Sometimes important business secrets get into the wrong hands. When that happens, plaintiffs may be able to recover from the parties whom they believe have unfairly used their trade secrets by suing for trade secret misappropriation. Misappropriation of a trade secret occurs in several ways. It can be found where protected		information was acquired improperly, or where disclosure of protected information was obtained through a breach of confidence, or in some cases, even if the use or disclosure of the protected information was by mistake, the party knew or should have known that the trade secret was acquired improperly or in breach of confidence.

 In a typical misappropriation claim, the plaintiff company must prove several elements. It must establish that it owned the legally protectable secret; that actual or threatened misappropriation or disclosure of a trade secret by the defendant occurred; and that damage has or will result from the misappropriation or disclosure. The burden then shifts to the defendant to prove that it did not misappropriate the information. Most commonly the defendant will claim that the information at issue was not truly a trade secret because, for instance, it had already been publicly disclosed. If the information is proved to be a trade secret, then the defendant may claim that the means used to obtain the secret were not improper (for example, reverse engineering) or that the information was derived from their own independent invention. In some cases the defendant can show that it was entitled to use the secret because of a license or a shop right.

Litigating a trade secret misappropriation claim is expensive. It is, therefore, always best to prevent the claim from arising altogether. Below are a number of ways to minimize your exposure to a trade secret misappropriation claim.

Written Nondisclosures
Good trade secret practices involve protecting your secrets from disclosure which means that the information possessed by your employees must be safeguarded. Nondisclosure agreements are essential and perform two functions. They will not only protect your companyÕs secrets, they will also protect against an employeeÕs use of a former employerÕs trade secrets. As enticing as it is, a hiring employer should be careful about mining a new employeeÕs knowledge about former employersÕ trade secrets. A claim of tortuous interference may arise should the employee ever disclose the secret.

Screening New Employees
From the moment employees are hired they carry potential risks. But even before hiring a careful screening should take place, especially of one who was privy to a former employerÕs confidential information. You should ask what, if any, limitations have been placed on the applicant by the former employer. Has the employee ever signed a noncompetition, nonsolicitation, or nondisclosure agreement? Also examine exactly what type of work the applicant was engaged in with any previous employers. Obviously, if you are hiring an employee away from a competitor, it is more than likely that he or she worked with information that the competitor considers confidential. Be sure to inspect a copy of all contracts and restrictive agreements, including invention assignments, and to note the attitude of the applicant towards the proprietary rights of the former employer. This may be the same attitude taken toward you if and when the employee leaves your company.

In states that recognize the so-called inevitable disclosure doctrine, screening is even more important. Where an employee with access to trade secrets leaves one company for a similar position with a competitor, some courts will enjoin the competitor from employing the individual simply because there is a strong likelihood that the employee would disclose a former employerÕs trade secrets. No showing of actual misappropriation or intent to disclose or misappropriate is even required. A careful screening will determine if the applicant is such an employee. General background checks are also advised to expose potentially dishonest applicants. This will limit the risk of losing your own trade secrets as well as liability for the misappropriation of others.

Proper Policies
Every company should have a written policy on the use of trade secrets in the workplace. Such a policy should stress that former employersÕ trade secrets are not to be disclosed, nor are unethical means to obtain those of a competitor to be used. Prior to the start of employment, each employee should sign an affidavit acknowledging receipt of the companyÕs policy. This policy should also be included in the employeeÕs handbook or manual, a copy of which should be signed and kept on file.

Periodic updating of the companyÕs policy should be instituted to remind employees of their obligations and also to remind employees about limiting the disclosure of your own trade secrets. Competitive intelligence professionals report that their best source of confidential information is a talkative employee.

Monitoring Current Employees
Monitoring of employee activity should be a continual process to ensure they are not using a former employerÕs trade secrets or using improper means to discover those of a competitor. The means of monitoring vary by industry, but there are common clues to misappropriation such as completing a complex project far too quickly. An employer has a duty to inquire once it has actual or constructive knowledge that an employee is using anotherÕs trade secrets. Because constructive knowledge may be sufficient, simply remaining blind to a problem can get you into trouble. Regular monitoring should be used to prevent such actions and detect them when they do occur.

Maintain Written Records of Sources in R&D
If information that another party might claim is a trade secret is used, effective documentation may help prove that the information was known publicly or that it was developed independently. If you have knowledge of information that is a trade secret, obtained through disclosure or circumstances that provide notice that it is a trade secret, consider the use of a Òclean roomÓ approach in your research and development. That means that employees are provided only with the functional specifications for a desired product and remain insulated from possible trade secrets. Regardless of how a product is developed, however, thorough documentation of the process is imperative to reduce potential misappropriation liability.

Practical Tips
Sometimes the best defense is an effective offense. Rather than simply trying to refrain from improper conduct take proactive steps to ensure protection for your own secrets and against claims of misappropriation by your competitors. The measures mentioned above are a good starting point to avoid misappropriation claims, but they should be implemented as part of an overall trade secret protection program.

Use of a trade secret protection program will increase the overall corporate awareness of trade secret issues, instilling a heightened attentiveness in employees and management to potential problems before they develop. In sum, a proactive approach to trade secret protection will not only protect your actual secrets, but also protect you from misappropriation claims regarding otherÕs secrets.

© 2002 Du Val Business Law, P.C. Suite 103 The Durham House 1012 SW King Ave.  Portland, Oregon

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