In the world of business today, protecting confidential information and trade secrets is an important part of conducting business. Business owners should be sure to have a detailed and carefully drafted agreement in place for all employees and vendors with whom their company conducts business. An agreement that will withstand legal scrutiny in litigation or arbitration is especially important. These agreements should list the specific items or types of items considered confidential or to be trade secrets. This is vital because the court must be able to easily determine when there has been a breach of the stated contract terms. Frequently, companies use very broad terms such as “all information pertaining to the company.” However, many things pertaining to the company would not be considered confidential information or a trade secret. This type of terminology would be overly broad. Using broad language opens the door to legal interpretation. When this occurs, it requires the court to define for a company what item truly is a trade secret or is confidential information. A company, rather than the court however, is in a much better position to define this. As such, having this definition already included in the agreement is most prudent.
In terms of former employees, there are some additional considerations to make when examining confidentiality or trade secret terms. If the former employee has signed and is in compliance with a well written non-disclosure agreement (NDA), then often the former employer has nothing in which to be concerned. The company secrets are safe. Unfortunately, this is not always the case. If an employer learns that his former employee is divulging confidential information or trade secrets, then the former employer must decide what action to take. He must first determine if the former employee is solely responsible or if the new employer has played a role in the matter.
If the former employee signed an NDA and then breached it, then the former employer may sue for breach of contract. However, if the NDA contained an arbitration clause then the former employer will not be able to sue. The parties will have to pursue arbitration. In addition, unless there was intentional wrongdoing by the new employer, the former employer will not generally be able to sue the new employer for a breach of contract. This is because the new company was not a signatory on the original contract. However, the new company could be liable to the former employer for the intentional interference with a business contract. This is the case if the new company acted intentionally to encourage the new employee to breach the contract.
Another option for businesses who believe their confidential information or trade secrets have been unlawfully disclosed is to file a suit based on the relevant provisions of the Uniform Trade Secrets Act. (UTSA) The UTSA was originally published in 1979 and amended in 1985. As of May 2013, UTSA has been adopted by 47 states, the District of Columbia, Puerto Rico, and the Virgin Islands. The purpose of the Act is to offer better protection of trade secrets in the United States. In order to qualify under the UTSA, the party must meet three requirements.
1. The information must qualify as information that is intended to be protected and not general public knowledge.
2. The holder of the trade secret must be able to prove that sound protections have been taken to protect the information.
3. The owner of the trade secret must be able to prove that the information was unjustly obtained by another party fraudulently.
It can be a challenge to determine the best strategy for your unique situation. For assistance in deciding the best course of action for your business, contact a qualified business attorney who can advise you.
1. “Trade Secret.” LII / Legal Information Institute. Cornell University Law School, n.d. Web. 15 Dec. 2015.
2. Morris, Duane, LLP. “”Confidential” vs. “Trade Secret” – A Non-Binary Dilemma | Lexology.” “Confidential” vs. “Trade Secret” Globe Business Publishing Ltd., 9 Dec. 2015. Web. 15 Dec. 2015.