Your company spends valuable time, money and resources developing marketing techniques and sales training to allow your sales team to effectively market and sell your products in a world where manufacturing faces fierce competition, nationally, and in many cases internationally. You develop a sales model; you build a competitive edge. Your customers are solid and your sales team, by simply clicking a computer mouse, can access information about your customers - their names, contact information, buying habits, product needs, customized designs and more. Your company’s customer information, sales data, sales techniques, pricing, designs and more are invaluable assets and may make a difference between a profitable year and continued growth or a decline in sales, and, it is all stored electronically in your company’s computer network.
Theft of manufacturing data, customer information and sales information is more common than you may think. How do you protect this information from getting into the hands of a competitor? How do you prevent a departing employee from pirating this information which may have devastating effects on your company? Can this happen to your company? Can an employee “take” proprietary or confidential information stored in your company’s computer system and start a competing business? Can that information be taken to a competitor? What are the remedies available to a manufacturer whose employee has taken this priceless information? What if your company finds itself on the other side of a lawsuit, with a competitor suing your company for hiring an employee who is accused of stealing its information?
Technology has simplified access to, and the taking of, electronically stored information. Thousands, if not tens of thousands of pages of data, can be copied and transferred onto an inexpensive thumb drive, hard drive or even smartphone in just seconds. Information such as pricing, pricing strategies and methods, customer information, and even proprietary designs and formulas, can be accessible to a broad range of employees and with a few clicks of a computer mouse, this information can be downloaded and/or forwarded to a personal e-mail address, cloud storage account or another computer network. Proprietary information which has taken years to develop at significant cost is at risk and a company’s competitive advantage can be lost. How can a company or an employer protect against the theft of its electronically stored data?
Among the protections afforded to a company by most states is the ability to seek emergent relief by way of an injunction and temporary restraints to stop employee misconduct and to stop the use of the information to complete unfairly. Likewise, there are various state and federal statutes varying from state to state, most of which provide protection to a company’s proprietary information.
For example, the Uniform Trade Secrets Act (“UTSA”), provided by the Uniform Law Commission (ULC) in 1979 and amended in 1985, was promulgated in an effort to provide states with a legal framework to handle the theft of trade secrets. To date, 48 states have adopted some form of legislation based on the UTSA. The purpose of the UTSA and its variations is to protect a company’s “trade secrets.” The UTSA defines a “trade secret” as any information that: (1) derives independent economic value because it is not generally known to others who could obtain economic value from it; and (2) is the subject of reasonable efforts to maintain its secrecy. Trade secrets are not limited to formulas, methods, designs, or technologies. For example, client lists, drawings, diagrams, pricing, pricing methods and other confidential business information may be considered trade secrets, under each particular state’s adoption of the UTSA. Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285 (2001).
The UTSA protects against “misappropriation” of your company’s trade secrets and does not require the actual use of the trade secret in order to be considered a “misappropriation.” The simple acquisition or disclosure of a company’s information through improper means is enough to trigger a cause of action under this statute. Damages may typically include actual damages suffered, such as loss of business and loss of profits, and possibly royalties stemming from the improper use of the information taken, an injunction for threatened or actual misappropriation, exemplary damages for willful and malicious misappropriation, and counsel fees that are awarded in specific enumerated instances.
Another protection available to your company may be the Defend Trade Secrets Act of 2016 (“DTSA”), which was signed into law on May 11, 2016. Prior to this law, the theft of trade secrets was governed only by a particular state’s version of the UTSA. The DTSA does not displace these state laws and most states laws and statutes are modeled after the DTSA. The DTSA may also provide your company access to the federal court system to pursue certain types of relief involving theft of a trade secret, which is “related to a product or service used in, or intended for use in, interstate or foreign commerce.” Many of the same remedies available under the UTSA, are also available under the DTSA, in federal court.
The Computer Fraud and Abuse Act (“CFAA”) is another federal statute which provides your company protection and a private right of action for computer hacking. It provides for criminal and civil penalties against anyone who intentionally accesses a computer without authorization (or exceeds his or her authorized access), and thereby obtains information from a computer. The CFAA was intended by Congress to provide more forceful consequences when it comes to information taken from a computer system. Criminal prosecution, civil sanctions and damages and the availability of an injunction, which is similar to a restraining order, are permitted and can be powerful tools to stop a competitor from contacting your customers, from using your designs or pricing information to unfairly compete, while you investigate the matter. Many states have a state statutory analog to the CFAA, by which a company can seek relief. Because of the evolution of technology in the workplace, the necessity and applicability of the CFAA and its state analogs will likely increase with time.
The majority of courts throughout the country recognize that customer information, sales and marketing techniques, pricing, designs and other similar information are assets worthy of protection from hackers, competitors or from dishonest employees who want to take the information to unfairly compete with your company at your expense. Specifically, “…information provided to [employees] by their employer, in the course of employment, and for the sole purpose of servicing [the employer’s] customers, is legally protectable as confidential and proprietary information. Lamorte Burns & Co., Inc. v. Walters, 167 N.J. 285 (2001). Many state courts recognize the right to protect this type of information and allow for additional remedies without having to establish stringent statutory guidelines and standards.
Thus, the broad range remedies, including an injunction, can prove critical in emergent situations when your company’s confidential business information might be in the hands of a competitor who is taking actions to solicit your customers or use your information. Obtaining an injunction allows a court to step in and freeze time so that your company will not suffer any further harm until the situation is evaluated and your company has a better understanding of what was taken and which customers were solicited.
To protect your company’s proprietary information, your company should take certain steps. First, all key employees and sales people should sign a confidentiality agreement acknowledging that he/she will have access to and the use of confidential and proprietary information. A non-compete agreement for salespeople and other key employees is also helpful to protect against the use of your company’s information by a competitor once the employee leaves or is terminated. Identifying and marking key data as “confidential” and “proprietary” will also serve to protect your company’s information. Finally, it goes without saying that all employees accessing your company’s information via a computer should be permitted to so do only through the use of a company password and login access that can be terminated by the company upon termination or resignation of the employee.
For more information on protecting your company’s confidential and propriety information or to obtain advice on confidential and non-competition agreements, please contact Rose Suriano, Esq. at 973-403-3129 or [email protected].
Rosaria (Rose) A. Suriano, Esq. is a Member of Brach Eichler, LLC and represents companies in business disputes, commercial litigation, non-compete agreements and business related claims. Mark A. Fantin, Esq., is an Associate with Brach Eichler, LLC, and also handles business related disputes and litigation.