Now that you know with certainty that a former employee has left your company for a competitor, and in the process, has stolen your company’s valuable trade secrets, you need to decide whether to file a lawsuit to recapture the stolen intellectual property and recover your damages from him and any other individual(s) involved.
The costs of litigating a trade secrets case are significant. It can easily exceed $500,000 in fees and costs, including expert witnesses, special masters to resolve discovery disputes, and mediators to broker settlements. It’s important, however, to measure the cost of such a lawsuit in more than dollars.
Factors to Consider Before You File Suit
The time and effort to litigate a trade secret case will impact your company’s senior management, remaining employees, and possibly customers if they’ve had significant, relevant contact with the departed employee.
A lawsuit will take an intellectual and emotional toll on your company’s current employees who will be involved in it day-to-day, and will distract them from their other responsibilities, which will invariably affect your company’s bottom line.
A lawsuit will take place in a public forum so any trade secret case your company files will almost certainly generate publicity, some positive, some negative, and much of it outside your control.
Customers who are asked or required to produce documents or witnesses in a trade secret dispute will not be happy, and that could undermine your relationship.
The vast majority of lawsuits end in settlement, rather than a judgment at trial, which means you will have to compromise to resolve the dispute with your former employee and that compromise may leave a bitter taste in your mouth, so to speak.
Determining Your Litigation Strategy
If your pre-litigation investigation shows no evidence of trade secret theft, then you should seriously consider taking no action. That may be the last thing you want to hear from your attorney, but filing an unsubstantiated or weak trade secret action against your former employee and her new employer is ill-advised for many reasons. Don’t do it.
Instead, continue to monitor the situation to see how it evolves. Send a letter to the former employee reminding him of his obligations to not use or disclose your company’s trade secrets. Make it cordial, but clear.
Contact his new employer. Inform relevant leaders that you have good reasons to be concerned that your former employee may have taken your company’s trade secrets with him to his new job. Inform them that their new employee has a contractual and legal obligation not to use your company’s trade secrets in his new job. Remind them that if he does, he places both himself and them at risk.
If your pre-litigation investigation discovers evidence of trade secret theft, you have several options.
If you can speak with the departing employee before he leaves your company, confront him with the evidence of stolen trade secrets. If he has already left your employ or you’ve talked with him but find his explanation unsatisfactory, then contact his new employer. Do this immediately to inform their management of the potential theft of trade secrets by the employee, and the risks they confront if they receive those trade secrets.
If the company has a track record of respecting IP rights, once you inform its management it may have unknowingly received your company’s trade secrets, they may be willing to work with you to right the wrong. If the company has a reputation of disregarding IP rights, or is complicit in your former employee’s theft, you may have to take a sterner stand. Typically, this begins with a letter demanding cooperation and certain assurances by a certain date.
If you prefer not to refer the matter to law enforcement, your next move is to commence a civil lawsuit against your former employee, and possibly, her new employer.
This is not your first, but rather your last resort. It’s expensive, time consuming and the results are never guaranteed. If the trade secrets are sufficiently valuable, and their loss will have a significant impact on your company, then you may have no choice but to file suit.
Filing Suit to Enjoin the Theft of Your Trade Secrets
Begin by preparing a list of the trade secrets you think were stolen. This will help your attorney prepare a thorough complaint sufficient to withstand challenge by the defendants.
The complaint must identify the trade secrets the defendants allegedly stole with enough detail so the defendants and the court understand what you allege has been stolen.
The complaint must also allege your company owns the trade secrets the defendants stole, the information has independent economic value, and you took the necessary steps to maintain the secrecy of the information.
As soon as you and your attorney decide to file, do the following:
- Retain technical experts on the specific trade secrets at issue in your case.
- Retain damages experts to help you place a value on your case as early as possible. Retaining experts before you commence litigation will help ensure you get the best in the business. Their value cannot be overstated, and may make or break your case.
- Determine where to file your lawsuit. You may file in state or federal court. You may file in California or another jurisdiction.
- Review the the written agreement your former employee signed when she came to work for your company. If properly prepared, it should set this all out in an enforceable writing.
- Determine who to name as defendants, the claims to include, and the remedies to request. Those remedies can include requests for injunctions, compensatory damages, punitive damages, and recovery of attorneys’ fees and costs.
Just because your initial investigation identified only your departing employee as culpable does not mean that other persons both inside and outside your company did not conspire with him to commit the unlawful acts.
The Symantec/Ponemon survey that showed 50 percent of respondents who left their jobs admitted taking their employer’s trade secrets and another 40 percent intended to use that information at their new job is disturbing. Part of the reason is these employees did not believe their own companies prioritized enforcement of their IP protection policies. Companies can reduce the risks of trade secret theft by educating their employees, and, when the time comes, enforcing IP protection policies and written agreements against employees who steal trade secrets.