Seek Advice In Drafting Trade Secrets And Confidentiality Agreements

In an article recently posted at mondaq.com, Richard Stobbe provides several excellent examples of why employers should consult with their counsel when drafting trade secrets and confidentiality agreements, instead of copying cookie-cutter examples found on the internet.

In his article, Keeping Secrets: Trade Secrets and Confidentiality Agreements, Stobbe notes that many “off-the-shelf” agreements are drafted with terms that do not apply to the employer’s business or the specific transaction, or apply another state’s laws.  Also, many form agreements define key terms, such as “confidential information,” which an employer may not be aware of or understand.  The failure to strictly comply with these defined terms may render the agreement unenforceable.

The issues raised in Stobbe’s article are especially relevant for employers in Tennessee where agreements restricting trade are generally disfavored and strictly construed against the employer.  Rather than rely on form agreements, employers should consult with counsel to insure their non-compete, trade secrets, and confidentiality agreements comply with their state’s laws.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

Two Recent High-Stakes Trade Secrets Decisions Demonstrate Broad Protection and Potential for Large Exposure

When a party breaches a confidentiality agreement, claims for misappropriation of trade secrets and breach of the confidentiality agreement are often asserted simultaneously. As two recent federal court decisions based on Texas law demonstrate, trade secrets law can sometimes protect employers where confidentiality agreements cannot. These cases also highlight the potential for very large exposure of violators.

On July 26, 2012, the U.S. Bankruptcy Court for the Western District of Texas entered a final judgment in the amount of $15,873,383 in favor of TXCO Resources, Inc. and against Peregrine Petroleum, L.L.C. for misappropriation of trade secrets. TXCO Res., Inc. v. Peregrine Petroleum, L.L.C. (In re TXCO Res., Inc.), 2012 Bankr. LEXIS 3425 (Bankr. W.D. Tex. July 26, 2012).  Both TXCO and Peregrine are oil and gas companies based in Texas.  Peregrine signed a confidentiality agreement that allowed it to obtain information about certain of TXCO’s properties. TXCO alleged that Peregrine breached the confidentiality agreement and misappropriated TXCO’s trade secrets, among other causes of action.  In a lengthy opinion issued after a 41-day bench trial, the Court found Peregrine was not liable for breach of the confidentiality agreement since TXCO could not prove that its damages were proximately caused by Peregrine’s breach. The Court did find, however, that Peregrine misappropriated TXCO’s trade secrets by using confidential information about TXCO’s land subsurface data, production data and operations data to acquire oil and gas leases formerly held by TXCO, which gave Peregrine a competitive advantage over TXCO and other companies.

In Raytheon Co. v. Indigo Sys. Corp., 2012 U.S. App. LEXIS 15892 (Fed. Cir. Aug. 1, 2012), the U.S. Court of Appeals for the Federal Circuit reversed the decision of the U.S. District Court of the Eastern District of Texas, which granted summary judgment against a misappropriation of trade secrets claim to Indigo and against Raytheon.  Raytheon and Indigo, who are both manufacturers of infrared imaging equipment, entered into a series of confidentiality agreements in 1996 in connection with consulting services to be provided by Indigo to Raytheon.  In 1997, Raytheon became concerned that Indigo was recruiting Raytheon personnel to gain access to Raytheon’s trade secrets, but Indigo assured Raytheon that these accusations were baseless.  Five years later, in 2007, Raytheon disassembled a camera of Indigo’s and discovered evidence of patent infringement and trade secret misappropriation and quickly brought suit.

In granting summary judgment to Indigo, the district court found that the confidentiality agreements were unrelated to the infrared technology at issue and found that Raytheon’s trade secret claim was barred by the three-year statute of limitations under Texas law. The appellate court discussed the “discovery rule,” which allows tolling for claims of trade secret misappropriation until when the plaintiff knew or reasonably should have known of the facts that give rise to the claim. The court also noted that the question of whether Raytheon “should have known” about its claims earlier was for the jury.  The Circuit Court held that the district court erred by resolving this factual question against Raytheon, the non-moving party, at summary judgment.

