An Ounce of Prevention...
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Reports (e.g., here and here) indicate that trade secret and noncompete litigation is on the rise. The spate of recent cases in the headlines confirms this. (See, for example, U.S. v. Lee , Abbott Labs v. Mancheski, IBM v. Dell, EMC v. Donatelli). Other blogs have recently commented on this trend as well. (See "Eight ways to lose a noncompete case" and Litigation Over Non-Compete Agreements on the Rise).
This increase in litigation may be the natural result of a corresponding increase in mobility in the workforce. Some, however, may be better explained by the increased ease with which trade secrets can be misappropriated. Indeed, this confluence of events seems to support a study finding that "nearly 60 percent of employees who quit a job or are asked to leave are stealing company data . . . ." With the recent contraction in the previously-expanding workforce, more people changing jobs, and the high percentage of reported employee data misappropriation, it's no wonder that there would be a concomitant increase in trade secret and noncompete litigation.
Whatever the cause, however, an ounce of prevention is still worth a pound of cure, and companies are well-advised to ensure that they have taken adequate measures to protect their trade secrets, confidential business information, and goodwill.
The threshold step is the identification of corporate assets that are, or may be, worthy of protection. This is accomplished through a process called a "trade secret audit." Despite its fancy name, a trade secret audit is nothing more than an in-depth review of what trade secrets and other confidential information exist within a company, how they are currently protected, and how they can be "lost" (read "misappropriated"). Although not technically a part of the analysis, the audit should include a similar review with regard to the company's goodwill. These reviews can be conducted in-house or, if the company does not have the appropriate (or sufficient) personnel with the requisite training, it can be conducted by, or with the assistance of, outside counsel or other experts.
Once the information gathering is completed, the next step is to establish a comprehensive protection/enforcement scheme. Although the sine qua non (i.e., the essential element, literally, "without which not") of a trade secret is that it is kept secret, "heroic" measures are generally not required to protect trade secrets. Conceptually, the greater the value of the trade secret, the more protections will be expected to be in place. Similarly, the ease with which a protection can be implemented will inform whether such protection should be implemented. In the end, it will be a judge who decides whether the protections were adequate. One can expect that if a company has not made even the most basic efforts to protect its intellectual property and goodwill, a court will not be inclined to step in to clean up the mess. (The court's equitable power to assist in such situations is a power that is to be used sparingly and only for the benefit of those worthy of the court's protection.)
So, what are the available tools for a proper protection scheme? They are myriad and complementary to one another. The basic ones are: (1) computer safeguards (protecting computer systems with the appropriate level of security, including passwords changed at regular intervals, firewalls, hard drive encryption, access notifications, etc.); (2) security measures for all electronic technologies (usb drives, flash cards, smartphones, ftp sites, social media sites, etc.); (3) restrictions on and protocols for access to and use of facilities that house confidential information; (4) policies for the use of company property (including computers, etc.); (5) policies for the use and preservation of company trade secrets and confidential information; (6) protocols/checklists for when an employee resigns or has been terminated (proper exit interviews, shutting down computer accounts, terminating cell phones, eliminating facility access, examining all items taken by the employee, etc.); (7) post-departure reviews of possible security breaches; and (8) restrictive covenants - with employees and others.
The restrictive covenants (which most often involve an employee, but can be used in other contexts as well, such as the sale of a business, consultant relationships, and others) fall into basic types: noncompete agreements; garden leave clauses; forfeiture-for-competition agreements; "compensation-for-competition" agreements; forfeiture agreements; nondisclosure/confidentiality agreements; nonsolicitation agreements; antipiracy/no-raid/no-hire agreements; and invention assignment agreements. (For more reading on these agreements, other potentially applicable laws, and their interrelationship, see Beyond the Noncompete, published in Computer World (June 2, 2009).)
Each of these agreements serves a specific purpose. Which to use, when to use them, how to properly craft them, and how to enforce them are all the product of a combination of the needs of the company, the corporate ethos, and the skill, knowledge, and experience of the attorney assisting. Proper attention to each of these issues in advance will save much needed time and unnecessary expense later.