LEGAL IMPLICATION OF TRADE SECRETS AND EMPLOYEE MOBILITY

Protecting your business or company secrets from similar companies

INTRODUCTION

What are Trade Secrets?

Trade secrets refer to confidential and valuable business information that gives a company a competitive advantage. Unlike patents, trademarks, or copyrights, which are protected through registration with government agencies, trade secrets are kept confidential and rely on the company’s efforts to maintain their secrecy.

The most common types of trade secrets include:

1. Formulas and Recipe

Proprietary formulas and recipes are used in the manufacturing of products such as food and beverages, cosmetics, and chemical compounds.

2. Customer Lists

Confidential lists of customers or clients, along with their contact information, buying habits, and preferences.

3. Manufacturing Processes

Confidential methods and techniques used to produce products efficiently and with high quality.

4. Business Strategies

Non-public strategies, plans, and business models that provide a competitive edge in the market.

5. Software Algorithms:

Proprietary algorithms and source code used in software applications and systems.

6. Marketing Strategies

Non-public marketing plans, market research data, and advertising strategies that contribute to the company’s success.

7. Financial Data

Non-public financial information, profit margins, cost structures, and pricing strategies.

Following recent happenings, Twitter allegedly accused Meta of stealing its trade secrets to build its new platform “Threads”, which is a potential competition to twitter. Although yet to be confirmed, Meta responds by confirming that none of the engineers who were once employees in Twitter were not involved in the construction of the platform.

Trade secrets are valuable because they provide businesses with an advantage over competitors who are not aware of or cannot replicate the confidential information. Hence, to maintain trade secret protection, companies and businesses must take reasonable steps to keep the information confidential. These steps may include:

1. Internal Policies

Implementing clear policies and procedures that emphasize the importance of confidentiality among employees and contractors

2. Employee Training

Providing training to employees on the handling and protection of trade secrets

3. Physical Security

Restricting access to sensitive information through secure facilities, passwords, or access controls.

4. Confidentiality Agreements

Requiring employees, contractors, and business partners to sign non-disclosure agreements (NDAs) to protect trade secrets

5. Restricted Access

Limiting access to trade secret information on a need-to-know basis

6. Contractual Obligations

Including confidentiality clauses in contracts with employees, contractors, and business partners.

LEGAL IMPLICATIONS OF TRADE SECRETS THEFT

According to Polk Wagner, a law professor at the University of Pennsylvania, to succeed in a lawsuit, a company must demonstrate that its competitor acquired economically valuable information that the company had taken “reasonable efforts” to safeguard as a secret. However, determining what qualifies as a “reasonable effort” can be a complex matter, he added.

“The courts are pretty clear that you can’t just wave your hands and say something is a trade secret. On the other hand, you don’t have to lock everything down so much that nobody can use the information,” Wagner said. (Source: livemint.com)

Employee Mobility Management

Employee mobility in the context of trade secrets raises several legal and ethical considerations for both employers and employees. As employees move between companies, there is a risk of trade secret misappropriation, which refers to the unauthorized acquisition, use, or disclosure of a company’s valuable confidential information. Here’s a closer look at the key aspects of this issue:

1. Trade Secret Protection Measures

Employers must take proactive steps to safeguard their trade secrets. This includes implementing physical security measures, restricting access to sensitive information on a need-to-know basis, and requiring employees to sign non-disclosure agreements (NDAs) to maintain confidentiality. Regular training and awareness programs on trade secret protection are also essential.

2. Non-Compete and Non-Disclosure Agreements

Many companies use non-compete and non-disclosure agreements as part of their employment contracts. Non-compete agreements aim to restrict employees from joining or starting a competing business for a certain period after leaving the company. Non-disclosure agreements, on the other hand, prevent employees from sharing or using confidential information outside of their employment. The enforceability of such agreements varies depending on jurisdiction, and some regions may limit their scope or duration to strike a balance between protecting legitimate business interests and enabling employee mobility

3. Trade Secret Misappropriation Litigation

When a former employee is suspected of taking trade secrets to a new employer, the affected company may pursue legal action through trade secret misappropriation litigation. However, proving trade secret misappropriation can be challenging, as it requires demonstrating that the information in question qualifies as a trade secret, that it was kept confidential, and that the former employee improperly acquired, used, or disclosed it.

4. Ethical Considerations

From an ethical standpoint, employees have a responsibility to respect the confidentiality of their former employer’s trade secrets. Using or disclosing trade secrets to benefit a new employer can lead to legal consequences and damage the employee’s professional reputation. Employees need to to uphold ethical standards and avoid engaging in any activities that could be deemed unfair competition or trade secret theft.

5. Employee Mobility and Innovation

Balancing trade secret protection with employee mobility is critical for fostering innovation. On one hand, overly restrictive measures can stifle the flow of knowledge and expertise between companies, potentially hindering progress in the industry. On the other hand, weak protection measures can lead to loss of competitive advantage and hinder companies’ willingness to invest in research and development.

6. Trade Secret Management Policies

Employers should have clear trade secret management policies that are communicated to employees, including guidance on what constitutes a trade secret and the appropriate measures for protecting it. Having well-defined policies can help prevent unintentional trade secret disclosures and provide a basis for legal action if needed.

LEGAL IMPLICATIONS

Trade secrets theft can have significant legal implications for both the party that has had its trade secrets stolen (the victim) and the party accused of the theft (the alleged misappropriator). The legal consequences may vary depending on the jurisdiction and specific circumstances of the case, but some common legal implications include:

1. Civil Lawsuits

The victim of trade secrets theft can file a civil lawsuit against the alleged misappropriator seeking damages and injunctive relief. Damages may include compensation for economic losses suffered due to the theft, while injunctive relief aims to prevent further use or disclosure of the trade secrets.

2. Injunctive Relief

Courts may issue preliminary or permanent injunctions to stop the alleged misappropriator from using or disclosing the stolen trade secrets. These injunctions can be critical in preventing further harm and preserving the confidential information.

3. Restitution and Disgorgement

In some cases, the court may order the alleged misappropriator to return any profits or benefits gained from the stolen trade secrets, ensuring that they do not profit from their some jurisdictions

4. Criminal Charges

In some jurisdictions, trade secret theft may be considered a criminal offence. The theft of trade secrets can lead to criminal charges, which may result in fines and potential imprisonment for the convicted individual.

5. Proceeding Secret Litigation Costs

Legal proceedings can be expensive, and both parties may incur significant legal costs, including attorney fees and court expenses reputation in the litigation process.

6. Reputation Damage

Allegations of trade secrets theft can damage the reputation of the accused individual or company, leading to negative publicity and potential harm to business relationships.

7. Non-Compete and Non-Disclosure Agreement Enforcement

If the accused party had signed non-compete or non-disclosure agreements with the victim, the enforcement of these agreements may become a part of the legal proceedings.

8. Trade Secret Registration and Protection Loss:

If the victim fails to take reasonable steps to protect the trade secrets, such as not implementing adequate security measures or not requiring confidentiality agreements, the court may deny trade secret protection or reduce the damages awarded.

CONCLUSION

It is important to note that trade secret litigation can be complex, as it often involves proving the existence and value of the trade secrets, as well as demonstrating that the alleged misappropriator acquired the trade secrets through improper means or disclosed them without authorization.

To protect against trade secrets theft and to enhance the chances of successful litigation, companies and businesses should implement robust trade secret protection measures, including the use of confidentiality agreements, restricting access to sensitive information, and providing proper employee training on trade secret protection.

Ayomide Shola-Oni
Head of Patents & Designs
Stillwaters Law Firm
2023