One of the most valuable assets a business may have is its trade secrets, and most businesses have them. In order for an item to be considered a trade secret, it must be both kept confidential and provide the business with a commercial advantage.
Trade secrets include, among other things, customer lists, supplier lists, secret formulas, processes and the like.
It’s imperative that you understand the law relating to trade secrets, not only so that you can properly protect your own business’s trade secrets, but also because misappropriation of another’s trade secrets can result in significant liability.
In fact, just last week in a trade secret case, a judge ordered Amrock (previously known as Title Source) to pay nearly $740 million to HouseCanary, a real estate data analytics company.
Amrock, which offers title insurance, property valuations and closing services, had requested that the judge vacate the jury’s earlier decision that Amrock had “willfully and maliciously” stolen trade secrets from HouseCanary, but the judge instead upheld the decision.
In 2015, Title Source and HouseCanary entered into an agreement pursuant to which HouseCanary would provide appraisal and real estate valuations data and information to Title Source, but the relationship quickly deteriorated.
Title Source refused to pay HouseCanary for its work and sued, claiming that HouseCanary’s products were “completely unusable.”
HouseCanary claimed that Title Source fraudulently entered into the contract for the purpose of allowing the company to access HouseCanary’s intellectual property and proprietary data and then using it to develop its own competing property analytics and software.
The jury unanimously found that Title Source misappropriated HouseCanary’s data, breached the companies’ agreements, and engaged in fraud by assuring HouseCanary that it was not developing its own competing property valuation models.
The jury ordered Amrock to pay HouseCanary $235.4 million in compensatory damages, plus $471.4 million in punitive damages. The judge also ordered Amrock to pay prejudgment interest of $28,989,154, and attorney’s fees of $4,528,711.
To help protect themselves from liability for trade secret misappropriation, employers should make sure managers are trained never to ask employees about their previous employers’ trade secrets.
The company’s employee handbook should state that employees should not use their previously employers’ information at their new workplace. New hires should be also be provided with a separate written notice before beginning work.
You should also promptly return or destroy all third-party confidential information in accordance with any confidentiality agreement you’ve signed.
To protect your own business’s valuable trade secrets, you should first conduct a “trade secret audit” to identify your business’s trade secrets.
Once you know what your trade secrets are, protect them by following these guidelines:
1. Label copies, whether tangible or digital, as “confidential” or “trade secret.”
2. Keep tangible copies of confidential information in a locked room, safe or file cabinet, accessible only to those who need access to that information to properly perform their jobs.
3. Password-protect company networks. Use separate need-to-know network areas for confidential information. You should also consider encrypting the information.
4. Teach employees how to protect trade secrets and explain why it’s necessary.
5. Prohibit employees from using flash drives, unless that use is required for the person’s job, since these portable drives make downloading confidential information quick and easy. You can also obtain software to alert you when files are copied to external devices.
6. Employees, independent contractors and others with access to confidential information should be required to sign nondisclosure-nonuse agreements (often called “NDAs”) before being granted access to the trade secret information.
7. Make sure all employees and independent contractors know who to contact if they have any questions about your trade secret policy or whether certain information is considered confidential.
8. Require visitors to sign in and out, and do not allow them to be in any areas containing confidential information without an escort.
9. Conduct exit interviews with employees, reminding them of their continuing legal obligations with respect to your company’s trade secrets and other confidential information. Also, make sure you get back all of your business’s property.
10. Scrub the drives of any electronic devices (including computers, smart phones and copiers) before disposing of them.
11. So that you can take advantage of the benefits of the federal Defend Trade Secrets Act (DTSA), which took effect last May, make sure all agreements with employees and independent contractors that have clauses protecting confidential information include an appropriate whistleblower protection notice.
Please feel free to contact us if you’re interested in obtaining more information about how to protect your trade secrets or if you need help updating your agreements or employee handbook.
Photo by Kristina Flour on Unsplash
