Month: November 2020

What is a Trade Secret and How Are They Protected?

Published by Brett Holubeck on November 24, 2020

Image of a safe to represent that employers must make efforts to keep their trade secrets safe. — Photo by Gabriel Wasylko on Unsplash

One of the largest concerns for companies today is keeping their trade secrets safe. In Texas, companies are protected from the misappropriation or theft of them under the Texas Uniform Trade Secrets Act (“TUTSA”). Essentially, TUTSA provides the framework on what companies need to know to protect their trade secrets in Texas. Trade secrets throughout the US are protected under the Defend Trade Secrets Act (“DTSA”). While this post does not cover the DTSA, Texas employers should be aware of it when their trade secrets are misappropriated.

What is a Trade Secret Anyway?

In Texas, trade secret is defined under the TUTSA (TEX. CIV. PRAC. & REM. CODE ANN. § 134A.002(6)) as “all forms and types of information, including business, scientific, technical, economic, or engineering information,” and any of the following items regardless of how they are stored or kept:

formula,
design,
prototype,
pattern,
plan,
compilation,
program device,
program,
code,
device,
method,
technique,
process,
procedure,
financial data,
or list of actual or potential customers or suppliers, whether tangible or intangible.

There are two remaining requirements that set the limits on what a trade secret is and what it is not. The two additional requirements are:

(A) the owner of the trade secret has taken reasonable measures under the circumstances to keep the 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.

Let’s look at these two points in more detail.

Additional Requirement #1: Reasonable Measures to Protect a Trade Secret

Basically, you need to take reasonable steps to protect the trade secret. This is a fact specific inquiry that a court will undertake, and there is not a hard and fast rule of what a company needs to do to meet these requirements. However, a bare minimum to meet these requirements may mean doing some combination of the following actions:

advising employees about the existence of the trade secret;
limiting access of the trade secret to those employees that need to know it;
marking the protected information as confidential; and
tracking which employees or contractors have access to the information.

If the company discloses the trade secret to the public or is careless with the information, then it may no longer be protected. Information that an outside party can discover or is known through proper means (as stated in the second bullet above) is not a trade secret. Proper means under the statute includes “discovery by independent development, reverse engineering unless prohibited, or any other means that is not improper means.” Improper means includes discovering information through “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret, or espionage through electronic or other means.”

Additional Requirement #2: Independent Economic Value from Being Not Generally Known

What does it mean for a trade secret to have independent economic value just because people don’t generally know the information? Essentially it means that the company makes money off of it not being public (like Google’s algorithm or the secret sauce to the Big Mac). A trade secret could also be knowledge that a certain process (that the company invested significant time and money into researching) does not work. One example of this may be the research leading up to WD-40 which got its name from being the 40th attempt by the company to create a degreaser. https://www.forbes.com/sites/sujanpatel/2015/01/16/8-successful-products-that-only-exist-because-of-failure/?sh=53ad8e441c8c). The knowledge of how not to make the product could also be valuable because any company that knew the components of the other 39 attempts has a head start in knowing what does not work.

How to Protect Trade Secrets

It is always better to be proactive and do everything you can to protect your trade secret. When a trade secret is misappropriated, the loss of confidentiality can quickly drop its value and the damages can be hard to measure. So how can businesses be proactive in an effort to keep their trade secrets and their value intact?

There are a number of ways to do this:

Have employees sign an employment agreement detailing that they will be provided with confidential information and are required to keep the confidential information safe even after their employment ends (i.e. have employees sign a non-disclosure agreement or agreement with a non-disclosure provision).
Require employees to sign a non-compete and/or a non-solicitation agreement with their employment agreement.
Limit the number of people that have access to a trade secret to the number of people that truly need access to it.
Beware of how you send confidential information. If you are sharing confidential information via Zoom or other web conferencing software, then make sure that you know who is on the call, require passwords for participants, use a waiting room to approve people to enter the call, and take other precautions.
Have a detailed cyber security plan and ensure that you have controls to protect information including:
- Password protected or limited access folders for only the employees that need them.
- Training supervisors and employees to avoid phishing emails and other forms of cyber security breaches.
- Maintain a way to remove information remotely from devices if a device is lost (e.g. an employee loses their computer).
Make sure employees acknowledge that they are required to return information and devices once employment ends
Send a letter to employees at the end of their employment reminding them of their obligation to return information to the company and that they have duties to keep information confidential.
Mark information as confidential on your system or by hand if the documents have physical copies
Track who has access to trade secret information (i.e. know which employees have access to them)
Monitor who is accessing the trade secrets and when they are accessing them (this is most important when an employee is leaving and is downloading customer lists and other confidential information right before their employment ends)
Conduct regular training to ensure that employees are keeping information safe
Create a response team that can address suspected breaches of trade secret information quickly

