Helping Companies Avoid Theft of Trade Secrets: Best Practices (United States)

Trade secret litigation is becoming ever more prominent for a variety of reasons.  

First, technological advances, such as artificial intelligence, have allowed for a more rapid development of intellectual property. This IP can immediately be protected as a trade secret if certain metrics are met, rather than going through the formal registration or patenting process (which also requires public disclosure).  

Second, the nature of the labor market has changed substantially. Employees are much more likely to change jobs, work part-time or as contractors, or work remotely.  Companies may engage in business partnerships with other companies or individuals they have never met face-to-face.  These changing circumstances allow rogue individuals more incentive and opportunities to obtain and exploit confidential company information, including trade secrets.

Third, there has been a nationwide trend disfavoring the use of non-compete agreements. Non-compete agreements are a valuable tool in protecting against the theft of trade secrets because they limit a departing employee or business partner from working directly for a competitor (or creating their own company) during the period when the trade secret is most valuable.  With the erosion of these protections, companies are vulnerable to immediate exploitation of misappropriated trade secret information.  

Success in trade secret litigation is often contingent on whether the owner proves they employed “reasonable measures” to protect the information as a trade secret.The body of case law that has developed regarding “reasonable measures” contains important lessons for trade secret owners that help prevent theft in the first instance.  It may not be possible or feasible for a company to employ each of the measures discussed herein.  When assessing “reasonable measures” courts make highly factual determinations and weigh the measures employed under the facts and circumstances of each case. 

The best practices below are intended to help companies avoid trade secret theft. This list includes tips for best positioning the company to prevail if trade secret litigation is necessary.

1.  Utilize Robust Confidentiality Agreements That Safeguard All Information the Company Deems Confidential.  

Companies should:

• Require all employees, contractors, and vendors to sign strong Non-Disclosure Agreements (NDA).
  • NDAs should cover not only information that meets the Defend Trade Secrets Act (DTSA) definition of a trade secret, but also information the company treats as confidential and proprietary. This allows a company to obtain relief against a defendant on a contractual basis, even if it is unable to prove misappropriated information is entitled to trade secret status. 
  • NDAs should require (1) return of information at the conclusion of employment or business relationship, and (2) ongoing obligations to protect such information after the conclusion of employment or business relationship and into the future, for as long as the information remains a trade secret.
  • NDAs should provide for consent to injunctive relief in a favorable jurisdiction, and a provision requiring the non-prevailing party to cover attorneys’ fees and costs. 

Failure to use confidentiality agreements can be fatal to a finding that material is entitled to trade secret protection.  See, e.g., Zemco Mfg., Inc. v. Navistar Int’l Transportation Corp., 759 N.E.2d 239, 246, 249 (Ind. App. 2001) (failure to use confidentiality agreements with employees was one of the factors cited as plaintiff’s failure to meet reasonable secrecy safeguards). 

2. Use Non-Compete and Non-Solicitation Clauses Where Legal.

Companies should:

• If permitted in the jurisdiction, require employees to sign restrictive covenants to prevent departing employees from joining competitors or soliciting clients.

Restrictive covenant agreements are one of the best tools that employers and joint venturers can use to protect their intellectual property.  See, e.g., Indus. Insulation Group, LLC v. Sproule, 2009 U.S. Dist. LEXIS 5746, *24 (S.D. Tex. Jan. 28, 2009) (finding reasonable measures taken in part because of confidentiality, nondisclosure, and noncompete agreements signed at the outset of employment); Go-Van Consolidators v. Piggy Back Shippers, 306 A.2d 164, 165 (R.I. 1973) (holding failure to require restrictive covenants evidence of failure to use reasonable measures).

Non-compete agreements can prevent an individual from working for an employer for a period when trade secret information is most valuable.

Many jurisdictions, such as Georgia, apply the so-called “Memory Rule.”  “Upon terminating employment, an employee has the right to take with him all the knowledge he obtained so long as no property of the employer is taken.”  Witty v. McNeal Agency, Inc., 239 Ga. App. 554, 557 (1999).  

While generally applied in the context of client lists, this rule can destroy trade secret protection for information that an employee is able to simply remember.  See generally, Murphy, Timothy E., Memorizing Trade Secrets, 57 U. RICH. L. REV. 533 (2023). 