BURR POINT:  Trade secrets violations can lead to large judgments and the “discovery rule” can be used to preserve the ability to obtain these judgments for older claims.

Alabama Supreme Court Reverses Overly-Broad Injunction Prohibiting Competition Among Defense Contractors

Earlier this year, the Alabama Supreme Court reversed a preliminary injunction entered by the trial court in a case involving competing defense contractors at the Redstone Arsenal in Huntsville. See Monte Sano Research Corp. v. Kratos Defense & Securities Solutions, Inc., — So. 3d —, 2012 WL 1890693 (Ala. May 25, 2012).  The underlying litigation remains on-going, but the Alabama Supreme Court’s ruling can provide insight for those involved in non-compete litigation in Alabama courts or in non-compete disputes involving government contracts.

By way of background to Monte Sano, the U.S. government awards certain defense contracts (in this case, “Army Aviation and Missile Command Express” contracts) via multi-year “blanket purchase agreements” awarded to “prime contractors” in four different “domains”:  (i) logistics, (ii) programmatic, (iii) technical, and (iv) business and analytical.  In 2005, the Army awarded one such blanket purchase agreement in the technical domain to Computer Science Corporation (“CSC”), who thus became a prime contractor for certain work to be performed at the Redstone Arsenal.  One of the plaintiffs in Monte Sano, Kratos Defense & Securities Solutions, Inc. (“Kratos”), via a predecessor corporation, was part of CSC’s team (i.e., a potential sub-contractor) in obtaining this blanket purchase agreement for the technical domain.  However, simply being a member of the team does not guarantee that individual tasks will be awarded to a particular sub-contractor; additional bidding is involved at the task level.

In Monte Sano, two of the defendants, Steven Thornton and Steven Teague, previously worked for Plaintiff Kratos.  Thornton and Teague both left employment with Kratos in 2011 to work for defendant Monte Sano Research Corp. (“MSRC”).  MSRC was formed in 2009 and was allegedly partially owned by Teague (but not Thornton) at the time of its formation.  Prior to the departure of Thornton and Teague, CSC had entered into various sub-contracts with both Kratos and MSRC to perform work for a “task” under its “blanket purchase agreement” for the “technical” domain at the Redstone Arsenal.   Upon the departure of Thornton and Teague, Kratos immediately filed suit against MSRC, Thornton, and Teague, and obtained from the trial court a preliminary injunction prohibiting MSRC, Thornton, and Teague from procuring work from any “prime contractor” at the Redstone Arsenal.

Notably, although Thornton and Teague had previously entered into non-competition agreements with Kratos, these agreements were of limited duration and expired at the end of 2010.  As such, there were no explicit non-competition agreements in force when Thornton and Teague left Kratos’s employment.  There were, however, more generalized provisions in Kratos’s employee handbook regarding the duty to maintain confidential information and not to solicit Kratos’s employees or otherwise encourage employees to leave Kratos’s employment.  The handbook provisions regarding the duty to maintain confidential information had no time limit, and the duty not to encourage other Kratos employees to leave purported to last one-year beyond the end of employment.  Moreover, in Monte Sano, Kratos alleged that Teague had arranged lunches in which Kratos employees were informed of new opportunities with MSRC.  In bringing claims against Thornton and Teague, Kratos alleged that they had (i) breached their duties of loyalty and their fiduciary duties; (ii) tortiously interfered with Kratos’s contractual relations with the “prime contractor” CSC; and (iii) breached their contractual obligations as set out in Kratos’s employee handbook and elsewhere.  Kratos also brought tortious interference claims against MSRC.

The Alabama Supreme Court, however, reversed the preliminary injunction, noting that the injunction was overly broad because it prohibited MSRC from performing work for any prime contractor at the Redstone Arsenal, in any domain, and not just the technical domain implicated by Kratos’s contract with CSC.  (The evidence in this case showed that MSRC had also been negotiating with prime contractors, other than CSC, in other domains.)  The Alabama Supreme Court also noted that the trial court’s injunction order did not comply with Rule 65(d)(2) of the Alabama Rules of Civil Procedure because it did not provide specific reasons for its decision and did not address why Kratos did not have an adequate remedy at law.  In a concurring opinion, Justice Murdock noted that, because the preliminary injunction would have prevented MSRC from performing its sub-contract with CSC, CSC should also have been named as a party to the litigation.

