Trade Secrets and Proprietary Information

Hillel Goldman

Frequently, I’ll receive a telephone call from a client seeking to learn how it can protect its trade secrets and proprietary information and asking whether a current employee can be prevented from taking the company’s trade secrets when the employee leaves the company. Clients tell me that they have spent years developing their business ideas and methods. They’ve built their businesses. They’ve spent a lot of money and developed their business talent. Now how can they protect what they’ve created?

Protecting a company’s trade secrets and proprietary information can be accomplished only through proper planning and documentation. Timing, however, is critical if you want to succeed in this important process. Therefore, when I receive that client telephone call, I will determine how to proceed to protect this valuable information and whether it even can be protected at all.

Before we examine what should be done to protect a company’s trade secrets, it is important to determine what trade secrets are. Connecticut defines a trade secret to mean: “…information, including a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

In order to protect your trade secrets, it is important to first identify all company trade secrets and proprietary information. To do this you should create a system to determine and classify what your company’s trade secrets are and then develop a system to protect them. This system should attempt to provide a way for you to respond swiftly if and when your company’s trade secrets are threatened.

Companies should have new employees who will have access to trade secrets and proprietary information sign confidentiality and nondisclosure agreements. These agreements require that the employee will not disclose trade secrets while employed or take this proprietary information with them when leaving the company. In order to be enforceable, it is important that confidentiality and nondisclosure agreements be signed by the employee either upon hiring or with a change in job function accompanied by an increase in income. Therefore, timing is critical here. Confidentiality and nondisclosure provisions should also be incorporated into employment contracts.

Company employment handbooks should also contain clear policy statements describing the company’s absolute commitment to maintaining confidential information. The handbook should contain verification pages that must be signed by all employees.

Finally, when an employee leaves your company, an exit acknowledgment should be signed that identifies the departing employee’s new employer, reaffirms the departing employee’s obligations with respect to company trade secrets and proprietary information, and states that all company trade secrets and proprietary information have been returned to the company.

Company trade secrets and proprietary information are valuable assets. Protecting them should not be just an afterthought. Since a trade secret/proprietary information plan is important and the timing of signing documents is critical in protecting them effectively, your call to your lawyer should be a proactive move and not a reactive one.