A Little Secret About Trade Secrets

markhilltx — Tue, 15 Nov 2016 21:00:14 +0000

A business commonly has all sorts of valuable assets.

Most businesses have some combination of assets such as real estate, equipment, inventory, cash, receivables and patents just to name a few. One class of assets that can be misunderstood, if not entirely overlooked, are the Trade Secrets of a business. Regardless of size, virtually every business will have Trade Secrets.

Here is a little secret, there are far more Trade Secrets out there than you think. A common misconception is that Trade Secrets have to be highly technical in nature, or that only very large tech companies have them. This is not true. One of the most commonly litigated Trade Secrets is something that almost every business has…. or at least should have if it intends to make any money – Customer Lists.

Just like other assets of a business, Trade Secrets need protection. While not every customer list is a Trade Secret warranting protection, Courts routinely are confronted with business disputes where (former) employees, contractors, consultants, and even competitors wrongfully take customer lists. They can be extremely valuable to others seeking a quick competitive advantage. Here are just a couple examples: (i) customer lists and pricing information protected where former employee admitted it was confidential. Flake v. EGL Eagle Global Logistics, 2002 WL 31008136 (Tex. App.—Houston [14th Dist.] Sept. 5, 2002, no pet.); and (ii) customer lists with prior purchase information and customer/buyer preferences protected. Zoecon Indus. v. American Stockman Tag Co., 713 F.2d 1174 (5th Cir. 1983).

So what is a Trade Secret? A Trade Secret is defined in Texas 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, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Section 134A of Texas Civil Practice & Remedies Code

The Trade Secrets of a business can certainly go beyond mere customer lists. In fact, while the analysis of what constitutes a Trade Secret is case specific, the following have all previously been found in some circumstances to be Trade Secrets: marketing strategies, pricing data, business/service methods, vendor and supplier lists, product formulas, and manufacturing processes.

As a business attorney that has experienced many Trade Secret disputes, one certainty is that taking reasonable measures to protect the Trade Secrets of your business is vital. You wouldn’t leave cash lying around unprotected. The same goes for Trade Secrets. Like other assets of a business, Trade Secrets commonly come under attack from internal and external sources in the form of theft and misappropriation. Taking smart steps to safeguard the Trade Secrets of a business with the use of Non-Disclosure Agreements and other company policy, enforced by legal injunctive relief if necessary, is one way. Protect it or lose it

The post A Little Secret About Trade Secrets appeared first on Mark Hill TX.

Is Your Employee Policy Dead?

markhilltx — Fri, 28 Oct 2016 20:56:43 +0000

What better time than now to see if there are dead, useless or even dangerous provisions lurking in your Employee Policy? Business owners and executives already know that the employer/employee environment continues to dramatically change. This is true not just in Texas but throughout the US.

A few areas of change that employers should know about include:

NON-COMPETES: Many business owners I meet still believe non-competes are unenforceable. This is wrong. In Texas, the law has evolved over the last 10 years and now provides that a non-competition provision will be enforced if it is reasonably tailored as to scope, duration and geography; and otherwise complies with the non-compete statute – Texas Business and Commerce Code Section 15.50. This means, for example, that your long-time sales executive privy to all kinds of valuable business information can be prevented from immediately jumping ship to the competitor. There’s been a great deal of case law on this subject in recent years, and nationally non-compete agreements are subject to rather persistent criticism. As I have written on in the past, many businesses should avoid blanket policy wherein all employees sign non-competes. It’s just not appropriate for all employees. The takeaway here is that Courts, including Courts throughout North Texas, routinely enforce compliant non-compete agreements. When properly done, the non-compete can be a powerful tool for many businesses. Don’t be afraid to include in your policy, just be sure to do it right.
ARBITRATION: For businesses that have an employee policy or other agreement containing an Arbitration provision, there is a growing divide throughout the country on whether certain arbitration provisions are enforceable. Particularly, are employer/employee arbitration provisions containing class or collective action waivers enforceable? This is an increasingly important issue to employer businesses because many legal claims, including minimum wage and OT (or FLSA) claims, have collective action potential. As this National Law Review article summarizes, the National Labor Relations Board (NLRB) found a few years ago that an arbitration agreement which precluded class or collective actions was an unfair labor practice. What has followed is a series of conflicting appellate court findings, or split, wherein some have found such arbitration provisions enforceable and others not. For legal disputes (ie. lawsuits, arbitration) here in Texas, which the Fifth Circuit court of appeals controls, such class or collective action waivers in employer-employee arbitration agreements remain enforceable. The Supreme Court will likely resolve these conflicting lower court decisions in the not too distant future so stay tuned.
CONFIDENTIALITY: Over the last decade, the NLRB has also been active in protecting employees’ free speech rights. Most businesses prevent workers from disclosing trade secrets and other confidential business information, and routinely have policy that restrict what employees can say to co-workers and others outside the company. However, when the restrictions in the confidentiality policies are too broad, they may violate collective bargaining rights according to the NLRB – aiming to protect an employee’s right to speak to another, whether it be a co-worker or worker employed elsewhere, seeking to enlist support on a matter of shared employee concern. The NLRB has pursued enforcement actions against employers for this violation. Here is a good article from accountingweb on recent NLRB findings and examples on this subject, emphasizing the intricate policy road employers must carefully follow. The policy (eg. the social media policies of the business) should be specific and thoughtfully tailored, to prohibit disclosure of confidential information of the business such as proprietary customer information, and avoid restrictions on other protected speech of the employees.

As a business attorney, most medium to large employers I see have written policies. Some comprehensive, some not. The Employee Policy of any business can be a vital tool used to establish a productive company culture, and set a framework of expectations for workers to understand and follow. If left unattended to the changes in the law, however, the policy can also become an unenforceable piece of paper that exposes the business to employee litigation or regulatory enforcement.

With all the changes in employment law effecting businesses these days, don’t leave your Employee Policy stranded and forgotten.

The post Is Your Employee Policy Dead? appeared first on Mark Hill TX.

Policy – Mark Hill TX

A Little Secret About Trade Secrets

Is Your Employee Policy Dead?