As to “take aways” from the Monte Sano decision, the Alabama Supreme Court’s holding demonstrates the importance of having written non-competition agreements, such that employers faced with departing employees are not forced to rely on more generalized duties of loyalty and more generalized handbook provisions.  Monte Sano also emphasizes the risks of bringing “tortious interference” claims against a competitor who hires away employees when such claims are not supported by non-competition agreements with specific employees.

This said, the fact that the Monte Sano litigation made it as far it did (and is still on-going) shows that employers without explicit non-competition agreements are not without hope.  Had the preliminary injunction in Monte Sano been limited to the technical domain work covered by Kratos’s contracts with CSC, the Alabama Supreme Court’s decision might have been different, even in the absence of a non-competition agreement.  Thus, perhaps the biggest take away from Monte Sano is that it helps to be specific (and not over-reach), whether in drafting a non-competition agreement at the outset of employment or in seeking relief from a court after a competitor has hired away a key employee. For more clarification on the topic of non-compete agreements and clauses, please contact one of the Burr & Forman team members for assistance.

The Inevitable Disclosure Doctrine — A Glimmer of Hope in the Absence of a Non-Compete Agreement

In the hilarious movie Dumb and Dumber, the imbecilic and unattractive character played by Jim Carrey is told by the beautiful woman he is pursuing that the chances of them winding up together are about one in a million, to which he excitedly replies, “So you’re telling me there’s a chance!” Similarly, if an employer wants to enjoin a former employee from working for a competitor, but the employee is not under any sort of non-compete agreement with the former employer, has taken no company records and property, and has not revealed any confidential information or trade secrets to the new employer, the inevitable disclosure doctrine of trade secrets law provides the employer with at least a “chance” of getting the desired injunction.

The inevitable disclosure doctrine is used by employers to stop former employees from working for competitors, even in the absence of a non-compete agreement, on the basis that it is inevitable that the employee will use or disclose the former employer’s trade secrets in connection with the new employment. The significance of this theory is that the employer is not required to prove an actual misappropriation of a trade secret, but rather that the disclosure of the trade secret is inevitable based on the nature of the information and the circumstances of the employee’s new position.

As with all trade secret issues, the law on inevitable disclosure varies somewhat from state to state. For instance, California courts have rejected the doctrine as creating a “de facto covenant not to compete”, Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999), and held that the doctrine “cannot be used as a substitute for proving actual or threatened misappropriation of trade secrets.”  Whyte v. Schlage Lock Co., 125 Cal. Rptr. 2d 277, 294 (4th Dist. 2002). The Third Circuit Federal Court of Appeals, however, applied a relatively lenient standard under Pennsylvania law for successfully using the theory, holding that an employer need only show a “substantial likelihood” of disclosure of a trade secret. Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102,110 (3d Cir. 2010). (For an excellent nationwide survey of the doctrine, see Ryan A. Wiesner, A State-by-State Analysis of Inevitable Disclosure: A Need for Uniformity and a Workable Standard, 16 Intellectual Property L. Rev. 211 (2012)).

The Georgia Supreme Court has recognized the inevitable disclosure doctrine, although not referring to it by name, in the case of Essex Group, Inc. v. Southwire Corp., 269 Ga. 553, 501 S.E. 2d 501 (1998). In that opinion, the court upheld the trial court’s injunction prohibiting Southwire’s former employee from working for Southwire’s direct competitor’s logistics department for a period of five years. As the basis for its ruling, the court concluded that the competitor had “sought to obtain, by the simple act of hiring [Southwire's former employee], all the logistics information it had taken Southwire millions of dollars and years of testing and modifications to develop as part of Southwire’s plan to acquire a competitive edge over other cable and wire companies ….” Id. at 557. There was neither mention in the opinion of the employee having a non-compete agreement nor any mention of an actual misappropriation by the employee of the alleged trade secret. Instead, the implication of the decision was that disclosure of Southwire’s logistics system was inevitable because of the identity of Southwire and its competitor’s business.

