Keep It Confidential

On Guard

There are specific steps you can take to safeguard your trade secrets. Making these efforts provides a double layer of protection. First, it reduces the chances that trade secrets will get out of your company in the first place. Second, it builds your legal defense in the event a competitor obtains your trade secrets and starts using them against you.

  • Put employees on notice. Inform workers they will have access to information that they have a legal responsibility not to reveal to other companies. Then label confidential documents as such to remind employees which information you consider worth protecting.
  • Improve security. If documents contain trade secrets, keep them in locked cabinets and limit employee access. Number confidential documents and log them in and out. If the information is stored on computer hard drives, establish a system of passwords to prevent unauthorized access.
  • Be careful what you say in external communications. Don't divulge information you wish to keep confidential. For example, Linn says, suppose a company publishes the names of major customers in its promotional materials. "By doing so, it's running the risk that the identity of its customers may no longer be deemed a legally protectable trade secret."
  • Shred documents containing confidential information. A Wisconsin securities underwriter sold six boxes of waste paper to a scrap dealer in the early 1980s. The dealer then developed a list of the firm's customers and prospects and sold it to a competitor. Take precautions so this can't happen to you.
  • Use noncompete agreements or nonsolicitation clauses. In a noncompete agreement, the employee agrees not to work for a competitor or to form a competing company for a given number of years within a stated geographic area. These are more likely to be enforcable if they're reasonable in duration and geographic scope.

Have employees sign noncompete agreements when they first accept a job with your company or when they receive a promotion or a raise so employees are getting something in return. If your employees resist signing the agreement, consider using a narrower nonsolicitation clause, in which they agree not to solicit either your customers or your other employees if they leave to join a competitor. "Such restrictions are generally viewed more favorably by the courts insofar as they do not prevent an employee from working in the same industry," Linn says.

  • Conduct exit interviews. When an employee who has access to confidential information leaves the company, remind him or her of the obligation not to disclose sensitive information. Show that employee any confidentiality, noncompete or nonsolicitation agreements he or she signed.
  • Contact subsequent employers. In some cases, Linn advises, it pays to write to the former employee's new boss to inform them that the worker had access to confidential information and that this information must not be used to benefit a competitor. That way, the new employer knows you understand the situation and will be keeping tabs on future developments.

If an employee is dead set on stealing information, your best security measures probably won't stop the leak. However, by making a concerted effort to protect your trade secrets, you've set up a strong case if you have to go to court.

Contact Source

Cohen & Grigsby, 625 Liberty Ave., Pittsburgh, PA 15222-3115, (412) 394-4900

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This article was originally published in the March 1998 print edition of Entrepreneur with the headline: Keep It Confidential.

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