Laws in all states prohibit trade secret “misappropriation,” which means the unauthorized use or disclosure of trade secrets in breach of a duty of confidentiality or by improper means.
Today’s post discusses misappropriation related to a duty of confidentiality.
You may be wondering, “When do I have a duty of confidentiality?”
A duty of confidentiality commonly arises in two situations:
1) When you’re an employee and your employer gives you access to trade secrets, you automatically have fiduciary duty of confidentiality.
2) You sign a non-disclosure agreement (“NDA”).
1. Fiduciary Duty. When you are an employee and in a position where your employer discloses trades secrets to you, you have a fiduciary duty not to use or disclose trade secrets to a third party without authorization. Most employees receive trade secret information. This duty continues even after termination of your employment.
YOUR FIDUCIARY DUTY OF CONFIDENTIALITY ARISES AUTOMATICALLY REGARDLESS OF WHETHER YOU SIGN A NDA!
Some employees wrongly think that they don’t have a duty unless they sign a contract. You can be sued for trade secret misappropriation even if you didn’t sign a NDA.
Failure to have employees sign a NDA, however, is evidence that the employer didn’t take reasonable measures to its protect trade secrets. (See last post for trade secret status requirements.)
2. NDA. When you sign a NDA, you also have a contractual duty not to use or disclose trade secrets in unauthorized ways. Nondisclosure terms are usually found in employment agreements and independent contractor agreements. The scope of the contractual duty of confidentiality will vary depending on the terms of the contract but it usually tracks the trade secret statutory requirements.
Most employees, therefore, have two different types of duties related to trade secrets: a fiduciary duty and a contractual duty.
In some jurisdictions, you can be sued for a breach of both duties.
The most common type of trade secret litigation involves a company suing its former employees. Trade secret litigation can easily bankrupt a startup. Big firm attorney fees for an initial defense in trade secret litigation can be over a million dollars.
What is important to understand is that when you leave your job, you have a continuing duty not to use or disclose your former employer’s trade secrets.
What information can you use from your last job?
You can use your general knowledge, skill and experience. You can use information that is commonly known in the industry.
But you can’t use customer lists, financial data, or the secret software code that you wrote at your last job.
It’s important to identify the types of trade secrets that you know from your former jobs and take care not to use them in your new venture.
My last post gave you some tips for identifying trade secrets, which may include customer lists, personnel information, prices, software code, product specifications, business plans, and many other types of business information that give a company a competitive advantage.
Remember, in your new company, don’t use or disclose your former employer’s secret, protected information that confers a competitive advantage.
Note: In the context of an attorney-client relationship, attorneys don’t sign NDAS. Attorneys have a separate professional duty not to use or disclose a client’s confidential information. The duty related to confidential information arises in the context of an attorney-client relationship. This relationship arises when a person seeks specific legal advice from an attorney, divulges confidential information, and the attorney provides specific legal advice based on the client’s facts, regardless of whether the person is paying the attorney. This duty can arise in the context of an initial attorney consultation and the attorney will be under a duty not to disclose or use the confidential information. The communication between the attorney and client may also be privileged and excluded from discovery.
The information provided in this legal blog is not intended as legal advice and does not create an attorney-client relationship. Please do not submit questions or comments seeking legal advice or submit confidential information through this blog. By communicating through this blog, you understand and agree that the information will not be treated as confidential and the publisher has no duty to keep it confidential.