Is Your Business Information Protected?

The following is provided for informational purposes only and is not, nor should it be construed as legal advice.

Business owners have invested a lot of time and money in building their business and normally want to protect all that effort and the confidential, proprietary and trade secret information they have built while promoting and developing the business.  A business owner is understandably concerned for the potential for an employee learning and using such information and then misappropriate and use that information to unfairly compete with his/her former employer in another business.   

What can I do to protect my company’s confidential, proprietary business information?

One way is to utilize the protections of well-drafted employment contracts as an effective means to add a layer of deterrence to an employee’s misappropriation of trade secrets, other business information, and customer goodwill from misuse by its employees either while they are employed or when they leave.  Such contracts could contain terms not to disclose any confidential, proprietary or trade secret information of the company, an agreement not to compete, agreement not to solicit customers and agreement not to solicit other employees of the company away to a competitor.

What if I don’t have written agreements with my employees, do I have any protection?  

Yes. Texas law provides some protection for the company even without a written employment contract prohibiting a departing employee from misusing company information for his/her own benefit or benefit of others.  Texas case law holds that when some person or business has created a product or information through extensive time, labor, skill, and money, then the law protects that investment. When someone misappropriates that product or information and gains a competitive advantage against the original developer and the owner can show commercial damage, then the courts have allowed recovery to the owner.  

Texas now has enacted a version of the Uniform Trade Secrets Act (TUTSA”) basically putting that case law into statutory form.  In the past, courts recognized the protection of “confidential, proprietary and trade secret information” of an employer. TUTSA now defines “trade secret” a little broader than in the past as:

“ …information, including a formula, pattern, compilation, program, device, method, technique, process, financial data or list of actual or potential customers or suppliers that: (A) derives independent economic value or potential from not being generally known to, and not being readily ascertainable by, other persons who can obtain economic value from its disclosure or use; and (B) is subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

Examples of the types of proprietary information qualify for trade secret protection are pricing data, customer information and lists, supplier and vendor lists, business methods, marketing information, chemical formulas, product designs and manufacturing information, technical information drawings, and similar other categories.  On the other hand, information such as general skills and accumulation of information from the public domain have not qualified as trade secrets.

It is better to protect a business’ confidential, proprietary and trade secret information with written policies and employment agreements which can also give you additional contractual protections.  However, even when those are not used, the law provides some protection of your confidential, proprietary and trade secret information if the business can prove to the court that such information deserves protection.

By: Charles S. Wuest, Attorney at Law