31/05/2011

How to protect your trade secrets

Companies generally want to attract the best employees who can use their acquired skill and expertise to help further grow the business.

However, there is an inherent tension around how much of the skill and expertise an individual has gained in previous employment can be used by a new employer. If that skill and expertise was generated by working on confidential projects or trade secrets, is the employee allowed to transport that knowledge to the new employer?

Employers often seek to protect their information by use of restrictions in employment contracts. Those restrictive covenants, however, are only enforceable to the extent that they are a reasonable restraint that seeks to protect a legitimate business interest.

When disputes arise, Courts often must decide whether information gained by employees at the employers expense is so confidential that it amounts to a trade secret and cannot be used elsewhere, even if it is ‘in the head’ of the former employee.

The key steps to protecting your business

Matthew Howarth provides insight into how businesses can protect themselves:

Identify what information is important to your business and whether it can be protected. This information can manifest itself in three forms:

  • Trade secrets – Where there is an implied duty of confidentiality during and after employment. Examples of trade secrets include secret process of manufacture, chemical formulae, designs or special method of construction and “other information which is of a sufficiently high degree of confidentiality so as to amount to a trade secret”
  • Confidential information – Where protection is implied but during employment only. Employees use this information only for the best interests of their employer. Examples include a card index system with 325 client contact details, details of customer requirements and pricing, actual and target sales figures, refinements in manufacturing process
  • General knowledge – Where there is no implied legal protection. Examples include an employee’s general skill and knowledge, and information that is in the public domain

Understand how you can protect your confidential information during and after employment:

During employment:

  • Duty of good faith and fidelity
  • Senior employees – additional duties

How is the information treated?

  • Brand the information as “confidential”
  • Limit circulation/exposure
  • Provide training on identifying and preserving the confidential nature of the information
  • Utilise security measures – passwords, access rights
  • Monitor email traffic
  • Contractual protection
  • Policy

After employment:

Express obligations

  • Refer to trade secrets and confidential information
  • Explain why the information is important and needs protection

Covenants

  • Protect only legitimate business interests
  • Trade secrets, confidential information and more including customer connections and stability of workforce
  • Reasonable – anymore could be unenforceable
  • Non-dealing, non-solicitation, non-poaching etc

Garden leave

  • Express contractual right
  • Provides window of opportunity
  • Protection

Look out for warning signs which might indicate something untoward is happening, examples of warning signs include:

Unusual behaviour

  • Staying late, especially towards the end of employment
  • Unusual photocopying
  • Frequent private calls
  • Personal emails at work

There are practical steps that you should take if you believe that an employee might be likely to steal trade secrets and/or confidential information, these include:

  • Gathering evidence and speaking to other employees
  • Signing an undertaking that all company property is returned when an employee leaves the company
  • Writing to the employee and putting them on notice
  • Consider taking out an injunction
  • Claiming for damages

An on-going risk assessment process will help safeguard company critical information. To be as robustas possible, such risk assessments should be immediate and constant as well as being periodically reviewed.

To discuss any of the points in this article contact Matthew Howarth on 0113 227 0379 or email matthew.howarth@gordonsllp.com