It's no secret that intellectual property is often a company's most valuable asset. Patents, trademarks, and copyrights have been the focus of many intense and very public lawsuits over the years. Less known, but just as dangerous, are legal issues involving company trade secrets.
State law offers broad protection for information that can be defined as a "trade secret." A trade secret is any information that a business keeps secret from its competitors in order to gain a competitive advantage. Trade secrets can include manufacturing processes and procedures, fine-tuned from years of development and experience. Trade secrets can also include company cost data, pricing schedules, and other financial information which competitors might use to undercut prices to lure away customers. Likewise, a company's customer list, marketing strategy, or other information used by the sales team may be considered trade secrets.
For technology companies, un-patented computer source code is often entitled to trade secrets protection. Indeed, many well-known companies, including Apple and Google, do NOT patent their source code in order to keep it secret. Source code usually can not be derived from published software, and therefore will almost always be entitled to trade secrets protection.
Any employee who has access to trade secrets MUST consider possible trade secrets liability when thinking about starting a competing business. Trade secrets liability is particularly dangerous precisely because the definition of a "trade secret" is so broad.
Most employees believe that information that has not been patented, copyrighted, or registered as a trade mark, can be used in a competing business. NOT TRUE. Any information which the company has taken reasonable measures to protect from disclosure can be considered a trade secret. This includes any documents marked "Confidential" or stored on a password-protected computer. Indeed, a company can claim that an employee should have known information was confidential simply by locking the doors to its offices at night.
If an employee leaves his or her employer to start a new business, the former employer can take legal action against the employee, if the former employer suspects that the employee may be using confidential information to compete. Trade secrets lawsuits can last for years, cost thousands and thousands of dollars, and may ultimately result in a judgment for millions of dollars against the new company. A trade secrets lawsuit can even prevent a start-up from getting off the ground in the first place. Courts often issue temporary injunctions to prevent new companies from operating or soliciting customers, if the judge is convinced that the case has merit.
When starting a new business, it is critical that a former employee consult with a business or employment lawyer with experience in trade secrets litigation in order to avoid an expensive and potentially-disastrous lawsuit.