What Employees Need to Know About Trade Secrets

By Kirk A. Cesari

Image courtesy of The Compliance Blog — VComply

Are you aware that trade secrets are a big deal? Even though they are probably the least talked about of the four main types of intellectual property (beside trademarks, patents, and copyrights), trade secret misappropriation lawsuits have commanded huge wins for companies, with resulting amounts reaching a half billion dollars or more in a few cases and hundreds of millions in many others.

How much you might ask? Here is a small sampling of notable cases: $940 million to Epic Systems (reduced to $420 million), $500 million to Seagate Technology, $245 million for Waymo, $223 million for ASML, and the huge one — $2.3 billion to St. Jude Medical (reduced to $947 million).

Also, with the recent passage of the federal Defend Trade Secrets Act (DTSA), plaintiffs can bring a civil suit in federal court as well as state courts on claims of trade secret misappropriation. Penalties can include monetary awards as well as an injunction for an employee not to work with a specific employer. In addition, some jurisdictions allow criminal charges for trade secret misappropriation.

Thus, employees need to know that misappropriation of trade secrets can carry severe penalties. The questions I am regularly asked are, what does that mean to an employee in practical terms? How should this affect you as an employee when you leave a company? While I reference “employees” in this discussion, this also applies to anyone else under a confidentiality obligation that has access to another company’s trade secrets, such as a contractor, vendor, founder, board member, joint developer, etc.

Here are a few things that can help employees understand their obligations to trade secrets when leaving an employer or ending a relationship with a company.

1. Understand what a trade secret is and recognize whether you have access to them. A simple framework of what might constitute a trade secret is any type of valuable information if (1) the information is actually secret; (2) the owner has taken reasonable measures to maintain the secrecy; and (3) economic value is derived from that secrecy. This is a pretty broad definition and each jurisdiction will have some caveats as to what might qualify as a trade secret.

2. Understand whether you are under a duty of confidentiality. To determine this, you will need to review every agreement you have signed with the company, such as your employment agreement, non-disclosure agreement, partnership agreement, contractor agreement, joint development agreement, services agreement, trade secret license (pretty rare), or any other type of agreement you have agreed to that includes a confidentiality provision. Even if you do not have a written duty of confidentiality, some jurisdictions may impose a duty of care or fiduciary duty on your relationship.

3. Understand what you can and cannot take to your next employer. Typically, you should never take company documents, products, or data to a competitor. If you are providing information, which is not publicly known, to a competitor, you will raise many red flags as possible trade secret misappropriation. What you can bring to your next employer is your general skill and knowledge, which typically includes information that is public.

4. Don’t make your situation look worse. Avoid accessing files that you had no business related to, attempting to cover-up a disclosure, or telling lies in general or to a court. Don’t do these things! They will not help you if you end up in a trade secret misappropriation case. In most cases of trade secret misappropriation, the ex-employee engaged in some form of stealing information from their ex-employer.

And here are some real life lessons of what not to do:

The cover-up may be worse than the crime. “Things started to go south for Western Digital when Dr. Mao argued that three of the alleged trade secrets had been publicly disclosed before Mao left Seagate because they were included in a PowerPoint presentation he gave at a conference. Seagate argued that Mao had fabricated and inserted additional PowerPoint slides containing the information after the fact to make it appear as if this information had been made public. The arbitrator found that “[t]he fabrications were obvious. There is no question that Western Digital had to know of the fabrications and yet continued to represent to the Arbitrator that Dr. Mao did in fact insert the disputed slides at the time of the conferences.” The arbitrator found that the fabrication and Western Digital’s complicity was an egregious form of litigation misconduct that warranted severe sanctions.”

Half-Billion Dollar Arbitration Award in Trade Secrets Case Affirmed by Minnesota Supreme Court in Trade Secrets Dispute

Downloads aren’t worth the bandwidth. “During the four days of trial, Waymo presented evidence that Levandowski downloaded 14,000 files of Google data just before he left the company.”

Some Lessons From the Waymo (Alphabet) Versus Uber Theft of Trade Secret Litigation

The muffin man works no more. Within minutes of a discussion with Bimbo Bakeries’ executives, “Mr. Botticella used his laptop computer to access a dozen company files containing confidential information and apparently copied them onto a flash drive. The company said that a search of computer records revealed other activities in the weeks before his departure in which he appeared to have copied sensitive files.” In the end, the employee was prevented from taking the position at the new company, Hostess.

A Man With Muffin Secrets, but No Job With Them

To jail you go; bulletproof criminal convictions. “Kolon personnel met repeatedly with former DuPont employees, including Edward Schulz, 72, of Brownstown, Pennsylvania, and Michael Mitchell, 58, of Chesterfield, Virginia, to obtain confidential and proprietary DuPont information about Kevlar. Schulz pleaded guilty to conspiracy to steal trade secrets in September 2014 and is scheduled to be sentenced on June 26, 2015. Mitchell pleaded guilty to theft of trade secrets and obstruction of justice in December 2009 and was sentenced to 18 months in prison.”

Kolon Industries Inc. Pleads Guilty for Conspiring to Steal DuPont Trade Secrets Involving Kevlar Technology

If there is any chance you could be accused of misappropriation of trade secrets, I recommend you consult Intellectual Property counsel because the details and specifics of trade secret law as applied to your situation and in your jurisdiction may vary from what was discussed here.

Kirk Cesari, Cesari & Reed, Austin Texas

Disclaimers: This article is for informational purposes only and does not constitute legal advice, nor does it create an attorney-client relationship. This discussion is made available by the lawyer for educational purposes only and not to provide specific legal advice. Also, note that the author represents Seagate Technology, but had no part in the trade secret case discussed herein.