BURR POINT: Even in the absence of an enforceable non-compete agreement, the inevitable disclosure doctrine provides a means for enjoining a former employee’s competitive activities in certain circumstances. For more information on the inevitable disclosure doctrine or how it might apply to your business, don’t hesitate to contact one of the Burr & Forman team members.

New Hampshire Enacts Non-Compete and Non-Piracy Legislation Effective July 14, 2012

New Hampshire has joined the ranks of numerous other states with non-compete statutes. On July 14, 2012, New Hampshire’s non-compete and non-piracy law became effective and aims to ensure that advance notice will be provided to employees who will be required to sign a non-compete or non-piracy agreement as a condition of their employment or change in job position:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of an employment agreement to the employee or potential employee.  Any contract that is not in compliance with this section shall be void and unenforceable.

Under the new law, an employer is prohibited from sandbagging a new employee by presenting him/her with a non-compete or non-piracy agreement on his/her first day of work after he/she has already accepted the offer, particularly in situations where the employee has quit a job to begin work with the new employer only to learn of the “surprise” agreement at that time.  Now, not only must the employee be informed that a non-compete or non-piracy agreement will be a term of his/her employment should he/she accept an offer, but also the employee must be provided with a copy of the actual agreement itself.  The employee then has an opportunity to review and consider the agreement and the impact thereof, and decide whether to accept the offer and the agreement and if employed, quit his/her current job.  This same analysis applies in the case of an employee who is offered an internal job change (e.g., lateral move, promotion, etc.) which will require him/her to sign a non-compete or non-piracy agreement.

New Hampshire courts will continue to handle “traditional” disputes as to the reasonableness of the geographic scope and duration of non-compete agreements and whether the employer has a legitimate protectable interest.  But, after July 14, those same courts will undoubtedly be asked to decide and handle a variety of debacles arising as a result of the new law and the questions it leaves unanswered, such as whether non-solicitation, non-recruitment, and/or nondisclosure agreements constitute “non-piracy” agreements.  That said, as the penalty for noncompliance with the new law is steep – i.e., invalidation of the entire agreement – employers would be wise to act conservatively and avoid any missteps by ensuring reasonable advance notice is provided, written acknowledgment of the notice is given by the employee, and non-solicitation, non-recruitment, and non-disclosure agreements are treated as non-piracy agreements subject to the new law.

 

Sometimes Hiring a New Employee Can Invite an Unwanted Lawsuit

Let’s set the scene:  Your search for an employee with the required job skills and experience results in your Florida-based company’s decision to hire someone presently working for your competitor.  During the salary/benefit negotiations, you learn that your prospective employee executed a non-compete agreement with her present employer.  “Not to worry,” you tell her.  “If your present employer sues you to enforce the non-compete we will pay for your defense.  In fact, we’ll make it part of your contract if you come for us.”  Bad move.

Many prospective employers believe non-compete agreements only have legal consequences for prospective employees.  However if ─ as in the example above ─ the prospective employer is aware of the agreement before hiring the employee, then the prospective employer runs the risk of liability to the former employer for tortiously interfering with the non-compete agreement. While the past employer will have to prove the new employer had knowledge of the non-compete agreement as part of a tortious interference claim, a new employer makes this task easier when it includes a provision agreeing to indemnify the employee for any litigation over non-compete agreements.

To prove tortious interference with a non-compete, Florida courts apply a four-prong test:  1) existence of a business relationship; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the breach of the relationship.  Tamiami Trail Tours, Inc. v. Crosby, 463 So. 2d 1126 (Fla. 1985).

