Impact | Business Risk Management Blog

In all but three states, trade secrets are defined under some variant of the Uniform Trade Secrets Act (UTSA)¹. Trade secret information is a subset of confidential information. All information that qualifies for trade secret protection is confidential information. But not all “confidential information” falls within the coverage of the UTSA.

The talent market is increasingly fluid, with many businesses following the talent development mantra “if you can’t beat 'em, hire 'em.” Poaching from a competitor is not without risk. However, there are reasonable steps that should be taken to reap the rewards of the fluidity of today’s talent pool while managing the risks. Two principal risks in “poaching” are trade secret misappropriation and interference with a contract. Some employers seek to build on the lessons learned by their competition, and to do so does not inherently violate the law. However, an employer may misappropriate trade secrets by obtaining trade secrets from its new hires.

Buyer beware as the asset protection afforded by non-disclosure and non-solicitation agreements signed by prospective purchasers may not survive the sale. This issue was addressed in a recent federal decision in Illinois offering some cautionary reminders for business buyers. In this case, Keywell LLC (“Keywell”) sought to sell its assets. Croniment Holdings, Inc. (“Croniment”), a bidder for Keywell’s assets, signed a non-disclosure agreement (the “NDA”) which prohibited Croniment from disclosing Keywell confidential information and prohibited Croniment from hiring any of Keywell’s employees with whom Croniment came into contact during negotiations. Keywell and Croniment entered into an asset purchase agreement by which Croniment would serve as the stalking horse bid for Keywell’s assets in bankruptcy.

A recent decision from the Seventh Circuit is a reminder that if a business wants trade secret protection for certain information, it must actually implement reasonable measures to protect the secrecy of that information. While what is “reasonable” depends on the facts of each case, a business should take basic steps such using confidentiality agreements with employees and third parties, marking of documents with “confidential” stamps and restricting access to and securing documents that are or contain confidential information. While these steps may seem obvious, the failure of the plaintiff in this case to take these steps allowed the defendant to design a product similar to plaintiff’s product and freely compete against the plaintiff.

In a recent decision from the United States District Court for the Northern District of Illinois in Intertek USA Inc. v. AmSpec, LLC, the Court found that certain financial information, aging and sales reports and laboratory equipment wish list qualified as trade secrets and entered a preliminary injunction to protect the use of that information by a competitor and former employees.

Though your business may not have "secret recipes" for cola drinks or fried chicken, your business undoubtedly has some process or information that it believes gives it an advantage over its competitors. This confidential information may take many forms such as a customer list that has been created through the years at considerable expense and effort; a product design that a business's competitors do not have; or a pricing formula that generates greater profits. Importantly, if a business takes certain steps to keep this information confidential, the law will help protect it from becoming public information and getting into the hands of competitors. On the other hand, if a business does not take the correct steps your competitors are free to gain access to your information and use that information to their advantage.