Protecting the Secrets of Your Business Success
Michael G. Trachtman |
Your Competitors Want to Steal What Makes You Successful … You Can Stop Them Through a C-Level/HR Partnership
Think about what makes you successful. A confidential customer and price list? A catalogue of original designs and specifications? Research and development files? A sourcing arrangement? A database of prior sales by customer, product, quantity and price? Specialized software? A manufacturing process, machine component, or formula?
Or maybe the secret of your success is a sales manager with an irreplaceable array of skills and contacts. Or an engineering group that does what you do better than anyone else in your industry.
Now think about what would happen if the secrets of your success — whether information, techniques, or people — fell into the hands of a competitor or, as so frequently happens, into the hands of a brand new company started by one of your partners or high-level employees. Overnight, your competitive advantages could easily become their competitive advantages.
Particularly in this economy, many struggling companies conclude, quite accurately, that the surest, and shortest, path to success is to ferret out what makes successful companies successful, and to either take it, or duplicate it. And, usually, the law will let them get away with it – unless you properly utilize the specialized protective measures the law has created.
There are two categories of fundamentals that are crucial to these efforts. First, every company needs to design a program utilizing the tools in the legal toolbox that can protect its secrets of success. Second, every company needs to develop a way to implement, and monitor, that program so that it becomes engrained in the fabric of the business.
Whether these fundamentals can work together in an efficient and effective way then becomes the key question and, in my experience, that depends on the development of a real, working partnership between top executives, and HR.
The Legal Toolbox
Aside from patent and copyright protection (which, except in certain limited contexts, has limited utility), there are four important legal tools that can protect a company’s secrets of success. All have their hyper-technical aspects and particularized uses – but they can be very effective.
- “Trade Secret” ProtectionThere is an underutilized and extremely useful statute which has been adopted in almost every state: the Uniform Trade Secrets Act. Bottom line: if someone takes or uses your “trade secret,” the Act gives you the right to launch an array of legal weaponry that can force its return and compensate you for all the damages you sustained.
The key, obviously, is what qualifies as a “trade secret.” It’s not a high bar: a “trade secret” can be any technique, information or work product that provides value to your business; that is not generally known, self-evident or easily duplicated; and that you use reasonable efforts to keep confidential. That last point is a frequent sticking point – many companies who seek trade secret protection cannot prove that they took pains to keep the supposed trade secret confidential. Basic rule: if you don’t treat it as a secret, neither will a court.
- Confidentiality and Nondisclosure AgreementsUse them to prevent your employees and independent contractors from using or disclosing your proprietary information and techniques. Design a form that suits your business.
- Non-solicitation and non-compete covenants.Fact of life: for obvious reasons, less successful companies try to steal the best and most knowledgeable employees from more successful companies. So long as you comply with certain drafting and utilization requirements (sometimes a challenge, but usually do-able), you can protect yourself from these kinds or raids via an agreement that requires an employee wait for a period of time (usually in the range of one year maximum, but that can vary), or a less-onerous agreement that allows an employee to work for a competitor so long as the employee does not solicit certain customers, or deal in certain products for a specified period … there is substantial flexibility.
- Work for hire agreementsSituation: you hire a consultant to develop a software program, production methodology, whatever. Unless you protect yourself, when all is said and done you’ll have the right to use the program or methodology, but the consultant will own it, and will have the right to market it to your competitors, even though you paid for it. A type of agreement called a “work for hire” agreement can fix that. Simple and effective.
The C-Level/HR Partnership
The leadership of a company has the responsibility to design a program using these tools. But it’s all for naught unless the program is properly implemented and monitored. And that’s where the partnership with HR comes in, for a simple and self-evident reason: employees and ex-employees are almost always the conduit through which a company’s secrets of success are disclosed — sometimes intentionally, sometimes by accident — and defining and enforcing standards of conduct at the employee level is one of the areas where HR operates most efficiently.
For instance, HR is well-positioned to:
- Prepare and secure the proper, and timely, execution of non-compete and non-solicitation covenants, and confidentiality and nondisclosure agreements;
- Structure job descriptions that incorporate trade secret protections;
- Audit existing procedures, and develop new procedures that protect trade secret and other proprietary information;
- Impose discipline and, if necessary, terminations for violative conduct.
Here is the take-away.
Companies must act effectively to protect what amounts to their stock in trade, and there are many ways to do it. But translating this kind of program from paper to the workplace takes a special kind of cooperation between top-level, policy-making executives and on-the-ground HR personnel. When these kinds of problems hit the fan, as they often do in this economy, the scope and quality of that working relationship is often the difference between success and failure.
[author] [author_image timthumb=’on’]https://meainfo.org/app/uploads/2014/10/michael-trachtman.jpg[/author_image] [author_info]Michael G. TrachtmanBusiness Attorney and MEA General CounselPowell Trachtman Logan Carrle & Lombardo P.C.[/author_info] [/author]