Competitor misconduct is a broad term that encompasses a variety of legal violations that could subject your company and your employees (current, former, or future) to liability. Is your company adequately protecting itself from trade secret piracy? Is a competitor stealing your employees or knowingly violating restrictive covenants? Is an ex-employee disseminating your trade secrets to a competitor? All of these concerns should be at the forefront of discussion, particularly in industries where trade secrets and an employee’s skills or knowledge is unique or paramount to the success of your business.
It is common, particularly in the IT industry, for resources to be exposed to knowledge, data, and information that is both highly confidential and distinctive from one company to the next. While it is important to protect an individual’s right to seek gainful employment, is also extremely important to protect your business from the misuse of confidential information. The following represent various forms of competitor misconduct that any company should consider, as well as methods that can be employed to prevent misconduct.
Theft of Trade Secrets
Intellectual property is, without a doubt, big business in the United States. According to economists’ estimates, intellectual property in the US is valued between $5 trillion and $5.5 trillion and the theft of trade secrets costs companies up to $300 billion per year. Trade secrets and proprietary information give many companies a competitive edge and protecting that information can be vital to a company’s success.
Each state has adopted various statutes governing the theft of trade secrets. For example, Texas has adopted the Texas Uniform Trade Secrets Act (“TUTSA”), which protects a company’s confidential and trade secret information from being disseminated. Violations can occur between two companies fighting over theft, or between a company and a former employee who misappropriated trade secrets upon their departure and/or disseminated trade secret information. TUTSA provides for both injunctive relief and damages against the violator(s).
A restricted covenant is not a form of competitor misconduct, but rather a method by which any company can legally prevent and prohibit such misconduct. The various agreements discussed below can also be an avenue of recovery where a restrictive covenant is violated. A restrictive covenant prohibits an employee from doing something he or she would otherwise be permitted to do. Commonly, these take form in a non-competition, non-solicitation, or non-disclosure agreement.
- Non-competition agreements – these agreements prevent an employee from leaving a company and going to work for a competitor. These types of agreements are most prevalent in engineering and computer/mathematical fields, where more than one-third of employees are required to sign one. While states vary on the enforceability of these agreements, most states require geographical, durational, and industry-specific provisions that do not hinder an individual from finding gainful employment, but rather only limit a very narrow market for a stated period of time.
- Non-solicitation agreements – these agreements prevent an employee from leaving a company and soliciting either clients and/or other employees from their prior employer. In Texas, these agreements are typically treated like non-competition agreements and must be considered reasonable in order to be enforceable.
- Non-disclosure agreements – these agreements are essentially confidentiality agreements that prevent an employee from disclosing confidential company material or knowledge. A 2016 study by economic and financial consulting firm Cornerstone Research estimated that more than 85 percent of misappropriation cases involve a trade secret owner’s employee or business partner. Non-disclosure agreements (“NDAs”) are meant to prevent this. Unlike non-competition agreements, NDAs do not aim to prevent an individual from seeking gainful employment, but rather prevent an individual from disseminating confidential information. As such, these agreements are looked upon with less scrutiny than other types of agreements, and are more likely to be enforced by courts across the United States.
Every state has varying laws governing the extent to which any these agreements can and cannot be used, so while it is not only vital to protect your company from misconduct, it is equally important to consult with a lawyer in preparing any form of restrictive agreements so as to prevent unenforceability or legal issues down the road.