A federal district court in Illinois recently reminded all of us of how important it is to take the necessary steps to protect the proprietary information that you consider to be a trade secret before any misappropriation occurs. If you do so after the fact you may lose your ability to enjoin the thieves from their unlawful acts, and forfeit any damages to which you may otherwise be entitled.
In Abrasic 90, Inc. v. Weldcote Metals, Inc., the court denied the plaintiff’s motion for a preliminary injunction because it found it had done virtually nothing to protect its supposedly confidential business information from unwanted disclosure.
The court explained the two basic elements that determine if a trade secret exists.
1.) The information must be “sufficiently secret to impart economic value because of its secrecy.”
2.) The owner of the information must use “reasonable efforts to maintain its secrecy
In this case, the court concluded the plaintiff completely failed to establish the second element of the claim because it did virtually nothing to preserve the secrecy of the information.
In reaching its conclusion the court criticized the plaintiff’s “almost total failure to adopt even fundamental and routine safeguards for the information at issue.” It pointed to the following short comings as evidence of the failure:
Failing to limit access to the alleged trade secrets to those employees with a need to know.
Permitting employees to access confidential information without requiring them to sign NDAs.
Implementing employment policies that fail to require employees to maintain the confidentiality of the company’s trade secrets after their employment ends.
Failing to ask departing employees if they possess any company trade secrets, and, if so, asking them to delete and return the information.
Failing to explain to employees at termination of an on-going obligation to protect the company’s confidential information.
Using vague confidentiality policies that fail to give employees clear guidance on what information is confidential.
Failing to train employees on their obligations to protect the company’s confidential information.
Failing to require suppliers and distributors who have access to confidential information to execute NDAs.
Failing to password-protect and encrypt the company’s confidential information.
Allowing employees to download, save on other media (e.g., a USB drive), print, and e-mail files containing the company’s confidential information.
Allowing employees to share passwords.
Failing to label documents containing the company’s confidential information as “proprietary” or “confidential.”
Disclosing supposedly-confidential information publicly.
Employing an unqualified IT Manager with no training in data security.
Failing to implement security measures recommended by third party IT experts.
Implementing measures to protect confidential information that are different than measures used to protect non-confidential information .
The court’s decision underscores an important reality in trade secret litigation: you will be unable to enforce your confidential business information as a trade secret unless you’ve taken adequate steps to protect its secrecy. It’s that simple.
Keep in mind that no single set of protection measures will always qualify as reasonable. It depends on the particular circumstances of each case, including the type of information needing protection, the value of the information, the size and sophistication of the organization that owns the supposed trade secrets, and the market in which it operates. Reasonable measures to protect a trade secret recipe for soda may not be appropriate to protect a trade secret algorithm or pricing information or supplier information or for that matter a recipe for barbeque chicken.
The trade secret owner’s size, sophistication and resources may also come into play. A small privately-held business that operates a string of taquerias offering customers the best pico de gallo in Los Angeles may not be held to the same standard as a Fortune 500 company like Coca Cola seeking to protect the formulae for its various soft drinks.
As your business grows and becomes more financially successful and commercially sophisticated, its trade secrets will almost certainly change. The protection measures you use to protect your trade secrets will likely have to change as well. You should periodically revisit the protection measures you use to shield your confidential business information. When reviewing the controls you have in place, consider the status of your business, the environment in which you are operating, and whether or not those measures are commensurate with those taken by businesses in similar circumstances.