Contributed Column

Red Tape

Know and protect your secrets

by Gary L. Franklin Attorney at Law

Given the increasing speed at which information flows, and the mobility of employees, companies should be taking a hard look at how to protect important proprietary business information. Many companies may not be aware of what information actually constitutes protectable intellectual property until it is too late. Trade secret protection may offer an attractive, effective, and easy-to-implement intellectual property right.

Virtually every enterprise possesses some “thing” that gives it a competitive advantage, and that “thing” is an asset that may be protectable as a trade secret. In Vermont, trade secrets are protected by the Trade Secrets Act (9 V.S.A. §4601 et seq.). The Vermont law is based on the Uniform Trade Secrets Act, which has been adopted by the large majority of states.

Under the law, a trade secret is any information, formula, pattern, compilation, program, device, method, technique, or process that derives economic value from not being generally known, and which is the subject of efforts to keep it secret. Classic examples of trade secrets include customer lists, software programs, business plans, sales techniques, recipes, and “negative know-how” — research into what does not work.

Unlike patents, copyrights, and trademarks — which are in the public domain — trade secrets are just that: secret. Basically, a trade secret can be any information or data that gives you a competitive edge, which your competitors would like to know but don’t.

A trade secret does not require registration or any procedural formalities, but protection will not be afforded if insufficient efforts have been made to maintain its secrecy. Identifying a trade secret and taking steps to protect it after a key employee leaves to start a competitive business or a vendor takes advantage of shared information is too late. Companies that have not performed a trade secret audit to identify proprietary information and devise steps to protect it should do so or they will remain vulnerable to their competition.

There are a number of practical steps any company can take to implement trade secret protection. Common simple examples include stamping documents “Confidential,” controlling the dissemination of information, password-protecting computers, limiting access to files, conducting employee meetings to review protocols for handling sensitive and proprietary information, and verbally instructing outside third parties to maintain the secrecy of — i.e. not further share or use — proprietary information.

Additional measures should also be considered such as using non-disclosure agreements (NDAs) and non-competition agreements. Although these agreements will always be examined for their reasonableness to ensure that they are not unnecessarily restrictive or overly broad, they are enforceable in Vermont.

An effective NDA will clearly identify the confidential information it seeks to cover and be tailored to the protection of that information. Reviewing a non-compete agreement, courts generally balance an employer’s interest in protecting its investments against employees’ interests in pursuing work in their chosen field.

Depending on the industry and level of employment, restricting an ex-employee from working within 100 miles for a five-year period might be reasonable, whereas in another case a 50-mile restriction might be considered overly burdensome if it effectively bars the ex-employee from working at all within a given industry. These agreements tend to rise and fall on fact-specific inquiries and therefore should be narrowly tailored with a given set of circumstances in mind.

If a company has taken reasonable steps to identify and protect its trade secrets, it may be successful in obtaining a court order (injunction) to prevent a former employee or competitor from misusing such information. Additionally, to the extent that a trade secret has been misused, a monetary award could be obtained based on ill-gotten profits, loss of business, or in some cases a reasonable royalty.

In sum, because there is nothing wrong in general with competitive business practices, companies should take stock of important information, records and processes they have devised or compiled, and depending on the value of such assets, evaluate what steps have been or should be taken to ensure competitors don’t freely enjoy the fruits of another’s labor. •

Gary L. Franklin is a shareholder and director of Primmer Piper Eggleston & Cramer PC, a full-service law firm.

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