Utilizing restrictive covenants can help bridge this gap in trade secret protection. 

3.  Identify and Classify Trade Secrets at Your Company Before They Become the Subject of Litigation.

Companies should:

• Clearly define what constitutes a trade secret within the company (e.g., formulas, designs, customer lists).
• Label and document such materials as trade secrets. 

It is apparent in many legal filings alleging trade secret theft that the intellectual property at issue was only determined to be a “trade secret” after it was taken from the company.

Many plaintiffs are not able to effectively describe what the intellectual property is in the first place, much less that the defendant knew the information was a trade secret or confidential.

The Defend Trade Secrets Act (“DTSA”) contains a very broad definition of trade secret, which includes “all forms and types of financial, business, scientific, technical, economic, or engineering information . . . if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” (emphasis added).

Companies can take advantage of this broad definition by classifying and claiming trade secret protection of their valuable information as an ongoing best practice.  See, e.g., Aetna, Inc. v. Fluegel, 2008 Conn. Super. LEXIS 326, *14 (Feb. 7, 2008) (finding that plaintiff undertook reasonable measures in part by marking trade secret materials as “confidential”); Liebert Corp. v. Mazur, 357 Ill. App. 3d 265, 293 (1st Dist. 2005) (denying preliminary injunction in part because company failed to label the information as confidential). 

4. Employ Data Security Measures for Internal, as Well as External, Threats.

Companies should:

• Limit access to trade secrets on a need-to-know basis.
• Use secure systems with multi-factor authentication. 
• Consider role-based access to materials.

By now, most companies are aware of external threats to the safety of their data and intellectual property.  

Companies should also consider the risk of internal threats when designing and implementing document storage systems and internal activities. See, e.g., Hamilton-Ryker Group v. Keymon, 2010 Tenn. App. LEXIS 55, *42–43 (Jan. 28, 2010) (finding that plaintiff’s use of limitations on electronic access by employees in connection with other measures helped establish reasonable safeguards); Weed Eater, Inc. v. Dowling, 562 S.W.2d 898 (Tex. Civ. App. 1978) (finding that reasonable measures included employee badges and restricting certain parts of the factory to specified employees).

5. Secure Physical and Digital Workspaces.

Companies should:

• Place critical information identified as confidential or trade secret in secure digital and physical locations and restrict access.  
• Utilize encrypted servers, VPNs, and secure file-sharing practices.

Just as trade secret defendants have become more sophisticated in their use of technology to hide misappropriation, companies can leverage technology to assist with securing intellectual property.  

Document management systems can be set up to restrict access to only certain employees and provide notification of the protected status of certain materials.  

Securing materials under digital or physical lock and key has long been considered a part of reasonable measures protecting trade secrets.  See, e.g., Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 177 (7th Cir. 1991) (reversing a summary judgment denying trade secret status where the facts showed that employees could only have access to drawings which locked by signing for them and agreeing to return after use).  

Courts will certainly find that more sophisticated efforts constitute reasonable measures of protection.

6. Engage in Monitoring.

Companies should:

• Conduct ongoing, random monitoring to detect unusual behavior.  
• Disclose in the employee handbook that digital monitoring is taking place. 
• Consider data loss prevention tools that can monitor and log access activities and risky employee behavior, such as use of unauthorized flash drives and file share websites.

Third-party vendors can provide sophisticated monitoring software that can alert management when unusual activities are detected.  

7.  Educate Employees on Trade Secret Protection and Maintain a Culture of Security.

Companies should:

• Ensure onboarding for new employees includes education on permissible materials to use in the scope of their employment. 
• Conduct regular training on trade secret policies, including examples and potential consequences of theft.
• Emphasize legal and ethical responsibilities.
• Reinforce the importance of protecting company assets through leadership and communication.
• Encourage reporting of suspicious behavior.

Many employees may not even be aware that they have no ownership rights to information they create on behalf of an employer.  They may think nothing of taking intellectual property to a new employer and using it in their new position. 

Other employees may not be aware of the value placed by the company in the information and the value that results from its secrecy.  

Provision of material to a third party, even if inadvertent, can destroy trade secret protection. La Potencia, LLC v. Chandler, 733 F. Supp. 3d 1238, 1270 (S.D. Fla. 2024) (“Information publicly known or easily accessible to third parties does not qualify for protection.”).