When Protecting Your Trade Secrets Fails: TUTSA Violations

A person violates TUTSA when they misappropriate trade secrets. There are a few ways to misappropriate a trade secret under TUTSA:

You can acquire a trade secret of someone else when you know or have reason to know “that the trade secret was acquired by improper means”; or
“disclosure or use of a trade secret of another without express or implied consent by a person who:”
- Used improper means to obtain knowledge of the trade secret;
- At the time that they disclosed or used the trade secret they knew or had reason to know that the person’s knowledge of the trade secret was:
  - Obtained from or through another person that had a duty to a person that is seeking relief to maintain the secrecy of their trade secret or to limit its use; or
  - “before a material change of the position of the person, knew or had reason to know that the trade secret was a trade secret and that knowledge of the trade secret had been acquired by accident or mistake.”

Basically, misappropriation means that a person acquired a trade secret that they knew (or had reason to know) did not belong to them, or used or disclosed it without permission that they knew (or had reason to know) was obtained through someone that should have known did not belong to them. The key takeaway here is to avoid taking, using, or disclosing any information that does not belong to you or that you do not have permission to use or disclose.

Conclusion

Trade secrets are incredibly important for businesses to maintain their profitably. All businesses must take action to ensure that they are protected. If someone misappropriated a trade secret, then the company needs to act quickly to protect them.

The information provided in this blog is for educational purposes only and is not legal advice. If you need legal advice, then you should speak with a lawyer about your specific issues. Every legal issue is unique. A lawyer can help you with your situation. Reading the blog, contacting me through the site, emailing me or commenting on a post does not create an attorney-client relationship between any reader and me.

The information provided is my own and does not reflect the opinion of my firm or anyone else.

Responding to a Corporate Campaign

Published by Brett Holubeck on November 3, 2020

Image of a target with a lot of arrows to symbolize a company becoming the target of a corporate campaign. — Photo by NeONBRAND on Unsplash

You are a company leader. You’re getting ready for work. You turn on the television and see the name of your company blasted all over the news. You discover that there is a group that is very publicly advocating for a change in the company’s policies, or worse, you find out they want the company to close down altogether. You’re stunned. It’s your worst nightmare to see your company’s name dragged through the mud.

What can you do? You fear the answer is nothing.

Thankfully, that’s not the case. There are some steps that companies can take to respond to actions such as this, and that includes properly responding to what is called a “corporate campaign.”

What is a Corporate Campaign

A corporate campaign begins when enough people are motivated by some issue or action that the company has taken and these individuals attempt to force the company to change their position or correct what they did. A corporate campaign may or may not involve employees. It may involve stockholders, students, members of the community where the business is located, a union, customers, or even people with no relation to the company.

An example of this would be a university that has students asking it to divest from Israeli companies or companies that do business in Israel (see examples here and here. You may notice that the articles have very different views on the same event. Strong opinions on both sides are often present in corporate campaigns as they tend to focus on a hot-button issue.).

A corporate campaign is different than a union campaign (you can read about those here). A union campaign has the goal of having the employees at the facility unionize. Sometimes, but not always, a union may use tactics from a corporate campaign to boost their own union organizing at a company.

What Issues May be the Subject of the Corporate Campaign

While a corporate campaign can be about any particular issue, the most likely issues to initiate a corporate campaign are similar to those in a union campaign.

The most common issues of a corporate campaign are:

Higher wages
Improved safety
Gender wage gap issues
Diversity issues
Environmental issues
Investments in a particular country
Members of the community not wanting a business of that type in the community (e.g. opening a prison or a garbage dump near/in a community)
Accusations of monopoly
A union organizing drive
Urging the company to take a stance on a particular political issue
Ethical issues (e.g. the treatment of animals at a food processing facility)
Job related issues (e.g. accusations that the company is sending jobs overseas or closing a facility)

What A Corporate Campaign May Look Like

The main goal of a corporate campaign is to get the company to change or adopt a particular position or policy. Whoever is running the corporate campaign will use whatever means they can to put pressure on the company to increase the chances that the campaign is successful.

