James Montgomery

Trade Secret Protection

Your sales manager just walked into your office and resigned. He is going to work for your major competitor. He knows and has relationships with six of your ten largest clients. How many of them will follow him to his new job?

You get a call from one of your customers. “Look at this website, it offers the same product you do and it even has your ordering system.” You look and sure enough someone has copied your website right down to your distinctive logo that you spent thousands of dollars to design. Is your investment in your business going down the drain?

A salesman walks into your office. “You know that product we were developing for that retail chain? We didn’t get the business, did we?” “No”, you reply. “Well, my wife came home from shopping last night and she had bought a product from their store at the mall. I turned the bottle over and the ingredients sure look like what we proposed for them.” How could they be using what you developed without giving you the business?

Some of the most valuable assets of your business are not protected by that fancy security system you installed. These assets are called trade secrets and you cannot just lock them up in a cabinet. They only exist in people’s brains to be written down. These fact scenarios are not just fiction. They happen all the time.

Trade secrets can and must be protected if you want your business to survive. Businesses and even whole industries today depend on their ideas to fuel their income. Those ideas can be business product ideas, business plans, marketing plans, customer lists, logos, software source codes, formulations and many other formats. Theft or misappropriation of trade secrets can be a major problem in a competitive marketplace.

Protection can take several forms: patents, trademarks, copyrights, and maintenance of secrecy through licensing, non-disclosure and non-competition agreements.

Patents, trademarks, and copyrights are available to protect inventions, logos and writings including source code. These methods are often the best way to protect your trade secrets. The downside is that the secrets are no longer secret as you have to publicly disclose your ideas in order to obtain the protection of these statutory methods. The disclosure is of course well worth obtaining the protection.

Sometimes, though, you do not want to publicly disclose your ideas. The best protection at times can be to just keep your ideas secret. You can give someone the right to use your source code or the chemical formulation without allowing public disclosure. A license to use the information subject to a non-disclosure and non-competition agreement restricts the use of the information to certain individuals and particular uses.

For example, a salesman joins your sales staff. Over the years, your company has developed customer lists and proprietary sales methods that you have kept secret. You have adopted procedures restricting access to the information and preventing further disclosure. The salesman can be required to sign a non-disclosure agreement recognizing that the information is your proprietary trade secret. The agreement will prevent the salesman from disclosing the information to a competitor and allows you to seek court protection to prevent the use of the information if it should be disclosed. In certain circumstances, you can enter into a non-competition agreement that would prevent the salesman from competing with you should he leave employment. Those circumstances are limited and you have to design the non-competition agreement to meet statutory requirements as well as be reasonable in geographic scope and time. Non-competition agreements cannot be used to take away an employee’s ability to make a living. Agreements can be designed to protect your assets particularly in a business purchase agreement and prior to the employment of a new employee.

These agreements can also be used in negotiations and transactions to restrict the use of information by third parties. For example, you are nego-iating to manufacture a product for a company. In order to propose, you must disclose your proprietary design. A non-disclosure and non-competition agreement prevents the loss of your design. Your design is only disclosed for the specific purpose of the transaction and may not be used otherwise. These agreements should be specifically designed for each transaction to best protect your assets.

Our firm provides specifically designed license agreements, non-disclosure agreements, and non-competition agreements for purchase transactions, employment contracts, and contract negotiations. Mr. Montgomery also consults in designing trade secret protection plans for companies to prevent both intentional and non-intentional disclosure of those important and valuable assets. Mr. Montgomery has an extensive litigation background in enforcing those agreements which gives him a better perspective on these issues over lawyers who do not go to the courtroom to defend those agreements.

Mr. Montgomery can be contacted at 210-690-3700 and his email address is jemlaw@mac.com.