Protecting Your companies Valuable Trade Secrets, Proprietary, and Confidential Information

Effective protection of the intellectual property is necessary for the promotion of innovation and the promotion of an enterprise's economic and financial infrastructure.

Protecting Your companies Valuable Trade Secrets, Proprietary, and Confidential Information

Protecting Your companies Valuable Trade Secrets, Proprietary, and Confidential Information

The Context – An Introduction

Businesses face a never-ending litany of difficulties. While determining where to start prioritizing these threats can be increasingly difficult, businesses need to conduct threat assessments and prioritize the effect of any possible practical threat. Once the danger is identified, if the threat materializes, the organization must assess adequate and reasonable steps to mitigate the adverse effects. This article explores one potential threat to virtually every organization and the significant return on investment in strategically and cost-effectively protecting some of the most valuable assets of any enterprise that are exposed to misuse and theft: trade secrets, proprietary information, and confidential information.

Intellectual property is essential to today's economy's vitality and an enterprise's competitive advantage. Intellectual property is a growth driver in all its forms, accounting for a growing share of employment and trade. In the past, intellectual property in selected core sectors was projected to account for at least 6 per cent of the United States' gross domestic product. The total value of U.S. corporations' intellectual resources, including copyrights, trademarks, patents, and trade secrets, has been calculated to account for one-third of the value of U.S. companies in recent years, or around $5 trillion.

The business secrets and intellectual property rights of a company create incentives for entrepreneurs and investors to commit the resources they need to research, develop and market new technologies, process improvements, new services and other forms of innovative activities that are critically important. For the security of the competitive advantage of the country, these rights are fundamental. As one court noted, "[t]he nation's future depends to a large extent on the efficiency of industry, and the efficiency of the industry depends to a large extent on the protection of intellectual property."1 Effective protection of the intellectual property is necessary for the promotion of innovation and the promotion of an enterprise's economic and financial infrastructure.

Rare is the organization that does not have any proprietary or sensitive data that is deserving of any degree of security. As such, in evaluating whether and how to protect its confidential and proprietary information, virtually every enterprise must recognize and confront certain realities:


  • Employers provide staff with access to classified and proprietary information in an effort to improve productivity and effectiveness and maximize the advantages of exchanging institutional knowledge. Sales employees are frequently subjected to such sensitive details as domestic sales patterns, product creation strategies, quality management problems, product line profitability analyses, marketing plans, and the like. Information sharing with sales staff is not unique: managers, department heads, engineers, research and development staff, etc., are gradually granted access to critical institutional knowledge so that their assigned tasks can be better executed. If accessed by a rival, this knowledge would say the least, prove disastrous for many businesses.
  • Systems that store vital data and knowledge are becoming much more complicated and accessible. Instead of desktops, the use of laptops and the deployment of work from offsite or home technologies such as virtual private networks (VPN) have created an environment suitable for potential misuse and abuse.
  • The U.S. Department of Commerce has reported that misuse or misappropriation of the trade secrets and sensitive information of an employer costs around $250 million a year to U.S. firms.
  • The theft of proprietary data and unauthorized access to information was among the four most popular causes of loss due to cybercrime, according to the Computer Crime and Security Survey by the FBI and the Computer Security Institute (along with viruses and hardware theft).
  • To protect employers from unfair competition, there is a body of well-developed contract laws and state and federal statutes. These unfair competition laws would not offer any substantial benefit to employers who do not evaluate strategically how best to take advantage of the safeguards offered by these laws.


The Legal Overview – A Primer

There are many and varied legal protections given to business, and this article will concentrate on a few of the most relevant resources available to any company.

