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Texas Trade Secret Law: When Your New Employee Knows Too Much

Posted on October 29, 2007 by Robert Wood

Not infrequently, whenever an employer hires a competitor’s ex-employee, the competitor sues not only its ex-employee (for an alleged non-compete violation, breach of fiduciary duty, misappropriation of trade secrets, tortious interference, etc.), but also the new employer. The plaintiff contends, for example, that just as its ex-employee is liable for using and disclosing its trade secrets, the new employer is also liable for receiving and using the secrets.

One way in which new employers try to inoculate themselves against such a suit is by directing their new employees not to bring their former employer’s confidential information with them. In a case decided within the past two months, the “new” employer sent an offer letter to its prospective new employee containing the following language:

We are not interested in confidential business information or trade secrets from your former employer. Rather, we are looking for your sales talent to contribute to the success of our business. We do not want you to use any of the confidential and/or proprietary information while you are working for us. We ask that you not use or divulge any confidential and/or proprietary information obtained during your [previous] employment and require that you sign an Agreement on Prohibited Disclosures as a condition of this offer.

After the employee resigned from his “old” job and began his new one, his new employer had him sign a non-disclosure agreement containing the following language:

You agree not to use, have in your possession, or refer to any information, data process, or method which is or was claimed to be confidential or proprietary by any former employer, customer, supplier or consultant.

By way of clarification, and not by limitation, you agree neither to use, have in your possession, nor refer to any of the following items from a former employer . . . if such information is or was claimed to be confidential or proprietary:

·        Blueprints

·        Business Plans

·        Computer Programs

·        Computers

·        Confidential Knowledge

·        Consultant Lists

·        Customer Lists

·        Data Bases

·        Confidential or Proprietary Data

·        Computer Media (e.g., disks CDs)

·        Documents

·        Employee Lists

·        Equipment

·        Training Materials

·        Files

·        Financial Information

·        Formulas

·        Manuals

·        Market Information

·        Marketing Materials

·        Notebooks

·        Notes

·        Original Works of Authorship

·        Sketches

·        Software

·        Telephone Directories

·        Trade Secrets

·        Vendor Lists

When the former employer subsequently sued both its ex-employee and the new employer for misappropriation of trade secrets, the court found the new employer’s insistence that its new employee not bring any confidential information with him (as evidenced by the documents referenced above) as persuasive evidence (but not the only evidence in the case) that the employee had not in fact done so.

When hiring a new employee, especially one involved in sales (i.e., an employee who, were he trying to do so, might be able to “steal” his former employer’s clients), a new employer is wise to direct its new employee not to use or disclose his former employer’s confidential information (and also to have the new employee sign a non-disclosure agreement that contains a provision reiterating that direction).

www.felllawfirm.com

Texas Trade Secret Law: New Theories in Misappropriation Cases?

Posted on November 13, 2006 by Robert Wood

The elements for misappropriation of trade secrets under Texas law are well known. A plaintiff must establish that: (a) a trade secret existed; (b) the trade secret was acquired through a breach of a confidential relationship or was discovered by improper means; (c) the defendant used the trade secret without the plaintiff’s authorization; and (d) the plaintiff suffered damages as a result.

Now, suppose a homeless man discovers in a public trash can Microsoft’s plans for its next piece of software, and then, having no use for the plans, hands them to the first man on the street he sees (who happens to work for Cisco). Let’s further assume that the homeless man is a genius, and that he immediately understood the significance of the Microsoft plans he found.

Based on these facts, has the homeless man committed the tort of misappropriation of trade secrets? Probably not, because the second prong above can’t be met.

In a recent case decided by the Austin Court of Appeals, the court questioned whether Texas courts have adopted the Restatement (Third) of Unfair Competition, which makes the second and third prongs above independent torts. If it has, the man in the hypothetical above could be guilty of tortious conduct even though the way he acquired Microsoft’s trade secrets was innocent. The court noted that the Texas Supreme Court previously approved of other sections of the Restatement (Third) of Unfair Competition. See In re Bass, 113 S.W.3d 735, 739-42 (Tex. 2003). However, the supreme court did not adopt this part of the Restatement in its entirety.

It will be interesting to see whether other Texas courts agree with the Restatement that the second and third prongs above should be independent causes of action. In appropriate cases, plaintiffs in trade secret cases should encourage them to do so.