Shhhh! Can You Keep a Trade Secret?
Welcome Back! Remember my first blog post where I wrote about how to steal an honest companies money? Well, here we are again, guys. Three former employees of a company called LSC Development planned to form a rival company during normal business hours on the job. Yeah, you read that right. While working at LSC, the three defendants stole valuable information from LSC and used it to develop their own business with a similar business model -- all on LSC’s dime. The plaintiff's claim that this amount equaled to “hundreds of thousands of dollars” (Complaint). Crazy, right?? Do you see the problem with this? They were getting paid to go behind the backs of their employers and form a direct competitor. Yikes.
LSC Development is a company that specializes in building storage facilities for construction projects. After years of experience at LSC, the three defendants ultimately turned around and formed CDK Development, which is a company that ALSO specializes in building storage facilities for construction projects. If you’re going to be a copycat, at least think of a unique name, guys! The similarities between the two are humorous.
Besides being completely unethical and wrong, this is also illegal. Because of a concept called “trade secrets”, the three defendants were taken to court over whether or not they breached their employment contract. Trade secrets are any formula or compilation of information that gives you an advantage over your competitors. This could be a mathematical formula, a business plan, client information, or even a recipe. Anything that is explicitly secret and gives you a competitive edge over your competition, is considered a trade secret! Think about those Bush’s Baked Beans™ commercials, I know we’ve all seen, where the dog almost tells the viewers the secret ingredient in their recipe? That secret ingredient, whatever it may be, is considered a trade secret! They market their product as being the “perfect beans” and this is all due to their well-kept confidential recipe. It’s one of the most common marketing ideas since the beginning of time.
There are some steps you, as a business owner, can take to protect your ideas. The stake of having valuable trade secrets are pretty high and they deserve to be protected. Including confidentiality and non-compete clauses in your employment contract is a good place to start because this restricts the employee from sharing this information with others outside the company. With the use of company mobile devices, insecure internet browsing or overall negligence, confidential information is easily susceptible to getting leaked.
In the case of LSC Development, the Plaintiffs DID have a non-compete and confidentiality clause in their initial employment contract which prohibited them from directly or indirectly competing with the company and required all employees to keep all all of LSC’s business information confidential.
As you can see, the defendant’s actions directly violated their employment contract with LSC. By starting CDK during their employment with LSC, the defendants directly competed with their former company and used valuable information learned there to start and benefit their new company. Here, they broke the rules of confidentiality set by their employment contract and this had a detrimental effect on LSC. Taking their hard earned, confidential information in order to apply it to a new business in the same industry, is definitely not allowed. The potential loss that LSC has faced because of this includes monetary damages, loss of business to a competitor, loss of trust in it’s employees, a degraded reputation, and possibly fewer investors. The list could go on and on. This is why it is SO important to take every possible step to protect your business from this issue, because all of the above nonsense is not worth your time; you should be making money at your business!
The case is still active and we will be patiently waiting a decision on this one!
What are some steps you can take as an employer to further protect your trade secrets? Good question!
Pay attention to what needs protection. Evaluate what type of security you have when it comes to your company issued devices. This could be cell phones, laptops, desktops, usernames and passwords to company portals or databases. Do you think you need more? Also, take a look at WHAT needs to be protected. Certain content demand different levels of security.
Label documents or electronically lock files that should only be accessed by employees with clearance to do so. This would require setting clearance levels throughout your company. Ask these questions: Is your trade secret extremely private? Would it be a safe idea to set up clearance levels throughout your company? You’d rather be safe than sorry!
Monitor where all of your information is stored (documents, pay information, overall company communication, etc) on company laptops, desk computers and mobile devices.
Require computers to have passwords. This should include everyone in the company having their own log-in. In this case, it is easier to identify who did what when you are looking to see what user performed certain actions. This also means that the passwords should be issued or at least maintained by the employer. Keeping track of this information could come in handy.
Make sure to include a confidentiality agreement and/or a non-compete clause in your employment contract when hiring new employees as this serves as an extra layer of protection.
Set up employee training and require that they sign a document stating they understand the material and will comply with all the company policies.
Overall, YOU need to ensure that the intellectual property and trade secrets unique to your company are a top priority. Failure to do so may cause your company not only serious monetary damage, but it also may damage your image.
If you need an attorney to protect and represent the rights of your trade secrets, feel free to contact us here! (https://www.christinasimpsonlaw.com)
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