On Sept. 1, 2013, Texas joined 46 other states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands in implementing the Uniform Trade Secrets Act. Given the importance of protecting trade secrets in an increasingly digital world, it is vital to understand what constitutes a trade secret and what steps can be taken to ensure that trade secrets are properly secured.
Not all confidential information is a trade secret. Generally, a trade secret is information that has actual or potential economic value by virtue of not being known to, and not being readily ascertainable by, others who could obtain value from disclosure or use of the information.
For example, a client list can be a trade secret if the identities of the company’s clients are not known in the trade and are discoverable only by extraordinary effort. In considering whether information such as a client list is readily ascertainable, courts have considered not only whether the information can be obtained from public sources, but also have looked to factors like the expense of compiling that information. If a company can demonstrate that it expended significant time, effort and money compiling the information, then it is more likely to be treated as a trade secret.
A company must take reasonable efforts to maintain the secrecy of its trade secrets. If it does not make such efforts, then that information will not be considered a trade secret. There are a number of steps a company can consider taking to maintain the secrecy of its confidential information.
A company can issue a confidentiality policy defining confidential information and providing that employees who have access to confidential information must maintain that information in confidence, may not disclose the information to third parties, must return any confidential information in their possession when they leave the company, and may not use the information for any purpose other than as authorized by the company. Additional restrictions — such as limits on employees’ ability to take confidential information outside of the office, to access it on mobile devices or personal computers or to send it by email — can also be considered.
In addition to a confidentiality policy, a company can include confidentiality provisions in employment agreements. This has the benefit of being a binding contract signed by the employee and gives the employer an additional tool in any dispute with the employee over trade secrets. Even if a company does not have agreements with all of its employees, it can enter into stand-alone confidentiality agreements with employees provided there is adequate consideration to support them. Companies should be aware that, depending on local law and the terms of the agreement, they may need to revise or update an agreement with an employee if the employee’s job duties or title changes.
Trade secrets also can be protected by ensuring that passwords are required to log onto the company’s computer system to access electronic documents or data. Each employee should have a unique, confidential password that should not be shared with others. The company may consider changing the passwords periodically. Passwords also can be required on all mobile or handheld devices used by employees or others with remote access to confidential information.
Similarly, a company can limit who has access to particular types of information. Not all employees may need access to all information on a company’s computer system. Additional levels of protection may be set up to allow access to particular information and documents only by those employees who need that information. For example, if a company considers its client list confidential, it may want to limit access to those employees, such as salespeople, who actively use the list. Independent contractors or consultants also may be given only limited access to the computer systems to minimize their ability to review confidential information that is not directly relevant to their work.
A company can have systems to allow it to track printing, downloading or emailing of confidential information. Monitoring this will help it be aware of and stop any unauthorized use or dissemination of confidential information and will assist in protecting trade secrets in any subsequent dispute with a departing employee over whether (and what) information the departing employee took or had access to prior to leaving the company.
By being proactive about identifying information the company considers confidential and taking steps to secure it, human resources managers, in-house counsel and other executives can help ensure that valuable information will be treated as trade secrets and protected to the maximum extent allowed under the law.
Jeffrey S. Boxer, a partner at Carter Ledyard & Milburn, is a commercial litigator focusing on employment law, restrictive covenants, protection of trade secrets, arbitration and jurisdictional issues. He can be reached at firstname.lastname@example.org.