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Current Trends in Trade Secret Litigation

By R. Scott Oswald and Adam Augustine Carter  3/19/2014
 

It is often said that we now live in an information economy. At the same time, employees’ relationship with their work-related information is changing, as people are more likely to carry around with them everything they need to work wherever and whenever necessary.

What’s more, employers continue to expand their social media presence, and that presence is becoming a more important part of advertising and public relations and is often even integrated into a business’s products and services. This trend, combined with a working world in which employees change jobs more frequently or are more inclined to work from anywhere, means companies need to be careful how they handle and mark their information and to whom they give access to it. For their part, employees need to be careful about how they handle their organization’s data and what they take with them when they move to a new job.

Software and Trade Secrets

Take, for example, the treatment of software and digital information as trade secrets. Courts have shown little reluctance in treating software as trade secrets, provided the company wishing to protect the information has taken the proper steps to do so. To ensure that software in the possession of employees or third parties has trade secret protection, employers can have workers sign confidentiality agreements and subject any third parties to whom they disclose software information to similar agreements. Companies may also wish to mark their materials “proprietary” and provide a definition of the term. These kinds of steps will go a long way to helping a court decide to grant trade secret protection to the software.

On the one hand, it is easy to view as proprietary a physical disk or thumb drive containing software when the disk itself features the word “proprietary.” The warning is provided even before the user has the opportunity to load up the files. Today, however, many files make their way around networks and servers without ever becoming “physical” in any real way. Thankfully for trade secret owners, the law in many jurisdictions tends to afford relatively broad consideration for “soft” information—again, provided the company has taken sufficient steps to protect it.

In the modern world software and soft-copy files have a tendency to travel between employers’ computers and workers’ personal electronic devices. Employees, therefore, when exiting a company, should be careful that electronic files containing the employer’s processes and ideas are not in their digital bundle when they depart, even if the “theft” is inadvertent.

Social Media and Trade Secrets

Of course, digital content is no longer limited to a disk or even a discrete file on a hard drive. Businesses maintain a social media presence almost as a matter of course now. In order for its social media to be relevant, the business needs content, and it needs to manage its social media to make it effective. This means employees must be trusted with the organization’s image and interactions with potential customers in ways that were never possible previously.

In particular, social media tends to frustrate traditional trade secret analyses because it presents information that is both individually curated and publicly visible. Thus, a business’ social media contacts are often hard earned and represent a clear value and benefit to the company, but they are out in the open for anyone to see. An employer usually protects back-end access with a password or other rudimentary encryption but will struggle to convey as proprietary front-end information such as ratings, “friends,” “likes,” and comments, other than to provide a disclaimer that most viewers are unlikely to read. To make matters even more complicated, virtually no employer maintains its own social media site, so the information is all transmitted through a third-party platform.

Employers should follow the lead of courts and examine these issues through a more traditional lens. For example, a list of a business’s “friends” can be treated essentially as a customer list. By focusing not simply on the list of friends’ names but on the corresponding contact information—to which only the company has access via its password login—the friend list appears to be subject to protections just as a traditional customer list would be. Although the “friends” of the organization may be publicly visible to anyone, their contact information (and, perhaps, demographic and other useful marketing data) is not.

Thus, access to a company’s social media login (the part visible just to those with the proper login information) represents value added above and beyond a simple list of names, since the contact information allows the company to communicate easily with potential customers. Anyone else viewing the public list of names would need to invest substantial effort to re-create a similar contact list.

In this same vein, employers should take basic security measures. Use best practices for making passwords, and don’t allow those passwords to find their way into competitors’ hands. Organizations should also be careful as to how much information is available to the public via social media. Protecting customers’ information is important to the customers themselves, but, in addition, courts are more likely to treat the information as a trade secret.

Departing employees must also take care to avoid a situation in which they take their social media information with them. Often, a company’s social media presence may be established and curated by a single employee or a small subset of employees. If that employee leaves and changes the “handle” and the password to a Twitter account, for example, the employer may file suit against the individual for misusing or infringing upon a trade secret.

The law on this issue is still developing, but the situation can be avoided by a relatively simple agreement that indicates who will be treated as the information’s owner. If an employee wishes to treat the Twitter account as his own, he can make that clear in a negotiated agreement, rather than simply making off with the account when he departs and leaving it to  a court to decide. Both sides must be as clear as possible as to the nature of the work product.

Establishing damages is another minefield in social media. How do you know what a social media presence is worth? Companies have attempted to ascribe value to each “follower” of a Twitter account and used this number to ascribe a value to its loss of those followers.

Employees have responded that Twitter followers have no intrinsic value and that value comes from the tweets themselves. The resolution to this question is unclear, but employers, in particular, should learn to track the costs and benefits of social media efforts. This will make them better prepared to present to the court a clearer estimate of damages caused by misappropriation.

Conclusion

As companies and employees become further entwined in digital spaces, more questions will arise, and answers may not always be clear. Businesses’ social media presences and “personae” are created by employees, and they can be easily manipulated if the employment relationship sours. It will be important for employers and employees in this early going to be meticulous in drafting and reviewing any confidentiality or nondisclosure agreements and in laying out rules for handling potentially sensitive information. All sides must be cautious and work to ensure mutual clarity, to avoid the uncertainty of future litigation.

R. Scott Oswald, and Adam Augustine Carter are attorneys at The Employment Law Group PC, a Washington, D.C., law firm representing employees.

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