How then does a prospective or subsequent employer protect itself from the former employer’s tortious interference claim?  For starters, avoid agreements to indemnify the new employee and/or pay for legal defense costs associated  with possible breach of the non-compete agreement.  As recently as May 2012, a Florida federal court reasoned that the plaintiff was “substantially likely to prevail on the claim of tortious interference” in large part because the new employer “expressly acknowledged the Agreement between [the employee] and [the plaintiff] and the restrictive covenants contained therein.”  The new employer, as part of its agreement with the employee, “agreed to assume [the employee's] defense in the event she [was] sued by [the plaintiff] over the terms of the Agreement, and indemnify her from any and all expenses, fees, damages, judgments, and amounts incurred by her in connection with the action.” The court held that this express knowledge of the non-compete agreement was evidence that the new employer caused the employee to breach the non-compete agreement. See Electrostim Medical Services, Inc. v. Lindsey, (M.D. Fla. 2012).

And this isn’t the first time a federal court in Florida found that a former employer could sue a subsequent employer for tortious interference.  In a 1998 federal court opinion the  employee testified that he had informed the new employer about his employment agreement with the plaintiff without actually providing a copy.  When coupled with testimony that the new employer hired the employee to essentially recreate the former employer’s products, the court found enough evidence to reason that “the facts . . . support a substantial likelihood that Plaintiff [would] ultimately prevail on the claim of tortious interference.”  See Stoneworks, Inc. v. Empire Marble & Granite, Inc. (S.D. Fla. 1998).  In 2009 a court found that the new employer had knowledge of the non-compete agreement with the plaintiff because it “expressly acknowledged the existence of that agreement in the employment contract signed with [the employee].”  The result: an opinion that the plaintiff had “shown a substantial likelihood of success on the merits of its claim that [the new employer] tortiously interfered with the . . . contract for [the employee] not to compete with [plaintiff].”  See The Continental Group, Inc. v. KW Property Management, LLC (S.D. Fla. 2009).

Similar findings appear in Florida appellate courts.  In 2010, Florida’s First District Court of Appeal held that allegations that 1) the employee gave a copy of the plaintiff’s employment contract to the new employer and; 2) that the new employer “devised a plan to allow [the employee] to quit her employment with [the plaintiff] and to . . . work for [the new employer] . . . without compensating [the plaintiff] as required under [the contract]” stated a cause of action for tortious interference against the subsequent employer.  See  Southeastern Integrated Medical, P.L. v. North Florida Women’s Physicians, P.A. (Fla. 1st DCA 2010).

What now?  Well, if you’re subject to a non-compete agreement, read it carefully.  They are often narrowly tailored.  As we discussed in previous posts, even valid non-compete agreements can prove ineffective to stop future competition.  On the other hand, because Florida allows non-compete agreements, it is important to understand the restrictions of a particular agreement and the risks of violating it.  Do you have the right to employ someone seemingly subject to a valid non-compete agreement?  Of course you do.  Just keep in mind that knowingly hiring someone subject to a non-compete agreement can result not only in additional legal fees and costs resulting from the employee’s breach, it may also subject the new employer to substantial damages resulting from a claim for tortious interference with the former employer/employee relationship.  Remember that courts have determined that prima facie evidence of tortious interference exists when a subsequent employer agrees to indemnify the new employee and/or pay defense costs if the former employer files an enforcement lawsuit.

This is the part of the blog where we suggest you seek competent legal counsel when you face these issues.  The nuances of this area of the law and the specific factual circumstances surrounding each situation deserve a sound initial legal opinion. Our Burr & Forman attorneys would be happy to assist you in these matters.

Court Ruling Helps Define Factors Used in Trade Secret Classification

What is an allograph? And why doesn’t a company’s sterilization process violate the trade secrets of another company that allegedly invented and protected the sterilization protocol?  And why, you might ask, do these questions appear on our blog?

First, an allograph is a transplant of tissue from one person to a genetically dissimilar person. To successfully complete this transplant, you must sterilize the human tissue. In April 2012, Florida’s Fifth Circuit of Appeal ruled on a case involving allographs: Duane Duchame, Tai T. Huynh, et al. v. Tissuenet Distribution Services, LLC, et al., 37 Fla. L. Weekly D875a.

This case established several factors that Florida courts now use in determining whether to uphold injunctions enforcing trade secrets. These factors are important when recognizing the undeniable link between success with a trade secret claim and the existence of a valid non-compete agreement.

