As an employer, protecting proprietary company information is always critical, but the matter becomes urgent when someone leaves for another job. If a former employee goes to a competitor or sets up a competitive operation, there is always a possibility that he or she could take your company’s information and share it, leaving your business vulnerable. Fortunately, there are ways to safeguard and defend your trade secrets from being used against you by an ex-employee.
Our attorneys at Hendershot Cowart P.C. break down what you need to know about protecting your trade secrets, as well as the steps to take if you suspect an ex-employee is raiding your client list or disclosing confidential information.
Are Trade Secrets Protected by Texas Law?
Trade secrets are protected by the Texas Uniform Trade Secrets Act, or TUTSA, which is generally modeled after the Uniform Trade Secrets Act (UTSA). TUTSA defines a trade secret as information that has economic value because it is not generally known and that has been the subject of reasonable efforts to maintain its secrecy. TUTSA creates remedies for businesses, including injunctive relief (a court order that stops certain acts) and civil liability, when trade secrets have been misappropriated.
Under TUTSA, trade secrets may include:
- Source code
- Lists of actual or potential customers or suppliers
- Techniques or processes
Are Customer or Client Lists a Trade Secret?
Yes. Under TUTSA, a “list of actual or potential customers or suppliers” of a company can qualify as a trade secret, but it is not automatic. For example, if an employer or owner does not take measures to protect the list’s secrecy, it would not be considered a trade secret. Similarly, if the information is generally known or easily ascertained through proper means (such as online research) it may not qualify as a trade secret.
Can a Marketing Technique Be a Trade Secret?
A marketing technique can be a trade secret as long as it has economic value, it is not generally known, and has been the subject of reasonable efforts to maintain its secrecy.
Proactively Protect Your Trade Secrets
“An employer has a duty to protect its trade secrets,” says Managing Shareholder and business law expert Trey Hendershot. “You can’t just leave your client list sitting out on a table. If an owner doesn’t take steps to protect the information, it’s not a trade secret.”
To pursue a trade secret claim, you must show that you took reasonable efforts to maintain the information’s secrecy. While what is reasonable for a three-person startup will not necessarily be reasonable for a Fortune 500 corporation, evidence of reasonable efforts can include:
- Labeling information as “Confidential”
- Storing information on a password-protected server or a separate, locked file cabinet
- Requiring employees to sign non-compete agreements, work-for-hire agreements, confidentiality agreements, and non-solicitation agreements;
- Conducting exit interviews to remind employees that the obligations of non-compete, non-solicitation, or confidentiality agreements remain in place even after their term of employment ends.
Can You Sue Over a Trade Secret in Texas?
Yes. TUTSA allows plaintiffs to bring action when misappropriation actually occurs, or when it has been threatened, provided that:
- Improper means were used to acquire the trade secret
- A trade secret was used or disclosed without consent
Typically, a trade secret misappropriation case will consist of three general phases:
- Filing of a lawsuit and application for a temporary restraining order
- Temporary injunction that stops the defendant from a specific act
- Litigation for the recovery of damages
In addition to injunctive relief, businesses are also entitled to a recovery of any damages resulting from misappropriation. This includes actual losses and unjust enrichment, or royalties for the unauthorized use or disclosure of a trade secret. In cases where misappropriation was willful and malicious, exemplary damages may also be awarded against the defendant.
Taking Action Against Stolen Trade Secrets
If you suspect that a former employee is using your client list or disclosing confidential information and you want to take legal action, consult an experienced business litigation attorney. Proving that a former employee is using your client list will not be sufficient. You must also prove that the client list was either obtained by improper means or disclosed without express or implied consent. Once that is established, you may then request an injunction to stop the defendant from using your trade secret and recover damages including, in some cases, attorney’s fees.
Before it gets to that point, be mindful of the measures you have in place to protect the secrecy of your client lists and other trade secrets. “It’s a lot easier to have an attorney advise on the front end," says Hendershot, "and have enforceable non-complete, non-solicitation and non-compete agreements in place, then to try to find a way to protect your trade secrets through litigation."
If you are a victim of trade secret misappropriation, or if you wish to take action now to protect trade secrets, our team at Hendershot Cowart P.C. is available to guide you through to the next steps. Call us at (713) 909-7323 to schedule a consultation.