ALM Properties, Inc.
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Do Companies Sue Competitors to Learn the Competitors' Trade Secrets?
In the new millennium, employee mobility is the norm. Gone are the halcyon days when employees worked for one company for their entire career. One consequence of greater employee mobility is the proliferation of trade secret claims. When an employee leaves one company to work for a competitor, it is not unusual for the former employer to sue the new employer for misappropriation of trade secrets. After getting over your initial negative reaction, one of the most important responses, apart from analyzing the legitimacy of the trade secrets claim, is to protect your own trade secrets from a possible fishing expedition by a competitor.
Steps to Take to Protect Your Trade Secrets if You are Sued by a Competitor
Whether they are fishing expeditions or valid claims, lawsuits by competitors claiming violations of the Uniform Trade Secrets Act are common. If your company is involved in a trade secret lawsuit, you should identify and maintain all records relating to the process of independent development of your trade secretsi.e., inventors notebooks and business records that document the time and costs involved in developing the trade secret information. Do not allow any evidence in your possession or control to be destroyed or altered, including by automatic deletion of electronic information. Court sanctions for destroying evidence can be severe. Consider demanding that the competitor disclose trade secrets it claims were misappropriated with specificity very early in litigation.
What is a Trade Secret?
All companiesnot just science- or technology-based companiesdevelop and own trade secrets. Therefore, it is vital that you understand what can be considered a trade secret within your company. As a general matter, trade secrets can be any information used in ones business and which gives the business owner an advantage over competitors who do not know how to use it.
Products that have been manufactured or distributed without modifications for many years will not likely qualify for trade secret protection. Could Chevrolet claim its Chevy Impala, which has been sold for many years, includes trade secrets misappropriated by another car manufacturer that recently started selling a new model of a four-door family sedan? Probably not, since most of the features of the Impala have been widely known and readily ascertainable for some time. On the other hand, information that is not widely known or readily ascertainable may qualify as a trade secret. A classic example of a trade secret is the secret formula for Coca-Cola.
What Steps Must a Company Take to Protect its Trade Secrets?
Over the years, courts have identified a number of steps a company can and should take to protect its trade secrets. For example, as an owner of trade secrets you should require employees to sign employment agreements, which define the scope of work to cover trade secrets developed by the employee and include confidentiality/nondisclosure provisions to maintain secrecy. Train employees in the protection of confidential company information. This should include identifying specific company trade secrets, marking all documents containing trade secret information as Confidential, and advising employees who work with or have access to trade secret information about the trade secret status of such information.
Reverse Engineering of Products
Litigation is not the only method to fish for trade secrets. A competitor may use reverse engineering to properly learn trade secret information about the product, such as dimensions, types of materials used, and other physical characteristics. Publicly available products, which are not subject to patent protection, may be reverse engineered by competitors. It is more difficult to learn manufacturing processes used when a competitor does reverse engineering. The manufacturing process itself could be a trade secret that remains protected.
Good Business Practices are Your Best Protection
Ultimately, following good business practices with respect to identifying and protecting your trade secretsand not using a competitors trade secretsis the preventive medicine that should take you a long way toward avoiding litigation. However, if you become embroiled in litigation, those same practices will be put under a microscope and can become your best defense.