In today’s competitive landscape, protecting an organization’s unique knowledge and data is paramount. However, not only is it vital, but organizations also have an inherent ethical obligation of confidentiality, which includes protecting their proprietary information when an employee departs from their organization.

This article outlines what constitutes proprietary information, different ways to protect it, and the crucial steps both employers and departing employees should take to ensure its security.

What is Proprietary Information?

Proprietary information is a broad term encompassing virtually anything a business uniquely does or creates. This includes various layers of sensitive data:

Confidential Information

This refers to internal proprietary information that is material to business operations and cannot be easily learned externally.

Trade Secrets

A subset of confidential information, trade secrets impart substantial economic value to a business due to their undisclosed competitive edge. Courts typically consider six factors when determining if information qualifies as a trade secret:

  • The extent to which the information is known outside the business.
  • The extent to which the information is known internally by employees and agents.
  • The extent of measures taken to guard the information’s secrecy.
  • The information’s value internally and to competitors.
  • The amount of time, effort, and money expended to develop the information.
  • The ease or difficulty with which the information could be lawfully acquired or duplicated by others.

Know-How

This generally refers to technical skills, including information, knowledge, techniques, and experiences that are difficult to reduce to tangible form.

Protecting Proprietary Information

Proprietary information can be proactively protected in multiple ways, including through contractual agreements, statutory protections, and effective work-place practices and policies.

Contractual Agreements

Contractual agreements serve as a key method for protecting proprietary information. These include:

  • Non-Disclosure Agreements: A contractual agreement by which one or more parties agree not to disclose confidential information that they have shared with each other as a necessary part of doing business together
  • Non-Compete Agreements: A contractual agreement where one party promises not to engage in conduct that would increase competition for the other party for a specific period of time in return for some sort of consideration
  • Non-Soliciation Agreements: A contractual agreement that restricts a former employee from soliciting clients or employees of their previous employer for a specified period after leaving the company
  • Employment Agreements Containing Confidentiality Agreements: Confidentiality clauses integrated into employment agreements can explicitly outline the employee’s duty to protect sensitive information during and after their employment
  • Severance Agreements: Contractual agreement between an employer and an employee, outlining the terms of the employee’s departure from the company

Statutory Protection

  • Defend Trade Secrets Act (DTSA): Enacted in 2016, the DTSA provides a federal civil cause of action for trade-secret misappropriation, allowing owners to sue if a trade secret related to interstate or foreign commerce is misappropriated.
  • Economic Espionage Act (EEA): This law criminalizes the theft, copying, or misappropriation of trade secrets for the benefit of a foreign government or to harm the owner.
  • Uniform Trade Secrets Act (UTSA): This model legislation, amended in 1985, aims to provide a consistent legal framework for trade secret protection across different states, addressing discrepancies and legal uncertainties.

Final Considerations

Maintaining Confidentiality: A Shared Responsibility

When an employee departs, a thorough exit interview is crucial to reinforce confidentiality obligations. During this interview, companies should:

  • Discuss previously executed agreements, such as NDAs.
  • Review proprietary information the employee may have accessed.
  • Discuss post-departure plans.
  • Take possession of all company-related items.
  • Terminate the departing employee’s access to company systems and data.

Counteracting Trade Secret Misappropriation

  • Gather Information: This is the crucial first step in building a case.
  • Demand Letter: Send a formal demand letter outlining the alleged misappropriation and demanding the return of information.
  • Consider Legal Options: If initial steps are unsuccessful, legal action may be necessary.

Best Practices for Protecting Proprietary Information

For Companies:

  • Clear Policies: Establish and communicate well-defined policies regarding proprietary information, NDAs, and employee conduct.
  • Employee Education: Train employees on what constitutes proprietary information and their responsibilities in protecting it.
  • Data Security Measures: Implement technical safeguards such as access controls, encryption, and monitoring systems to prevent unauthorized data removal.
  • Exit Procedures: Emphasize the critical role of comprehensive exit interviews and procedures to remind departing employees of their obligations and ensure the return of company assets.

For Departing Employees:

  • Review Agreements: Before leaving, thoroughly review all employment contracts and signed NDAs.
  • Do Not Take Data: Under no circumstances should departing employees take any company data, even if it seems harmless or they were involved in its creation.
  • Seek Legal Advice: If there is any doubt about what constitutes proprietary information or post-employment obligations, consult with an attorney.
  • Document Return of Property: Document the return of all company property to avoid potential disputes in the future.

Takeaway

By understanding and implementing these best practices, both companies and employees can contribute to a secure and confidential business environment.

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