Protecting Trade Secrets Without Non-Compete Clauses

There has been some panic and a lot of discussion among business leaders following news reports that the Federal Trade Commission is considering a rule to ban non-compete clauses. Many businesses use such clauses as a means to protect trade secrets and other confidential and proprietary information, hoping to prevent employees from resigning and immediately joining a competitor armed with trade secrets and other confidential information and practices that sets that business apart from the competitors.

First and foremost, the FTC has only proposed a rule at this point, and is seeking public comment on the rule.  No widespread ban has taken place.  Second, although non-compete clauses have other purposes, they are not the only way to protect trade secrets and other confidential and proprietary information.  There are other effective ways to do so which a business should consider.  We can work with you and your team to ensure that trade secrets and other confidential and proprietary information are protected.

Defining Trade Secrets

First, what is a trade secret?  Although we might like to believe that all aspects of our day-to-day business are “trade secrets,” that’s probably not the case.

The Uniform Trade Secrets Act defines a trade secret as “information, including a formula, pattern, compilation, program, device, method, technique, or process” that meets two key criteria: 

  • Derives “independent economic value, actual or potential” by not being generally known and not readily ascertainable by others
  • Is protected by “efforts that are reasonable” to maintain its secrecy

As a business, it’s important to evaluate information that is confidential or proprietary to the business, determine whether such information rises to the level of a trade secret, and also determine what efforts would be considered reasonable to keep such information secret.  This practice alone is important to the protection of trade secrets.

Establish Confidentiality Agreements

Although many non-compete agreements include confidentiality provisions, the new rule proposed by the Federal Trade Commission relates only to non-compete provisions and would not impact a business’s ability to utilize confidentiality agreements to prevent employees from divulging trade secrets and other confidential and proprietary information, either during or after their employment with the business.

Confidentiality agreements (and invention assignment agreements) are great tools to establish specific boundaries for how employees treat company information both on the job and when they leave your organization.

Clearly Identify Trade Secrets

Once you have defined your business’s trade secrets, you will need to determine the level of protection necessary to protect such information – whether it’s physical protection, such as for manufacturing processes or electronic protection for digital or electronic information.  As noted above, a trade secret only qualifies as such if reasonable steps have been taken to maintain its secrecy.  Do visitors regularly have access to your manufacturing facility?  Do all company employees have access to electronic information?  These will be important assessments and decisions.

Once you make these determinations, you should clearly communicate these details to employees with access to the information and strictly enforce the provisions you have adopted to protect the information.  This could include specific, confidentiality markings or other confidentiality designations, limited access, additional password protections, etc.

Train and Communicate With Employees, New and Old

In addition to informing your employees when they are exposed to company trade secrets, employees also should be trained on how to handle and protect such information.  Such training can include details related to cyber security, workplace security, and what to do if violations occur.

Of course, new employees should receive such training upon starting their employment with the company, but long-time employees also should receive updated training periodically. Training and communication will be key aspects of protecting your trade secrets and may be considered reasonable efforts to keep the information secret, as referenced above.

Talk to an Attorney

If you are concerned about the elimination of non-compete clauses or otherwise how you are identifying and protecting your business’s trade secrets and other confidential and proprietary information, or if you need assistance with confidentiality agreements or implementing steps to protect trade secrets, please contact McDermott IP Law.

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