Companies also face risks from new employees joining their organizations and bringing materials from an old employer without the knowledge of the new employer.  Education at onboarding can prevent expensive future legal problems.  

Courts have long held that employee education is a part of reasonable measures a plaintiff should use to protect its valuable information.  See, e.g., Farmers Ins. Exch. v. Steele Ins. Agency, Inc., 2013 U.S. Dist. LEXIS 70098, *22–23 (E.D. Cal. May 16, 2013) (finding reasonable measures where plaintiff maintained a written confidentiality policy and notified employees of that policy periodically via bulletins, yearly compliance memoranda and other communications and required each employee to acknowledge the confidentiality obligation each time materials were accessed); Waste Mgmt. of Tex. v. Abbott, 2013 Tex. App. LEXIS 4643, *26 (Eastland Apr. 11, 2013) (holding that reasonable measures shown in part by evidence that plaintiff trained its employees on the confidentiality).

8. Enforce Exit Procedures Rigorously.

Companies should:

• Conduct exit interviews with reminders of continuing confidentiality obligations.
• Provide written reminders of continuing confidentiality obligations and a copy of any NDAs or restrictive covenant agreements.
• Immediately revoke access to all systems.
• Immediately retrieve company devices.
• Check for suspicious downloads, emails, or file transfers prior to departure.

The employee exit is the most critical time to ensure confidential information and trade secrets do not walk out the door.  

Conducting employee exit interviews is a critical step in securing company intellectual property.  See, e.g., Agilent Techs. v. Kirkland, 2010 Del. Ch. LEXIS 34, *10–12 (Feb. 18, 2010) (holding reasonable measures were used in part based on plaintiff’s policy of conducting exit interviews with procedures relating to return of confidential materials); Schalk v. State, 823 S.W.2d 633, 637, 639–40 (Tex. Crim. App. 1991), cert. denied, 118 L. Ed. 2d 425 (1992) (same). 

9. Continue Monitoring Departed Employees/Business Partners/Vendors.

Companies should:

• Monitor social media sites (such as LinkedIn) for departing employees or business partners who may be joining a competitor.
• Monitor the industry for similar services or products that may be based on the same trade secrets protected by your company.
•  Keep an eye on unusual events, such as loss of long-time clients to a competitor or loss of multiple clients in a short period of time.

The sooner that potential trade secret theft is suspected, the more easily damage can be prevented.

10. Act Quickly on Suspected Breaches.

Companies should:

• Investigate suspicious activity immediately.
• Have sophisticated litigation counsel on call who can guide the investigation and potential litigation.
• Be ready to pursue civil actions (including seeking emergency injunctive relief) to mitigate damages and deter future incidents.
• Consider reporting criminal activity to law enforcement. 

Damages can be extremely difficult and costly to establish in trade secret litigation.  

The most powerful tool a plaintiff has is seeking injunctive relief to stop the misappropriation and use of the trade secret.  However, many courts refuse to give injunctive relief if a party does not act with requisite urgency.  

A delay in seeking a preliminary injunction of even only a few months—though not necessarily fatal—militates against a finding of irreparable harm.  A preliminary injunction requires showing “imminent” irreparable harm.  Indeed, the very idea of a preliminary injunction is premised on the need for speedy and urgent action to protect a plaintiff’s rights before a case can be resolved on its merits.  For this reason, our sister circuits and district courts within this Circuit and elsewhere have found that a party’s failure to act with speed or urgency in moving for a preliminary injunction necessarily undermines a finding of irreparable harm. 

Wreal, LLC v. Amazon.com, Inc., 840 F.3d 1244, 1248 (11th Cir. 2016) (citations omitted) (emphasis added).  Thus, quick action is paramount.

Conclusion:

Trade secrets are a flexible and unique class of intellectual property that does not require expensive registration or application to achieve protection.  

But their legal protection depends on the owner’s efforts to protect the material and keep it secret. 

These ten tips will help a Company not only protect its trade secrets from theft, but if a theft occurs, it will place the Company in the best possible factual position to prove it adequately protected the information it contends is a trade secret. 

Author: Kana Caplan is a partner at the business law boutique Krevolin Horst in Atlanta, Georgia.  Kana specializes in complex business litigation, trade secrets, restrictive covenants, and corporate governance.