involving current or former business partners accounted for 26% of such lawsuits.[4]

Employers can, however, manage the risk of having its valuable company information and trade secrets stolen every time an employee begins working for a competing business or starts a new one. Employers should ensure their employees execute valid confidentiality agreements and covenants not to compete, as well as covenants not to solicit the employer’s customers or other workers. Employers also should implement responsible policies to safeguard company information; this is not only a good business practice, it is often required to prevail on a claim asserting misappropriation.[5] Many courts have denied trade secret protection to employers and businesses asserting claims of misappropriation when the business fails to use reasonable efforts to protect its information.[6]   

As employers enter a new year, they should use the opportunity to look ahead and manage the risks it may bring. When performed properly, an employer’s diligent review and update of its confidentiality and employment agreements can control costs and risks efficiently—before they materialize or disrupt operations and revenue.

[1] See, e.g., David S. Levine, The DTSA at One: An Empirical Study of the First Year of Litigation Under the Defend Trade Secrets Act, 53 Wake Forest L. Rev. 105, 146-47 (2018); David S. Almeling et al., A Statistical Analysis of Trade Secret Litigation in State Courts, 46 Gonz. L. Rev. 57, 69 (2011) (noting 93% of trade secret cases in state courts involved an employee or a business partner).

[2] Defend Trade Secrets Act of 2016, Pub. L. No. 114-153, 130 Stat. 376 (codified at 18 U.S.C.A. §§ 1832-1833, 1385-1836, 1838-1839, 1961 (West 2018)).

[3] 53 Wake Forest L. Rev. at 146.

[4] Id.

[5] See Clara N. Jimenez, Are the Crown Jewels Really Safe? Considerations for Building a Strong Trade Secret Portfolio in Today’s Market, 9 No. 4 Landslide 14, 15-16 (2017).

[6] See, e.g.nClosures Inc. v. Block & Co., Inc., 770 F.3d 598, 602 (7th Cir. 2014); R.C. Olmstead, Inc., v. CU Interface, LLC, 606 F.3d 262, 276 (6th Cir. 2010); Nationwide Mut. Ins. Co. v. Mortensen, 606 F.3d 22, 29 (2d Cir. 2010).