What Is Trade Secret and Employee Mobility Litigation?

October 15, 2022

In today’s hypercompetitive market, getting any competitive edge can be a path to success. And with technology continuing to evolve at an ever-increasing rate, trade secrets are often relied upon…

In today’s hypercompetitive market, getting any competitive edge can be a path to success. And with technology continuing to evolve at an ever-increasing rate, trade secrets are often relied upon to keep a competitive edge. Trade secrets are defined as undisclosed information valuable for its holder’s competitive position. Nearly three-quarters (74%) of companies state that they rely on trade secrets. Unfortunately, former employees often tend to be the source of many leaks involving undisclosed trade secrets.

Trade secret and employee mobility litigation often come into play when there is a conflict of interest between employers and former employees. These employees generally learn the secrets of the job while working. Trade secrets are often required to be shared within the company so that employees can use the information while working to deliver a product or service that meets expectations.

Problems may arise when the employee leaves their position. Whether they recognize it or not, they take the information – often including trade secrets – with them, which can put their former employer’s trade secrets at risk. Legally, there is a need to balance the protection of trade secrets with the rights of employees and the need to maintain a free and fair market.

Much of the trade secret and employee mobility litigation centers on determining whether the ex-employee shared general industry knowledge or information that meets the legal definition of a trade secret. To be considered a trade secret, something must:

  • Be of value to competitors. A trade secret gives you an advantage over competitors because it is unknown, making it commercially valuable. Anything that could be learned simply by working in the industry will not qualify as a trade secret.
  • Be known by only a limited number of people. Information that is known – even if it isn’t widely known – within your industry and by other individuals outside your company is not considered a trade secret.
  • Be subject to reasonable steps taken by the rightful owner of the information to keep it secret, including the use of confidentiality or non-disclosure agreements for business partners and employees.

When this information is acquired, used, or disclosed in a way contrary to honest commercial practices by others, it would be considered a violation of the trade secret protections.

Another challenge with trade secrets and employee mobility litigation is that they tend to be prone to abuse. Intellectual property laws cover trade secrets. Most forms of intellectual property are defined in scope before the owner tries to exercise their rights. For instance, patent rights cannot exceed the scope of patent claims. However, trade secrets are different since there is no registration requirement, meaning there is no public knowledge of the trade secret before the litigation. This scenario raises the possibility that a former employer could alter the scope of the trade secret in litigation to conform to the litigation strategy.

For this reason, courts often require the company to define the trade secret as specifically as possible. If the trade secret details remain hazy throughout the litigious process, the court may conclude that you do not have grounds for a lawsuit. Essentially, if you cannot tell the court what your trade secret is in detail, they cannot determine that there has been a legal violation.

Many companies use non-compete clauses and non-disclosure agreements to protect trade secrets, and these documents can be central to trade secret and employee mobility litigation. With these documents, employers must be very cautious about defining what is covered under the NDA and what is not. If the agreement extends to publicly available information, there is a good chance that the entire case may be thrown out, even if the claim of a trade secret violation is valid.

When a trade secret violation occurs, there are several legal remedies available. For example, if the employee has violated a confidentiality or non-compete contract, the trade secret owner can sue for breach of contract. In instances with no confidentiality or non-compete contract, the plaintiff may file suit for the misappropriation of the trade secret under the applicable state law that was violated. Additionally, there are intellectual property laws in all 50 states that protect trade secrets.

With a successful case related to the misappropriation of trade secrets, the courts may award monetary damages or an injunction prohibiting the use or disclosure of the trade secret pending the trial. As you can see, trade secret and employee mobility litigation can become very complex. To learn more about how these factors may impact your particular circumstances, contact Grellas Shah today.