Five Key Takeaways: Protection of Trade Secrets

October 18, 2022

Whether in the deal room or the workplace, trade secret protection is a critical component of a company’s intellectual property strategy. In some ways, the nature of that protection has evolved in light of the pandemic and an increasingly remote and digital workplace. On Sept. 21, 2022, McGuireWoods hosted the first in a “What You Need to Know About Trade Secrets” series, with speakers Rod Satterwhite and Darren Collins providing insights and steps companies must take to protect trade secrets.

Here are five key takeaways from their presentation:

1. Companies need up-to-date, robust policies and practices to protect their trade secrets.

Trade secret protection relies on the requirement that companies take measures “reasonable under the circumstances” to maintain the information’s secrecy. These circumstances can include the size of the company, the nature of the work, availability of protection and the sensitivity of the alleged trade secret. Failure to take appropriate steps to protect information will be fatal to a claim of misappropriation. The global shift to remote and hybrid work environments changed how courts evaluate the sufficiency of these efforts. Employers need policies and procedures that reflect the reality of these new work environments.

2. Remote work poses new threats and issues to trade secret protection.

Employers must examine how their remote employees communicate and take steps to secure those communications. One key area of concern is videoconferencing. One court, for example, recently ruled that information was not a trade secret where the “confidential information” the company sought to protect had been widely disseminated over Zoom calls. The company failed to require attendees to acknowledge the information’s confidentiality, did not keep track of attendees, and had no method of preventing unauthorized access to the calls (other than a password that was freely provided to those who asked for it). Updated confidentiality policies should establish guidelines specific to remote communications like videoconferencing and should remind employees to be conscious of unauthorized users, backgrounds, information shared on screen, overheard conversations and unauthorized recording of sensitive information.

3. Employers must consistently enforce their policies.

As important as policies may be, they are only the first step. To show they have taken reasonable measures to protect trade secrets, companies must be able to demonstrate regular enforcement and compliance with those policies. For example, one trade secret plaintiff had policies requiring the presenter on Zoom calls to take roll of those who attended the meetings, require those individuals to acknowledge the information’s confidential nature, and remove anyone without proper access. The court, however, noted that this rarely occurred in actual videoconferences, and concluded the information could not possibly be considered secret under the circumstances.

4. Strong confidentiality agreements and advanced preparation for remote employee departures are critical.

Confidentiality agreements and restrictive covenants are vital to protect information from being appropriated by departing employees. Nondisclosure agreements (NDAs) or other confidentiality agreements with employees need to have a duration appropriate to the information being protected. For example, if an NDA protects trade secrets for only two years, then a company may have a difficult time proving that its confidential information has much value after those two years have expired. A former employee could then be free to share or use these trade secrets, and would contend that the company is no longer taking steps to keep it secret. Be sure that confidentiality requirements for those that have access to such information are commensurate with the ongoing value of that information.

Employee confidentiality agreements should require a departing employee to return any confidential information they may have in a reasonably prompt manner. This must also require the return of information on personal devices that employees were permitted to use throughout their work, as is increasingly common. It is good practice to have departing employees sign an acknowledgement that they have removed any sensitive or confidential data on their last day of employment. Employers also need to be prepared to shut off an employee’s access remotely upon termination or resignation.

5. Companies should protect trade secrets throughout the transaction life cycle.

It may be worth including confidentiality provisions in all relevant agreements, along with marking confidential information as such to avoid any confusion. Your information is valuable to prospective buyers only if it is not otherwise available to them. Finally, buyers will want to ensure that any remaining confidentiality will be assigned to them at the close of the sale. It may be wise to apply for a patent if the information to be protected permits. Patents have thorough statutory protections that trade secrets do not but do require public disclosure.