Companies should use trade secret and copyright law to maximize their ability to protect confidential business information.
By Mark V.B. Partridge
It’s a common problem. A company learns that a former employee copied confidential computer files--proprietary source code, marketing plans, customer lists and pricing information--before leaving and has used the information to start a competing business or has shared it with a competitor.
The first instinct is to challenge the conduct as a misappropriation of trade secrets. After all, the company marked the files as confidential information and had a company policy requiring employees to keep such information secret. Unfortunately, this may not be enough to prevail on a trade secret claim.
Effective action to combat this threat includes the use of a full array of legal weapons. Copyright protection, however, is often overlooked in the battle to defend corporate secrets. This oversight is a mistake, given the advantages under copyright law for challenging information theft.
Proving the existence of a trade secret involves more than merely showing that work was designated as confidential. A party claiming a trade secret must show that the claimed work has value because it is a secret and that the claimant has taken reasonable efforts to maintain the work as a secret. Confidentiality designations alone are not necessarily sufficient.
An example of the difficulty of proving trade secret rights is presented in the Illinois case of Liebert v. Mazur, in which the plaintiff was unable to protect its customer list. The dispute involved a former salesman for a heating and cooling equipment distributor who copied customer files from the company’s computer system before leaving to work for a competitor. The court concluded that the list was sufficiently secret and had economic value to satisfy part of the test for being a trade secret. But the plaintiff failed to show that it took reasonable steps to maintain the work as a secret. Instead, it appeared that employees and others had copies of the list without specific restrictions on its distribution.
The owner of a trade secret must take affirmative action to protect a trade secret’s confidentiality. It is important that employees who have access to a trade secret take steps to prevent its unauthorized disclosure, whether on the Internet, by word of mouth or otherwise. All proprietary materials should be marked as such, denoting that they should be kept confidential and are considered proprietary. Access to the trade secret should be limited to those individuals with a need-to-know. Procedures for maintaining confidentiality should be implemented and enforced. If disclosure to employees and third-parties is necessary, those who are granted access to trade secrets should sign nondisclosure and confidentiality agreements.
These issues relating to a trade secret are fact intensive and can be difficult and expensive to prove at trial.
A copyright claim, in contrast, is much easier to establish as it is based on objective facts. To prevail on the copyright claim, a company would merely need to show that it owns a valid copyright, that there was access to the original and that the allegedly infringing work is identical or substantially similar to protectable elements in the original. In our experience, the test for creating a work protected by copyright--original, tangible expression--is easily met by confidential business records. Similarly, the test for infringement is easily met when an employee directly copies files protected by copyright. If you are required to go to court to prove your claim, it will generally be much quicker and cheaper to prove a copyright case against a file-stealing employee than it would be to prove a trade secret claim.