Protecting Confidential Business Information
By: Arend J. Abel, Attorney
Sometimes businesses face a situation where an employee has departed and taken key information that can be used to hurt the business competitively. This article focusses on steps a business can take to minimize that risk, and if information is nevertheless stolen, to seek redress under the Uniform Trade Secrets Act. The Act has been adopted in Indiana and most other States.
Identify the Information to be Protected
The first step a business should take is identifying the specific information to be protected. Customer lists may be some of the most valuable information a business has, and their theft and use by competing businesses may cause severe harm. Other information, including formulas, business processes and technology, can also be valuable trade secrets. A trade secret can be any information that derives independent economic value from not being generally known and not being readily ascertainable by other parties through proper means, i.e., means other than stealing the information from the business.
Take Reasonable Steps to Maintain Secrecy
Information does not qualify as a trade secret unless the business has made reasonable efforts to keep the information secret. These efforts can and should include physical and electronic security measures. The business should keep paper information in locked offices and filing cabinets. Electronic information should be protected through the use of computer security that limits access to the information to only those employees who need to know the information to do their jobs. In some cases, the business should require employees with access to confidential information to use only company-provided computers, phones, and portable devices to conduct company business and store company information.
A business should also maintain the secrecy of its confidential information by requiring employees with access to the information to sign non-disclosure agreements. The agreements should list the types of information the employee is barred from disclosing.
Non-competition agreements are also an important tool to maintain the secrecy of confidential information. However, non-competition agreements must be reasonable in scope. This means that the geographic area in which the employee is barred from competing must be well defined , and no broader than necessary to protect the employer’s legitimate interests. The agreement must also be limited in time, barring the employee from competing for only as long as necessary. Finally, the agreement must be limited in terms of the activities prohibited. Typically, agreements should prohibit the employee only from working for a competing business in the same or a similar capacity as the employee worked for the business with which the employee signed the agreement.
Sometimes, despite the business’s best efforts, an employee may steal confidential information and use it to compete. In such cases, the only recourse may be litigation against the employee. A business might obtain a court order requiring the employee to stop using the information and return it. If there is a non-competition agreement, a court may prohibit the employee from competing in violation of the agreement’s time, geographic and activity limitations. If the business has been harmed, damages may be available.
To protect confidential business information, a business owner should consult with an attorney experienced in such matters, including litigation. Cohen & Malad, LLP’s business and litigation attorneys can assist with this process.