The Contract; Restrictive Covenants

A restrictive arrangement is a contractual agreement, usually between an employer and an employee (but can and should be reasonably used with vendors, suppliers, independent contractors, members of the board and consultants), in which one party forbids the other party from engaging in behaviour harmful to the company of that party. An arrangement between a company and its employee to limit the right of the employee to work against the company (either individually or as an employee of a rival company) once the employee leaves employment is one of the most common types of restrictive covenants. Restrictive agreements can also take the form of prohibitions on the recruitment of suppliers, customers or staff, as well as prohibitions on the recruitment of the employer's current employees or agreements on the unauthorized disclosure of such employer details either during or after jobs (confidentiality agreements).

Non-competition agreements are perhaps the most difficult of the restrictive agreements to completely implement, due to numerous state law provisions (both common law and statutory), as well as judicial theory. As a result, many companies are hesitant to use these devices. The basic state law criteria for the compliance of non-competition agreements differ considerably, resulting in draftsmanship and enforcement burdens. This is especially true if the restrictive covenants concern workers in many states and are geographical areas and are thus subject to various provisions of state law. However certain contractual agreements for non-compete and non-solicitation have and can be successfully tailored and implemented by the courts to satisfy an employer's legitimate business needs.

The basic condition for the compliance of these contracts, irrespective of the state concerned, is whether there is a "protectable interest" that warrants the involvement of the court. A restrictive covenant will not be implemented unless the employer can show a "protectable interest." In certain state laws, what constitutes a 'protectable interest' is clearly specified. "The definition in Michigan is rather vague and open-ended: "a fair competitive business interest of an employer. The bottom line is that knowledge, procedures, or practices that provide the company with a competitive advantage, which are usually not recognized outside the company of the employer, and that the courts would consider "protectable" the time, talent, and effort of the employer to establish the information, process, or practice.

III. Trade Secrets and Computer Fraud – State and Federal Statutes

The Uniform Trade Secrets Act

Absent an enforceable restrictive covenant, workers are typically free to compete with their former employers, including seeking customers, accounts, and business areas. Although restricting competition, in general, is disfavored, virtually every state recognizes that some valuable knowledge produced by corporations should be shielded from disclosure, regardless of the existence of a restrictive covenant. This recognition has contributed to legislation aimed at protecting business "trade secrets." In several states, the District of Columbia, and the U.S., the Universal Trade Secrets Act ("UTSA" or the "Act") has been introduced. The Islands of the Virgin. The purpose of the Act is to codify the various conflicting laws of common law that deal with trade secrets.

The aims of the Act are to establish a standard of business ethics, promote the innovative practices of corporations, and stimulate market invention. The Act forbids the misappropriation of the trade secrets of a business to achieve these purposes and provides a range of potential remedies for real or threatened misappropriations of trade secrets.

This Act defines a “trade secret” as “information, including a formula, pattern compilation, program, device, method, technique, or process, that is both of the following:

  • It derives independent economic value, real or possible, from not being commonly known to other individuals who are able to derive economic value from its disclosure or use, and not being readily ascertainable by proper means.
  • It is the target of attempts to preserve its confidentiality that is fair under the conditions.

The statue offers the corporation a civil cause of action for the misappropriation of a trade secret and empowers the court expressly to grant a preliminary injunction. Recovery of "reasonable attorney fees" requires the damages available to the employer who prevails on a trade secret lawsuit and:

can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages calculated by any other method, damages caused by misappropriation may be calculated by the imposition of a reasonable liability.

Royalty for non-authorized disclosure or use of a trade secret by a misappropriator.

The Federal Economic Espionage Act

The 18 U.S.C.A. Federal Economic Espionage Act. §§1831 et. Seq., criminalizes an employer's theft of trade secrets. Under this Act, the concept of a trade secret is identical to that found in the Uniform Trade Secrets Security Act.


This Act also authorizes the Attorney General, in addition to providing for criminal sanctions, to institute civil litigation to obtain immediate injunctive relief to protect any employers whose business secrets have been stolen or misappropriated.

