Wednesday, January 2, 2008

An argument for broader protection of confidential and proprietary information

Nelson Jewellery Arts Co. v. Fein Design Co., out of the 9th District Court of Appeals, involves two companies fighting over what we can only assume is a key employee. As is often the case in such disputes, the old employer claimed that the employee took with him to the new employer certain confidential and proprietary information, such as pricing and customer information. The appellate court, however, rejected the claim because the information did not meet the statutory definition of a "trade secret." It was readily ascertainable by other means such as telephone books and trade publications, and the company did not take reasonable measures to maintain the secrecy of its alleged confidential information. Therefore, the claim was dismissed. In so ruling, the court rejected any common law protection over the information, and limited the law's reach to that narrow category of corporation information that meets the specific statutory definition of a "trade secret" pursuant to O.R.C. 1333.61(D):

(D) "Trade secret" means information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

(1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

(2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

This case raises the question of what corporate information should the law protect. Is is just information that meets the statutory definition of a trade secret, or is some broader category of information worthy of legal protection? It seems that companies should be able to stop employees from walking out the door with corporate information whether or not such information qualifies as a trade secret. After all, that which a company creates is its property, and it should be able to prevent its disclosure to or use by a competitor. Limiting such protection merely to "trade secrets" is overly restrictive, and ignores the property interest that businesses have in their documents, data, and other information.

How do we help put ourselves in the best position to protect stuff that may not meet the high threshold of a trade secret? Let me make a few suggestions:

  1. Put provisions in employee handbooks that define the scope of the company's property - not just as trade secrets, but as all confidential and proprietary information, and everything that is created by or for the company.
  2. Separate and apart from the employee handbook, have all employees who will come in contact with any information you might want to protect sign an agreement that defines what belongs to who, and specifically sets forth the company's right to the information at the end of employment.
  3. When an employee leaves, have that employee sign a receipt that all company property and information has been returned, and that the employee is not taking anything with him or her. Where the separation is not voluntary, it may not always be easy to have the employee sign something on his or her way out the door. In that case, you can still protect yourself by sending the employee a certified letter reminding him or her of the corporate policy and their agreement to it.
  4. If you think the ex-employee is not being forthcoming with you, correspond with the new employer, placing it on notice that you will hold it responsible for any of your information that is in its possession.
  5. When all else fails, litigate. Bear in mind, however, that adherence to steps 1 - 4 will put you in a much better light should you have to litigate to seek protection over your information, whether or not it qualifies as a trade secret.
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