The court ultimately decided in a reversal of the lower court’s temporary injunction in this sterilization case, based on several things.

  • The chemicals used in the case were well-known in the industry and therefore use of them did not constitute qualities of a trade secret.
  • The former employee who created the sterilization protocol did not use a direct replica of the system for a new employer. Rather, he “used his education, knowledge, skill, and experience” to formulate a protocol for his new employer, indicating it was a new creation instead of a stolen trade secret.
  • And most importantly, if the plaintiff wanted to prevent the departed employee from working for a competitor, then the plaintiff should have issued a non-compete agreement to the former employee—which they did not do.

This case stands demonstrates two propositions that all employers seeking to protect trade secrets should remember.  First, if a trade secret exists, it should be kept secret.  Additionally, verify that it does qualify as a trade secret. If you use industry-known materials and use them in a special or untraditional manner (i.e. the sterilization protocol in this case), make sure you can prove in court that your methods are significantly different enough to classify them as trade secrets, and not merely a variation of a widely-accepted process.

Second, if you have a key employee capable of taking their talents to a competitor which could adversely impact your business, then you should always consider executing a valid non-compete agreement to protect your company.  In the Tissuenet case discussed above, it is impossible to say whether or not a valid non-compete agreement would have justified the plaintiff’s claims, but it is likely that the lack of a valid non-compete agreement caused the fatal blow.  Are trade secret claims and non-compete claims different?  Of course! However, as this example has demonstrated, they are often compatible tools working with sensitive information and skilled employees.

For more information, if you have any questions about trade secrets or non-compete agreements, or if you have an unfair competition issue, please contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.

 

Other articles you may be interested in:

What is a Trade Secret?

Key Ingredients for an Effective Non-Compete Agreement

Key Ingredients for an Effective Non-Compete Agreement

In increasingly competitive business environments consisting of mobile and tech-savvy workforces, employers need to take full advantage of the most important protection available against unfair competition by former employees: a comprehensive and effective non-compete agreement. Employers should have non-compete agreements reviewed and/or drafted by an attorney familiar with the laws of any state that the agreement will be active in (usually the states in which employees reside). This is especially important because the laws governing non-compete agreements vary from state to state.

However, regardless of state, the key ingredients to a successful and protective agreement include the following types of provisions:

  • Non-Competes — While a “Non-Compete Agreement” usually refers to an employment contract that includes many of the provisions in this list, an actual non-compete provision is the one that actually prohibits an employee from working for a competitor.  To be enforceable, this type of provision typically must be reasonable in terms of the duration, the territory, and the scope of prohibited activities.  What is deemed reasonable varies from state-to-state and is often fact-specific based on the circumstances of each particular employee.
  • Non-Solicitation of Customers — In a world where anyone on the globe is potentially accessible by email or cellphone, an employer’s vulnerability to competition is often defined not by geography but by customers.  Accordingly, a provision for the non-solicitation of customers is essential for most modern businesses.  A non-solicitation covenant does not by itself prevent an employee for working for a competitor, but rather it prohibits an employee from affirmatively soliciting the customers of the former employer.  A non-solicitation provision often works in tandem with a non-compete clause, but a non-solicitation term is a must where employees are reluctant to agree to an absolute prohibition from competing in a certain area.
  • Confidentiality/Non-Disclosure — These provisions limit an employee’s ability to use or disclose non-public information relating to the employer’s business and customers.  Even in the absence of a non-compete or non-solicitation provision, confidentiality agreements can be used to hinder unfair competition and solicitation of customers by a former employee if it can be shown that the employee is using the confidential business information from the former employer.  Additionally, confidentiality agreements are usually necessary, at minimum, to prove the key element of a claim for a trade secret violation: efforts to maintain the “secrecy” of a purported trade secret.
  • Non-Recruitment — A non-recruitment provision seeks to limit a former employee’s ability to recruit other employees away from the employer.  There are few common law and statutory restrictions on the recruitment of a company’s employees, so these types of covenants are an important tool for staving off mass defections.
  • Return of Property — Many post-employment problems can be avoided, or grounds for a remedy improved upon if there is a problem, by a contract requiring that an employee return all company-related property, information, or documents obtained or created by the employee upon termination of the employment relationship.

