Trade Secret Law 101: Why Entrepreneurs Should Care About Trade Secret Law

This is the first in a series of four posts about trade secret law.

If you’re starting a business, whether it involves writing software or designing dolls, it’s important to know about trade secret law.

Why?

Because trade secret litigation could blow your startup to smithereens.  It’s a very popular type of litigation brought against successful startups.

Trade secret law is a land mine in the IP legal landscape that can ruin your company and even land you in jail.  Watch out software guys. (I’ll write more about criminal trade secret statutes and great cases involving jail time for software entrepreneurs in a later series of posts.)

I’ve been an IP lawyer for over ten years and I’ve fought in many trade secret wars across the country.  I’ve represented unfortunate startups sued for trade secret misappropriation by the founders’ former employers.  This type of trade secret case can be tough and intense for all of the people involved.  For startups, a trade secret case can be a matter of life or financial death.  In some cases involving VC funded startups, the old employers wanted the startups’ main assets, including the money from the recent round of financing.  The plaintiffs (the companies bringing the lawsuits) sought damages in the hundreds of millions of dollars and ownership of the startups’ intellectual property.

In some cases, the old employers wanted everything new the startups had built because it was allegedly based on the foundation of their trade secrets.

I’ve also represented larger companies who sued their former employees because they were furious that they paid for the intellectual property to great technology and then their employees left and started their own companies—with the same technology.

In one case involving Russian scientists, the Russians left their US employer on the East Coast because they wanted to live where the weather was better.

Really.

They got sued in sunny California.

Litigation is nasty.  It’s expensive and time consuming.

A lot of engineers and technical folks are shocked at the invasiveness of the “discovery” process in litigation.  All documents—at work or at home—within your possession, custody or control that are potentially relevant to the claims in the lawsuit are fair game.  This means that your home computer as well as your work computer may be searched.  The old backup tapes sitting in the chair of your office may also be searched.

Further, discovery usually involves searching documents and drives that you’ve stored off-site or at your house.  I’ve personally collected documents from the attic of a startup founder’s garage.  In court, I’ve also had a judge ask opposing counsel if they had checked for relevant documents in the boxes in the garage where the engineer played basketball.  No kidding.

Trade secret litigation can be particularly disruptive because the lawyers will go through your documents, especially your casual e-mails, with a fine-tooth comb looking for hints of trade secret misappropriation.  At your deposition, opposing counsel may also ask you detailed questions about your lunch conversations with your former co-workers — conversations that you thought were friendly and casual.  Lawyers can spin your allegedly innocent comments to your former co-workers into “evidence” of trade secret theft.

Litigation can result in losing the rights you thought you had in your key intellectual property and even destroy your company.  Litigation and bankruptcy go nicely together.

So stay tuned if you want to know more about trade secret law and understand what you can take and use from your old jobs in your new company, and what you had better leave behind.

The next post will explain how to identify bona fide trade secrets.