The Federal Computer Fraud and Abuse Act

18 U.S.C.A. § 1030, the Federal Computer Fraud and Abuse Act is a frequently ignored law that allows for the infringement of both criminal and civil remedies. Not only the stealing of trade secrets from computer-based programs but also the malicious destruction of computer-based data and systems are prohibited by this Act. This Act should again, be seen as an "additional" defence and not rely exclusively on the protection of trade secrets. However, if computer systems, records, or services are lost or damaged by a current employee, possible civil and criminal liability exists.

Reasonable Steps To Protect

It is important to take "reasonable steps to secure the company's confidential information for two reasons: before a court enforces the state and federal laws available, certain steps must be taken by statute. Furthermore, these interventions would support the claim that the interest involved is "protected" when implementing a restrictive covenant. Some of the most popular and inexpensive steps an entity can consider are:

  • Enforce confidentiality, non-compete or non-solicitation arrangements with all relevant staff and agencies (i.e., vendors, independent contractors, board members, etc.);
  • Make workers conduct agreements for innovation assignment;
  • Include the required confidentiality and trade secret provisions in the company's policies, handbooks, and collective bargaining agreements that will also allow the company to access and review all computer hard drives and other company-assigned electronic information storage devices without breaching employee privacy rights; and
  • Catalogue and restrict access to sensitive information and business secrets, particularly when dealing with information kept in the IT systems of the organization.
  • Catalogue and restrict access to sensitive information and business secrets, particularly when dealing with information kept in the IT systems of the organization.

These are just a few of the acts that might be considered by an employer to protect its confidential information and trade secrets fairly.

Potential Detection and Remedial Measures

Any protection strategy is ineffective if it fails to incorporate processes and procedures that will cause effective remedial measures to be implemented. For example, when a key employee leaves the organization, the company should have mechanisms in place to detect and remedy its good faith belief that the former employee has or is about to misuse the confidential data and trade secrets of a company. For instance, an assessment of the following measures may involve any such strategy:

  • Exit interviews with all main workers seeking the identity of the current employer of the employee are conducted. If an employee fails to recognize the new employer, particularly if the employee is bound by a restrictive agreement, there is a "red flag" that may well require further investigation and assessment;
  • The compulsory revocation of all access privileges to the company's information systems and facilities by the leaving employee;
  • Requiring the IT department to properly secure all computers and other data storage devices (telephones, blackberries, PDAs, etc.) that may be needed to assist with any subsequent investigation; the department should shut down (including removing all batteries) and store any computer or electronic information storage device in a secure area before anyone attempts to search or access data.
  • Retain a computer forensic professional who can copy, analyze, and mine data efficiently from hard drives and other electronic devices assigned to former key employees where there is a suspicion that the employee can participate in inappropriate behaviour. Many computer forensic evaluations would allow the recovery of files and e-mails that have been removed even from the recycling bin of the computer if a computer is immediately taken out of service. Similarly, a computer's internet access history could theoretically contribute to a wealth of data that can be used in any subsequent procedure. A forensic examination will also establish if the machine has been mounted on some external device such as a hard drive or iPod and if so, what documents and information may have been downloaded and when; and if so, what documents and information may have been downloaded.
  • As most phones have a memory chip (SIM card) that holds large quantities of data, including text messages, e-mails, and even Microsoft Word, Excel, and PowerPoint documents, cell phone research is becoming increasingly popular. Unfortunately, if the system is not taken out of service and the forensic examination is performed as soon as possible, the internal storage space is reduced and can be erased from the memory.

A host of new (as well as traditional) instruments are now at the disposal of an organization to define, assess, and resolve the misappropriation and abuse of business secrets and confidential information. In an effort to secure a temporary restraining order or preliminary injunction, taking these and other necessary steps before an attorney goes to court can often mean the difference between success and failure to resolve what may possibly be a serious challenge to the economic vitality of the enterprise.


Given the considerable expenditure in money, time and talent needed to establish the benefits of an enterprise (including its sensitive and proprietary information and trade secrets), it would be wise to take the reasonable measures necessary to protect that information from competitor exploitation and misappropriation.




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