Best Practices to Protect Trade Secrets, pt 2

In our last BLOG, Lynne Shelton discussed the first 3 Best Practices to Protect Trade Secrets.  In this issue, she will cover points 4 – 9 for you. 4. Record Keeping, Document Retention and Destruction Policies Companies should have record keeping, document retention and destruction policies in place for a variety of reasons, including trade secret protection. As with all policies and internal procedures, the company must be vigilant in making certain that its employees comply with the policies. Unfortunately, these policies are most often vetted during litigation, when discovering the strengths, weaknesses, and compliance with them is sometimes too late. 5. Document Classification Practitioners often advise companies to adopt a policy that requires documents containing or reflecting trade secret information be labeled “Confidential.” The policy has more impact if it contains more details about a series of potential classifications and access, and employees are furnished instructions and provided detailed training, with concrete examples of information to be and not to be labeled. Over‐labeling will make it more difficult for a company to prove in litigation that its own designation has meaning, while under‐labeling could mean the critical trade secret document is not properly labeled. 6. Access Limit access to trade secrets to a need to know basis only. If you have the secret formula for Coca‐Cola for example, how many people should be given access? 7. Agreements Agreements are ubiquitous in trade secrets litigation and are often the best ammunition a company has in its arsenal to protect its trade secrets. In fact, this topic could easily stand alone as an article. Like laws related to trade secrets, contract laws are governed by state law. a. Employees Trade secret protection begins prior to employment. Offers for employment should be made contingent on an employee executing a proprietary information and invention assignment [and non‐compete] agreement (a “PIIA”). In developing its PIIA, a company should determine whether or not it will include restrictive covenants not to compete, not to solicit customers, not to hire, not to raid and/or not to solicit employees and, if they are to be included, the parameters of the covenants based on the controlling state law. b. Independent Contractors It is arguably more important that independent contractors sign agreements similar to a PIIA. Unlike employees, independent contractors do not necessarily owe a duty of trust, duty of loyalty or other common law duty to the company and, as such, no common law duty to keep information secret. Moreover, there is no work for hire theory, so independent contractors own their copyrights unless they are assigned to the company. Equally, even if an independent contractor were hired to invent something, an independent contractor is not presumed to have assigned such inventions to the company. As such, PIIA type contracts should be executed by independent contractors and subcontractors alike. 8. Third Parties In contracts with outside vendors, customers, suppliers, purchasers, business partners and other entities, companies should ensure that strict confidentiality provisions protect any trade secret information disclosed as part of the relationship. Potential joint‐venturers and potential acquirers must also be required to maintain confidentiality. We see numerous times a potential suitor will look under the hood of a company, only to quickly thereafter begin to compete with the company. A potential business partnership relationship should be entered into cautiously and certainly pursuant to a non‐disclosure or other detailed confidentiality agreement. 9. Conduct exit interviews Trade secrets most often walk out the door with employees. The last opportunity a company may have to either try to learn if it should be concerned with IP misappropriation and/or to provide guidance to an employee of his or her continuing obligations to the company is in an exit interview. Based on the person’s position leaving the company, an HR, IPR or legal person, or a combination, might conduct the interview. Traditionally, these interviews were used strictly as a human resources tool to understand the attrition and, if possible, discover looming HR problems within the organization. With the increase in IP litigation, especially trade secrets litigation, the exit interview has become increasingly important to protect a company from losing its IP. If possible, during the interview, it should be determined where the person is going to work (competitor or not) and what the person will be doing at the new position, for a potential inevitable disclosure argument. Another copy of the PIIA should be provided to the exiting employee and, in a non‐threatening manner, the employee should be reminded of his or her various continuing obligations, including the non‐disclosure provision and any restrictive covenants. With the increased mobility of employees as well as information itself, it is critical for a company to gear its culture towards protection of it’s intellectual property and to establish practices to protect its trade secrets. For more information about this topic, please contact me at or call our offices toll free at 866-993-7262.