The intellectual property, trade secrets, and other proprietary information of your business are valuable property interests subject to protection. In general terms, a trade secret is a commercial method, process, design, formula, practice, instrument, pattern, or compilation of information not generally known or reasonably ascertainable by others through which a business may obtain an economic advantage over competitors or customers. Trade secret cases usually involve competing businesses or departing employees who have taken valuable proprietary information with them at the time they departed the company.
Recently, Congress passed the Defend Trade Secrets Act, which created a federal cause of action for trade secret misappropriation. A trade secret is defined as “…all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if— (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”
Here in Texas, trade secrets are governed by the Texas Uniform Trade Secrets Act. Under the Texas Uniform Trade Secrets Act, trade secret is defined as “Information, including a formula, pattern, compilation, program, device, method, technique, process, financial data, or list of actual or potential customers or supplies, 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. Under the Texas Uniform Trade Secrets Act, you may obtain a temporary injunction, damages, and possible attorney’s fees against the individual or entity which misappropriated your trade secret.
To avoid trade secret theft and other forms of misappropriation, many businesses have their employees sign non-compete and non-disclosure agreements to prevent that information from being disclosed to a competitor or someone else. Employment contracts often contain restrictive covenants. There are many types of restrictive covenants or restrictive agreements, including non-solicitation agreements, non-circumvention agreements, non-disclosure agreements, and non-compete agreements.
Generally, non-solicitation agreements prohibit an employee or contractor from contacting customers of the business after the employee is no longer employed or working there. Non-circumvention agreements are generally required when a business is working with another business for a business opportunity. Most require that neither party will use the other party’s information in the event that a business relationship is not formed. In other words, neither party will circumvent, undercut, or take advantage of the other party, and the business deal they are in the process of forming. It is typically signed in conjunction with a non-disclosure agreement.
A non-disclosure agreement prohibits a party from disclosing information obtained from the other party that is deemed confidential. Non-disclosure agreements are often referred to as confidentiality agreements. Non-compete agreements prevent an employee or contractor from competing against the employer. Non-compete agreements can be highly controversial and are often litigated. Texas requires that they be ancillary or part of an otherwise enforceable agreement, and that they impose reasonable limitations on geographic area and time. Many of these are paired with a non-solicitation agreement.
Enforcement of non-competes, non-disclosure and non-circumvention agreements can be challenging. Often the disclosure of trade secrets or confidential information would be so damaging that money damages would not repair the harm caused. As a result, injunctive relief is often appropriate. Because of the challenges in enforcing non-competes and non-disclosure agreements, it is important to hire a business lawyer who can carefully draft these agreements for your company’s particular needs.