BURR POINTWhile there are multiple other terms that are a part of a well-drafted non-compete agreement, the list above provides the backbone terms that will serve as protection for the employer.

What is a Trade Secret?

Most businesses are familiar with the concept of a trade secret, but few can accurately define the legal meaning of the term.  Those seeking protection will claim that basically all of their business information qualifies as a trade secret, while defendants fighting a claim will argue that the requirements for something to be a trade secret are extremely restrictive. The answer, of course, is somewhere in the middle.  So, what exactly constitutes a trade secret?

The Uniform Trade Secrets Act has been adopted by 46 states (all except New York, Massachusetts, North Carolina and Texas).  Georgia’s version of the Act defines a trade secret as follows:

“Trade secret” means information, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information:

(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Whether or not a supposed trade secret satisfies the definition of a trade secret often decides the winners and losers in trade secret disputes.  Here are some examples of decisions by state and Federal courts in Georgia regarding the determination of a trade secret:

Items Ruled as Trade Secrets

  • Written, or electronically-stored, customer lists, if not readily available to the public
  • Computer software
  • Packaging idea
  • Logistics system
  • Healthcare provider’s referral log and workbook containing doctor referral statistics

Not a Trade Secret

  • Intangible customer information existing in the mind of the former employee
  • Recollection of cities that franchisor considered to be good location for future franchises (deemed to be similar to intangible customer information, and thus not protectable)
  • Accumulated technical information in employee’s mind
  • A particular bearing in a cleaning system  (since bearing was stamped with the name of a third party, anyone could call the bearing manufacturer to find out the specifications of the bearing)
  • Name for future newspaper planned by publisher
  • Matters generally known in the industry
  • Process of evaluating amount to bid on tax deeds   (the information was available to the public, and the process was not a unique combination affording possessor a competitive advantage)
  • A customer list that does not provide a competitive advantage (even though it was not publicly available)
  • Investor lists

BURR POINT:  The Uniform Trade Secret Act can be a powerful tool for protecting a confidential business and customer information, but claiming a trade secret and meeting the legal definition of same are two different matters.  Businesses of all types would be well-served to have an attorney review their processes, employment agreements and policies to ensure they are set up to take full advantage of the protection that trade secrets laws provide.

 

Welcome to Burr & Forman’s Non-Compete and Trade Secrets Law Blog!

Welcome to Burr & Forman’s Non-Compete and Trade Secret Law Blog!

In an increasingly competitive and mobile workplace, non-compete agreements and trade secret laws have become necessary tools for employers to protect their valuable customer relationships and confidential information and to avoid unfair competition from former employees and competitors. Continual changes in non-compete and trade secrets law, as well as technological advances providing increasing avenues for unfair competition, make it imperative that businesses in all fields stay abreast of the latest developments in this area.

For these reasons, the attorneys of Burr & Forman’s Non-Compete and Trade Secrets Group have launched this blog to help employers, executives and attorneys keep up with news, statutory changes, legal opinions and practical tips involving all areas of unfair competition law:  non-competes, trade secrets, customer non-solicitation, non-recruitment, non-disclosure, confidentiality agreements, tortious interference with business relations, employee piracy, computer theft, breach of fiduciary duties, employee loyalty, and intellectual property rights.

Because the law relating to most of these areas is state-specific, we will focus on developments in Burr & Forman’s Southeastern focus of Georgia, Alabama, Tennessee, Mississippi and Florida. However, we will also cover any particularly impactful or interesting events in other parts of the country relating to unfair competition. If you need help in a state outside of Georgia, Alabama, Tennessee, Mississippi or Florida, let us know. We’ve aligned our firm with trusted practices across the country and around the world and we will get your questions answered at the right law firm.

We hope that our clients, as well as other employers, executives and their attorneys, will find this blog informative and entertaining and will make it a regular part of their business reading. If you ever have a question about something on the blog or have an unfair competition issue, feel free to contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.

Thanks for reading!