April 2011 Protecting Trade Secrets
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Protecting Trade Secrets

By Steve Strauss. ARCHIVE:

The very nature of a small business is that employees learn a lot about your business, for instance, the names and contact information of your best customers, what they pay, and what they need and want for starters.

Not a few employees have parlayed that knowledge into their own business by taking valuable customers with them when they go off on their own. For the employer, it can be a devastating set back. But this potentially devastating loss can be avoided if you take proper precautions.

First some background: Certain confidential information that you have, and that employees may learn while employed at your place of business, is sometimes considered a “trade secret.” That is, it is legally protected, private information.

Specifically, a trade secret is an “idea, formula, pattern, process, or compilation of information that provides you with a competitive advantage and which is kept private.”

The key to protecting your trade secrets is to inform employees about what you consider them to be and the way to do that is to have employees sign one or several agreements. Ideally, they will sign such agreements as part of your hiring process, but even if you have never had employees sign such agreements, you should consider having current employees do so too.

(Note: The following is general information. The rules in your particular state may vary and you should check with your lawyer to see what the laws in your particular state are.)

A Non-Solicitation Agreement: This contract forbids ex-employees from soliciting your customers or employees. While it would allow a former employee to go to work for a competitor, it would forbid them from soliciting your current clients before or after they do so.

While an actual ban on allowing an employee to take a job with a competitor is often unenforceable (called a “non-compete” agreement), a tightly-crafted non-solicitation agreement may do the trick.

A Non-Disclosure Agreement: Also known as an NDA, this contract states that during the course of their employment with you, staff may learn confidential information and that they promise not to use that information or share it with anyone without your permission for, say, five years. NDAs are probably the best way to protect the integrity of your confidential trade secret information. They are in wide use and typically upheld by courts.

In addition, it is important that you make a substantial effort to keep your trade secrets secret. If you don’t make efforts to keep them confidential, don’t expect an employee or court to treat them that way either.

Trade secrets are enforced both in both civil and criminal courts. Civilly, each state has enacted a version of the Uniform Trade Secrets Act, and getting an injunction preventing someone from using your trade secrets is the first step under that law. In addition, theft of a trade secret may be a crime, both under individual state laws, and well as under the federal Economic Espionage Act of 1996. Make sure your employees know about these laws, and more importantly, make sure they know that you know about them.