Trade Secrets-Part 2

How to Keep A Secret

© 1998 Philip R. Green

    In the Basics article I said "One rule of legal thumb is that trade secrets are NOT made so by only a written or oral agreement. They are made so because of the procedures that Firm and Company and others practice."  Here is what that means.

    If you have a company with employees, the employees are going to work for you and see, hear and read the secrets your company uses to keep ahead of the competition.  The company may have alliances, partnerships and other operations in common with other companies.  All the companies have trade secrets unless they are let out.    Once let out, or, once not protected, few courts would say the secret was kept.  Usually the companies will sign agreements limiting who can see what, what is proprietary and what is to be given back, etc.

    A trade secret is only as good as it is kept.  The hundreds of recent cases on the subject agree that at a minimum it is a good idea to keep them (disks, paper records, drawings, backup tapes, passwords etc.) locked in a safe.   Secrets not kept in a locked safe are rarely considered  as secret .  No court would  keep them secret for the unwary company.  For example, in the Internet, certain sites are firewall protected.  It is known, for example, that certain UNIX sites are particularly vulnerable to hackers, and so a firewall would lock the safe.  Leaving supposed trade secrets in an unprotected Internet site is like leaving them in an unlocked safe.

    If there are departments in a company, issue badges so that only personnel with the right badge color will see or learn what is behind the door.  If you use an intranet, be sure the firewalls are up and the entire thing encrypted.  If you e-mail be sure some form of encryption is used.  Many states say that a client and attorney may lose their privilege for communications on e-mail.  Others have not so held, so there is a difference of opinion.

    Be sure to actually lock cabinets.  Do not give keys to new employees so they have access to all  secrets.  Keep things locked and they will be kept secret.   No judge will keep them for you, so your company must implement proper trade secrets policies.

   The trade Secrets Agreement.  They say that a pen is mightier than a sword; but they also say that what is written is only as good as the paper it is written on.   Today, trade secret agreements  are definitely important to protect a company temporarily from employees going elsewhere and using what they learned for the new employer.  These restrictions are heavily regulated and California is has particularly low record of enjoining employment and forbidding a workers from employment.  The reason these are temporary is that one cannot enjoin (stop) a person from seeking gainful employment.

    Whenever a company makes changes to employee options, plans or benefits agreement and asks an employee to agree to new terms, the trade secrets agreements need to be reviewed, and usually resigned anew with more enforceable terms.  For example many older agreements say that a former employee or executive cannot "compete" for 5 years in broad geographical areas or careers.  This may not be at all enforceable in California, yet an agreement properly notifying the employee and limiting restrictions to shorter and more reasonable terms may be enforceable.

    New York may have a different approach.  In a recent (Jan, 1998) case, an employee was enjoined from working with a competitive software company for 6 months, even without any non-compete clause in the agreement.  This is NOT the trend, and in California a company needs a written agreement to even consider whether to enjoin.  There is a doctrine called "inevitability"  that says: "Hey, a person's mind does not turn on and off. It is flexible and it is inevitable that he/she will "take" secrets, though unwittingly and certainly innocently, to another employment."   The question is:  What did the employer do to limit what that person knows?

See the article on Trade Secret Basics