“Make No Bones” About Protecting Confidential Business Information

Companies in Massachusetts must take proactive steps to prevent the improper use of confidential business information by their employees and associates, or risk losing protection of that information under the law.A claim for the misappropriation of confidential business information, or “trade secrets,” often develops after a company learns that its former associate (e.g. employee, contractor, consultant) is utilizing documents, know-how or other information in direct competition with its business.   The aggrieved company will typically seek a court injunction ordering the immediate return or destruction of this information, and seek assurances from the former associate that he or she will immediately cease and desist from using or disclosing such information in the future.

But not so fast.  Assuming that the company can prove the former employee’s possession and use of the information for which it seeks protection, it must also prove that the information is in fact a bona fide “trade secret.”  Furthermore, companies cannot simply expect employees and contractors to presume the confidentiality of trade secrets in the absence of a clear policy or agreement.

Trade secrets are based on information not known to others which, if disclosed to a competitor, would provide the competitor with some sort of competitive advantage.  In “misappropriation” cases, trade secrets should be described with specificity:   demonstrating that a former consultant “received a detailed corporate profit margin analysis on August 1, 2013” is far better than a vague reference to the consultant’s “exposure to multiple e-mails containing confidential sales information.”

The intention to restrict use or disclosure of trade secrets must be communicated to employees in clear terms, desirably in writing within employee contracts and handbooks.   Language attached to corporate e-mails and electronic password fields may also suffice.  The protection of trade secrets will not be assumed or implied through vague language or behavior.  For example, in a recent Massachusetts case   (C.R.T.R., Inc. v. Lao), a corporation’s claim for misappropriation was thrown out despite deposition testimony from two corporate employees, one who was told “not to take work out of the office,” and another who stated that she “just knew” that employer customer lists were confidential.  The result in this case was that the defendant – an independent contractor who had managed the plaintiff’s business for a number of months — was free to utilize the plaintiff’s records concerning pricing, billing, sales, supply costs and marketing, with which he had allegedly absconded.

In short, ­­employers should “make no bones” about notifying their employees and business associates as to the existence and allowable use of any confidential information with which they may come across.   Informal discussions or “mutual understandings” on this subject are likely to create more headaches than they prevent.