According to the New York Times, a big battle is heating up between fitness tracker rivals Jawbone and Fitbit, just as the latter prepares for its initial public offering. In May, Jawbone filed a lawsuit in California Superior Court against Fitbit and five former Jawbone employees alleging misappropriation of trade secrets among other charges. Jawbone alleges that Fitbit lured employees away from Jawbone and those employees improperly downloaded proprietary information prior to their departures from Jawbone. Along with misappropriation of trade secrets, Jawbone is suing Fitbit and the former employees for breach of contract, breach of implied covenant of good faith and fair dealing, and more.

While our firm isn’t representing any of the parties in this case, I can tell you that this isn’t the first time former employees were sued for allegedly spilling trade secrets to a competitor, and it won’t be the last.

If you want to protect your business’s trade secrets from former employees, competitors, and other parties, and avoid trade secrets litigation, consider the following tactics. Just be sure to consult a reputable intellectual property and/or corporate attorney in the jurisdiction where your business operates, since laws vary from state to state.

1. Require employees to sign employment agreements

Any business with at least one employee is at risk for trade secret theft. So even if your company is small, don’t overlook this critical step if you have trade secrets that are vital to your competitive edge. Confidentiality and employment agreements may include non-disclosure, non-compete and non-solicitation provisions.

2. Establish copyright, patent and invention ownership up front

In the realm of intellectual property (IP) rights, employment agreements should also spell out your ownership rights regarding copyrightable works, patents and inventions, and technological know-how created by employees in the course and scope of their employment with your company.

Establishing ownership rights of intellectual property upfront can help prevent many legal issues down the road. You should also ensure the business owns the login and password credentials for online accounts, domain names, and social media accounts.

3. Limit access to highly confidential information on a “need-to-know” basis

Employees come and go, so reduce your risk for trade secret theft by limiting the number of people with whom you share proprietary information. If an employee can perform his or her job without your company secrets, it is a good practice to limit their access to the trade secrets. The same holds true for any vendors, consultants, or other third parties you bring into the fold.

4. Password-protect sensitive electronic information

If you store any confidential company information online (trade secrets, business plans, proprietary research, salary information, etc.), restrict access to those files to your “need-to-knows” with closely guarded passwords. Change those passwords on every occasion when an employee resigns, changes roles, or is fired, and at least twice a year even when there are no personnel changes.

5. Include confidentiality and anti-circumvention provisions in contracts with third parties, vendors, clients, and others

When you have business dealings with people outside your organization, confidentiality provisions can help protect your trade secrets and provide you with recourse should a party violate such an agreement.

At the same time, anti-circumvention provisions help prevent one party to a contract from going around the other party after the contract is over and using any or all of the information they have learned. Usually this provision comes into play when party A will be introducing party B to their contacts and/or clients. Party A is worried that after the contract is over, party B will cut them out and work directly with these contacts, which could put their business in jeopardy.

With Proper Legal Paperwork in Place You Do Have Recourse

So what happens if you cross all the “T”s and dot all the “I”s and a former employee or third party steals your trade secrets anyway? Laws differ from state to state, but in Texas, an employer can claim breach of contract if an employee violates a confidentiality provision or a non-disclosure or non-compete agreement. The employer can seek money damages in many of these cases.

As is alleged in the Jawbone vs. Fitbit lawsuit, you may be able to sue an employee for trade secret misappropriation and potentially sue third parties who allegedly conspire to get wrongful access to those trade secrets.

Depending on the facts, you can ask a judge to order an injunction to prohibit the employee from disclosing your trade secrets or working for a competitor in violation of a non-competition clause. You may also be able to get injunctive relief against the employer who recruited your employees, depending on the circumstances.

In Texas, Employers Can Hire Whomever They Choose, Except …

Generally, at least in Texas, a company is allowed to hire whomever they want. However, the line may be crossed when a company hires an employee they know has access to trade secrets and induces that employee to reveal the trade secrets of their former employer.

Spelling out your expectations (and consequences) in writing can help ensure both employees and outside parties will keep your trade secrets, business plans, client lists and other proprietary information close to the vest. A verbal and written reminder regarding employment agreements during employee exit interviews can also go a long way.

Photo Source: DollarPhotoClub

For more information on this topic, please visit our Trademark Protection service page, which is part of our Trademark practice.

Klemchuk LLP is an Intellectual Property (IP), Technology, Internet, and Business law firm.  The firm offers comprehensive legal services including litigation and enforcement of all forms of IP as well as registration and licensing of patents, trademarks, trade dress, and copyrights.  The firm also provides a wide range of technology, Internet, e-commerce, and business services including business planning, formation, and financing, mergers and acquisitions, business litigation, data privacy, and domain name dispute resolution. 

Klemchuk LLP hosts Culture Counts, a blog devoted to the discussion of law firm culture and corporate core values with frequent topics about positive work environment, conscious capitalism, entrepreneurial management, positive workplace culture, workplace productivity, and corporate core values.