Protecting confidential information, “trade secrets,” may be vital to a construction company, especially if the company has a competitive advantage by using methods of construction or manufacturing processes that are not generally known by others. For many businesses, the most valuable assets it owns are the information and processes it has acquired or developed.
A trade secret can be a method, formula, device, or information that is not generally known outside of the business. It gives the business an advantage over its competitors. A trade secret is not a patent. A trade secret is protected without any formal filing, so long as the secrecy of the information is protected. The formula for a well-known beverage manufactured by the Coca-Cola Company is an example of a trade secret protected for over 100 years!
Because of the competitive advantage that is gained by keeping confidential information secret, employers typically do not want their employees divulging their confidential information to competitors. Sometimes, however, despite the most prudent steps taken by an employer, confidential information is divulged or there is a great threat that confidential information may be divulged. For example, if a key employee leaves on bad terms, there may be a threat that confidential information will be divulged.
So what should a business owner do? One tool to protect confidential information is to file suit under the Idaho Trade Secrets Act (“ITSA”) (Idaho Code Section 48-801, et seq.) seeking a court order prohibiting disclosure, use or further disclosure of the information, or damages. In one case, Basic American, Inc. v. Mounir A. Shatila/Idaho Fresh-Pak, Inc., the Court awarded a $3.26 million judgment in favor of Basic American against a former employee and his new employer, Idaho Fresh-Pac, Inc., for misappropriation of trade secrets under the ITSA.
A business that seeks relief under the ITSA must establish that the information that was or may be disclosed is a “trade secret” and that the business was or will be damaged by disclosure. Under ITSA, a “trade secret” cannot be “generally known,” cannot be “readily ascertainable” through proper means, and its secrecy must have been protected through reasonable efforts. Courts have held that information such as food recipes, customer lists, software codes, manufacturing processes, plans for drilling equipment, genetic information, marketing strategies, numeric equations, statistical analyses, price lists, customer information, product design information, a process to treat metal, and strategic business plans can be “trade secrets.”
Three questions a business should consider to help determine if it has a protectable trade secret are:
1. Is the “trade secret” valuable to your business?
2. Has the business protected the secrecy of the information?
3. How much access to the information do employees and others involved in the business have?
To protect its “trade secrets,” an employer should limit access to them. Only employees who absolutely need the confidential information should be given access. Those employees should be required to sign enforceable confidentiality agreements.
Employees with access to confidential information should be made aware of the confidential nature of the information, the importance of the information to the employer, and that the information is not to be disclosed to others and is not to be used by the employee for purposes other than to further the employer’s business interests. If individuals outside the business are made privy to a “trade secret,” they should be required to sign enforceable confidentiality agreements.
When employment ends, the employer should insist that all confidential information in the employee’s possession be returned. The employer should insist upon an exit interview. During the interview the employee should be reminded of the confidentiality agreement entered into with the employer, and the employer should consider having the employee sign a document acknowledging that the employee is subject to a confidentiality agreement, has returned all confidential information, and will not disclose or use the confidential information.
An employer must consistently and uniformly enforce the rules and procedures developed to protect the confidentiality of its trade secrets. Rules and procedures that are intended to protect trade secrets are useless if not followed or are applied only selectively.
An employer should consult its attorney if it has questions about what constitutes a trade secret, or how to protect the confidentiality of the information with its employees and vendors.
Jeff Sykes is an attorney with the law firm McConnell Wagner Sykes + Stacey PLLC. He represents businesses and individuals with legal problems and concerns involving contracts, construction, insurance, employment, and real property matters.
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