Protecting Trade Secrets & Confidential Information

Trade Secrets:  A trade secret is “any formula, pattern, device, or compilation of information which is used in one’s business and presents an opportunity to obtain an advantage over competitors who do not know or use it.”[i]  To determine whether a trade secret exists, Texas courts weigh six nonexclusive factors:

(1) the extent to which the information is known outside of the business;
(2) the extent to which it is known by employees and others involved in the business;
(3) the extent of the measures taken to guard the secrecy of the information;
(4) the value of the information to the business and its competitors;
(5) the amount of effort or money expended in developing the information; and
(6) the ease or difficulty with which the information could be properly acquired or duplicated by others.[ii]

Employers should develop written employment policies to prevent the unauthorized use of trade secrets by new employees.  This effort should be coupled with a drive to educate all employees on the legal definition of trade secrets and the potential consequences of using trade secrets retained from a former job.  If another company alleges trade secret misappropriation, legal counsel with experience in intellectual property and employment law should be retained to investigate the allegations and negotiate a resolution.

Confidentiality, Non-Solicitation, and Covenants Not to Compete:  The contractual restrictions on employees can be grouped into four ( 4) general categories:
1. Provisions that seek to restrict the employee from competing in the same industry for a period of time and in a designated area following his termination, known as Covenants Not to Compete;
2. Provisions that prohibit the use or disclosure of trade secrets or confidential information of the ex-employer, referred to as Non-Disclosure Covenants (sometimes called Confidentiality agreements).
3. Provisions that do not totally restrict competition, but restrict the employee from soliciting or doing business with all or some of the employer’s customers, i.e., Non-Solicitation of Customer Agreements; and
4. Provisions that prohibit the employee from hiring or attempting to hire other employees of the former employer, referred to as Non-Solicitation of Employee Agreements.

Confidentiality or non-disclosure agreements are also used in conjunction with evaluation of the purchase/sale of a business, and are commonly used in consulting agreements in the IT and other sensitive information industries.

The best use of these agreements is for preventative purposes.  Litigation involving these kind of agreements is typically aggressive, rapid, and expensive, often involving applications for injunctive relief.  Businesses that use such agreements, however, should be prepared to enforce them, as the failure to do so may result in injunctive relief being denied.

Clark Firm PLLC is intimately familiar with the drafting and enforcement of these agreements. Mr. Clark also can review and update business employment manuals and policies to incorporate confidentiality rules and protection of company’s trade secrets and proprietary information.  He has authored, spoken, drafted, and litigated these kinds of agreements for over 35 years in the DFW area in state and federal courts.  See the About the Firm page on this website.