Is your company doing enough to protect its confidential information?  A recent court ruling made it clear that simply inserting a contractual provision in your employment agreements is not enough to protect a company's valuable information.  Companies must do more.  In order for information to qualify for protection under California law, it must qualify as a "trade secret." 

THE TRG CASE AND LESSONS LEARNED

In a recent case entitled The Retirement Group v. Galante, the California Court of Appeal ruled that contractual non-solicitation clauses are unenforceable unless the solicitation is directly connected to the misappropriation of trade secret information.

The Retirement Group ("TRG"), a company providing broker-dealer services, expended substantial resources to develop a database containing client contact information.  TRG took precautions to keep the information secret, including requiring employees and independent contractors to sign confidentiality agreements and configuring the database to preclude electronic copying.

Several independent contractors for TRG (the "Advisors") left TRG to join a competing company.  After leaving TRG, the Advisors contacted their former TRG clients to notify them of their new operation and to offer them the opportunity to transfer their accounts.

TRG filed a lawsuit against the Advisors alleging that they had violated their confidentiality agreements by misappropriating TRG's trade secrets to solicit existing clients.  As part of its lawsuit, TRG sought a court order prohibiting  the Advisors from both (1) soliciting customers to transfer their accounts and (2) using TRG's confidential trade secrets (i.e., information found on TRG's databases and servers).  Ultimately, the court held that the Advisors could be prohibited from using trade secret information, but not from generally soliciting former TRG clients, finding such provisions to violate unfair competition law.

Worse yet for TRG, the court found that TRG's customer database did not constitute trade secret information due to the fact that it was not properly safeguarded by the company, thus allowing the Advisors to continue contacting TRG's clients. 

The The Retirement Group case teaches us that (1) confidentiality and non-solicitation agreements alone are not enough to protect valuable company information; (2) in order to qualify for protection, proprietary information must qualify as a "trades secret", (3) simply stating that certain material is a trade secret is not enough.

PROTECTING INFORMATION AS TRADE SECRETS

In order for information to qualify for protection it must rise to the level of a trade secret.  There are two requirements for trade secret protection.  First, a company must take reasonable efforts to maintain its secrecy.  Second, the information must have independent value because it is kept secret.

As long as these two requirements are met, virtually any type of information may qualify for trade secret protection.  Trade secret protection has been afforded to customer lists, cost and pricing information, customer requirements, and business plans.

Companies should review their internal policies and procedures to ensure that they have implemented reasonable steps to maintain the secrecy of its valuable information.  Examples of steps to maintain secrecy include password protecting computer files, limiting access to information to only those who have a genuine need to access the information, including confidentiality and non-disclosure provisions in employment and independent contractor agreements, locking file cabinets containing confidential files, implementing policies regarding the disclosure of sensitive information, and requiring third parties to sign non-disclosure agreements prior to providing proprietary information.

The attorneys at Navigato & Battin LLP are well qualified to assist your company in implementing company wide procedures to assist in securing trade secret protection.  Please feel free to contact us to help protect your company's valuable information.