Consider this scenario: an employee comes to work, opens a file cabinet clearly marked “Proprietary Information”, against company policy photocopies a file, goes to his boss, quits and walks out the front door with the file.  The employee then joins a competing business that uses the information in the file to gain a competitive advantage.  This is a violation of Texas law and actionable.  Catching the employee in the act “red handed” while copying the file or walking out the door with it is possible, but unlikely.  Instead it is more likely that the file will only be recovered through litigation, if it has not been destroyed.

Now consider this scenario: an employee comes to work, logs onto his work computer, downloads a file containing proprietary information to a thumb drive or mp3 player, emails it through a Yahoo! or Google email account to himself or uploads it to an internet storage website, goes to his boss, quits and walks out the front door.  The employee joins a competing business that uses the information in the file.  Again, this is a violation of Texas law and is actionable. At first, this scenario may seem to be more difficult to prove since there is no “paper trail” and the employee can use a host of clandestine approaches to obtain electronic documents. An electronic document can be copied in a matter of seconds with no papers to hide.  However, despite the “invisible” electronic trial, it may actually be easier to discover what an employee illicitly acquired. Computer forensic experts and lawyers experienced with computer forensics and trade secrets make it easier than ever before to catch a theft of trade secrets or proprietary information.

To understand how to catch a thief, it is first necessary to understand what information Texas law protects.  A trade secret is any formula, pattern, device or compilation of information used in the trade or business that gives the holder of the information a competitive advantage over those who do not know or use it and that is in fact a secret.  Trade secrets can include: business methods, chemical formulas, computer programs, customer information and lists, manufacturing processes, pricing data, product designs, supplier and vendor lists and technical drawings.  Trade secrets are afforded a great deal of protection under Texas law.  In addition to trade secrets, proprietary information may also be protected. To be protected as proprietary information, the owner must have the right to use such information in business and the information gives the owner an actual or potential economic advantage over others.  Usually the linchpin to determining if the proprietary information is protected is whether the owner has maintained the information in substantial secrecy.  To determine secrecy, Texas courts examine: the extent to which the information is known outside the business; employees’ knowledge of the information; the measures taken to ensure secrecy, such as limited access and disclosures to outside groups; the value of the information; the cost to develop the information; and the level of difficulty to duplicate the information.  A company desiring to make a claim against the unauthorized use of proprietary information must show the information was maintained in such a way that access to the information was limited.

With all of the technology available to potential thieving employees, a company must take proactive steps to protect its trade secrets and proprietary information.  Employees must know that the information belongs to the company and improper use or taking will not be tolerated. To accomplish this, the company should take a multi-faceted approach. 

• First, all employees should be required to enter into an agreement which identifies what information is considered to be the company’s trade secrets and proprietary information and what is considered to be an improper use or taking. An employee’s acceptance of these terms should be required as a condition of employment. 
  
  
• Second, the company should identify categories of documents the company considers to be trade secrets or proprietary information.  Steps should be taken to limit access to these documents to only necessary personnel and additional agreements concerning these documents should be used to reinforce the policy of limiting use and disclosure.  To the extent the company’s trade secrets or proprietary information must be disclosed to third parties during the course of business, a confidentiality agreement must be obtained from such third parties as well. 
  
  
• Third, the use of certain items should be prohibited for personnel with access to trade secrets or proprietary information.  The prohibited items would include mp3 players, CD burners, thumb drives or other blank electronic media. 
  
  
• Fourth, the company should adopt a comprehensive email and internet policy which limits the use of email, instant messengers and access to internet storage sites.  While such a policy may be unpopular, the company has to weigh unpopularity against the risk of trade secret or proprietary information theft. 
  
  
• Finally, compliance audits to ensure that employees in sensitive areas have signed the requisite agreements and policies and are complying with them is critical to not only protect the information but is further proof that the company considers its sensitive information as secret.  

Adopting these suggested policies and procedures will insure that if a theft does occur, the company is in the best position to pursue its claims.

For more information, contact Jim Collura at 713.653.7510 or jcollura@coatsrose.com.