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Trade Secrets

Employment Agreements and Proteting Trade Secrets

Former execs are hit with doctrine of inevitable disclosure.


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You are valuable to your employer. In today's technology-driven business world, trade secrets are more likely to be in the mind of a problem-solving executive than in an innovative machine on an assembly line. Fortune 1000 companies lost more than $45 billion from trade-secret theft last year, according to estimates. Intellectual property lawyers are busy protecting the rights of employer and employee.

Employers in the current business landscape usually require new employees to sign nondisclosure agreements or non-compete clauses in exchange for employment. A nondisclosure agreement protects the company's trade secrets and prevents employees from sharing knowledge of corporate intellectual property. A non-compete agreement stops employees from going to work with direct competitors and sharing intimate knowledge of protected trade secrets. Non-compete agreements are for a limited duration, geographic area, job description, and industry. Neither contract is legally binding unless the signer receives something of value in return, usually a job.

"The cynical way some people describe this is, 'You know too much, so we're going to have to shoot you.' It's sometimes called 'the problem of the peripatetic pinhead,'" say Jim Pooley, a specialist in intellectual property and patent infringement at the Palo Alto, Calif., law firm Gray Cary Ware & Freidenrich. "The value of some of your most important employees reflects their increasing knowledge about fewer things. In other words, they know more and more about less and less."

Tyson v. ConAgra

More companies are taking legal action when employees leave under contract. Four high-level executives that recently left Tyson Foods for competing chicken manufacturer ConAgra have shared no trade secrets with their new employer. Nevertheless, in a lawsuit brought Tyson, a judge ruled that two executives could not work for ConAgra for a year and another could not contact certain ConAgra clients for a year. The judge believed that the executives retained so much proprietary knowledge that it would be impossible for them to regulate their own use of that knowledge in their new positions.

"When somebody in a very focused position with an employer goes to a direct competitor, then the doctrine of inevitable disclosure says that it's appropriate for a judge to step in and say, 'Hang on. I know that nothing bad has happened so far, but it would be too hard for us to police this fellow and too hard, in fact, for him to police himself in this new job. Therefore, we're going to put him in deep freeze for a little while.'" says Pooley. "It's the presumption of an inability to control oneself."

Wal-Mart v. Amazon.com

Wal-Mart recently sued Amazon.com claiming the online retailer was recruiting professionals from a strategic and protected area of business operations. In the non-cash out-of-court settlement, one former Wal-Mart employee will be reassigned within Amazon.com, and Amazon.com has agreed to stop initiating contact with Wal-Mart employees.

"It's very controversial. There are more judges, it seems these days who refuse to employ the doctrine in specific cases than those that do, and if there is a limitation put on people, usually the limitation is relatively short. A year is a long time because usually the information has a short shelf life... and judges are concerned about keeping people out of work too long," says Pooley. "Sometimes they would enter such an order but only on condition that the trade secret owner - the former employer - pays the salary of the person that they want to put in deep freeze so that the guy can still put bread on the table."

News provided by Legal News Network.

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