There are a number of strategies that the organizers may employ to conduct the corporate campaign such as:

Passing out fliers in the parking lot or in front of the building
Protesting or holding signs in front of the building
Employees going on strike
Seeking to get media coverage of the campaign
Starting a Facebook group, Instagram page, Twitter handle, or a podcast to release information about the company and to target them online
Letter or email bombing the company by sending a tsunami of emails or letters to the company
Contacting members of the Board of the company
Protesting outside the homes of members of the company’s board or executive team
Going to shareholder meetings and requesting a vote on an issue
Filing charges through the National Labor Relations Board
Making accusations against the company anonymously and/or against anonymous employees of the company (these are obviously difficult to disprove)
Trying to get hired by the company to report about it or try to take actions against the company from the inside (this is called salting)
Seeking out community leaders to address the issue and the company. These can include politicians, celebrities, religious leaders, and other people with influence.
Filing administrative claims with OSHA, wage and hour claims, discrimination claims, and other claims
Sharing content about the company online, in emails, and other mediums to shareholders, employees, customers, and members of the general public

The main goal of all of these tactics are to change the direction of the company and get them to adopt certain policies.

Is There Any Way to Prevent Being a Target

Attempting to prevent a corporate campaign is key. The best thing that could happen to you as a company regarding corporate campaigns is to never become the target of one in the first place. There are many companies that will never experience this such as small companies or companies in non-controversial industries.

There are a few ways that companies can lessen the likelihood that they will become a target of a campaign. The main goal of these efforts is to ensure that the company is in compliance with the law and employees are happy. You can do this by:

Seeking feedback from employees
- Hold town halls to hear and address employee complaints and concerns (quarterly or monthly meetings with all employees in one meeting or holding enough meetings so that all employees can attend).
- Have meetings with representatives from different areas of the facility if the business is too large to have meetings with large numbers of employees. These representatives should seek input from their coworkers so that they can bring any issues to management.
- Conduct stay and exit interviews. Stay interviews are annual interviews with employees to get feedback from them, discuss what they are doing well, and what can be done better. Exit interviews are meetings with employees that are leaving and can be used to determine where the company can improve.
- Have a suggestion box.
- Make sure that you have an open-door policy.
- Encourage managers and members of the HR team to walk the floor and interact with employees on a daily basis.
- Have a complaint procedure that allows employees to report problems to multiple members of management and escalate as appropriate
Providing professional development training for managers on a variety of topics. You can read about the suggested topics on my post: How to Train Your Supervisor. Managers are often a source of potential lawsuits for companies either because of their failure to act or acting in the wrong way in a given situation. It is cheaper to train a manager than it is to defend a lawsuit. It also makes your company a better place to work.
Conduct wage audits to determine whether your wage rates are competitive (i.e. fair) and you are not engaging in disparate treatment of any protected group (i.e. no group of employees in any protected class (e.g. gender, age, race, etc.) is being paid less than other employees in the same job, with the same experience, and other relevant factors).
Keep good relations with the stakeholders in the company and members of the community.
Conduct anti-harassment and bystander training for employees so that they can address situations if no manager is involved in the incident.
Conduct safety audits of the facility to ensure that the employees are safe. You can read more about how to do this in my article on how to improve workplace safety.

What to Do Once a Corporate Campaign Begins

Unfortunately, sometimes even with taking these precautions a corporate campaign will take place. Large companies are much more likely to be pressured and consider making changes due to a corporate campaign due to their public exposure. In a similar way, you will see corporate campaigns a lot more frequently in controversial industries. After the company becomes aware of a campaign, a company needs to act quickly.

There are a number of things a company may need to do in a campaign. Determining what to do in a campaign requires examining the extent of the campaign, the weaknesses of the company, and the particular issues that are being raised by the group.

There are a few steps that apply in any campaign:

Continue meeting with employees to address issues that they may raise.
Ensure that confidential materials, such as contact information for the executive team and board members, are secure on company devices and shared files.
Develop a team, which may include outside help, to determine how to best address and respond to issues that the group raises.
Continue to maintain good relations with members of the community, the board if any exists, employees, and other stakeholders.
Assess the weak points that are present in the company, which may include supervisors, policies that need changes, or other issues.
Work to resolve the issues that are being raised to the extent that they should be resolved. This will depend on the issues that are being raised and the appropriateness of correcting them during the campaign. If a union is involved, then the company may not be able to make changes without violating the National Labor Relations Act even if the company was not aware of the issue before the campaign began. You can read more about responding to union organizing here.

Companies must address the specific problems of the campaign and develop a well-tailored plan to resolve the problems raised by the campaign.

Conclusion

Corporate campaigns are difficult to respond to. They can focus on any particular issue and arise unexpectedly. Companies, especially public companies, need to be prepared to respond to a potential corporate campaign. Again, being proactive and acting to prevent one from occuring in the first place is your best route as a company. If this is not possible, then the company should make a plan soon after a campaign begins.

The information provided is my own and does not reflect the opinion of my firm or anyone else.