02
Legal Memo ~
Misappropriation of Trade Secrets
Lopez & Hala are proud to invite in a robust staff with a wealth of industry experience. In
order to protect you and the business, we have put together a guide for identifying “trade secrets”– confidential information obtained through previous employment. Our goal is to answer the
questions: “what is confidential?” and “what does it mean to misuse this?” so you can feel
confident about contributing to our new venture! We’ve set forth the process of answering those
questions below using California Civil Code § 3426.1 as our source of law.
Step #1: Let’s establish whether you’re holding “trade secrets.”Is this information valuable to my previous employer? You’ll want to consider all obstacles—time, finances, etc—needed to acquire it and the value of its potential use. For example, your previous employer paid salaries to employees who developed client relationships with organizations in order to discover their price ranges for tours. The price ranges are therefore trade secrets.
→ If you answered “yes,” proceed to the next question. Is the information valuable because it is secret? Your previous employer may claim information is important to them, but if it is publicly available through a quick Google search, you have no legal obligation to withhold it. For example, the website of the tour business for which you used to work displays photographs and accounts of previous tours. These clients are thus publicly known. However, detailed information on these clients—like the countries, activities, or types of lodging they desire, etc—remains unpublished. The exclusivity of that information allows your previous employer to do good business with them.
→ The public client names are not confidential but unpublished details of their needs are. Did they try to keep the information secret? It is necessary to find effort on the part of the employer to substantiate a trade secret claim. The burden will be on the employer to show they indeed value the information enough to make it “a trade secret.” Oral and written protestations against disclosure suffice. Examples include non-disclosure agreements within employment contracts; meetings in which your previous employer urged employees to refrain from sharing information about business operations; password protected access to client lists and other data, etc.
→ There is no hard and fast rule for what meets the standard of “sufficient” but if your employer participated in any of the above, consider them to have met their burden. A “YES” to all three questions means you hold a trade secret. There is no time limit to the confidentiality of this information. Please refrain from sharing.
Step #2: Here’s how to avoid misappropriation of confidential information.What is misappropriation? Misappropriation is disclosure of trade secrets without consent. Revealing a trade secret might be as simple as identifying a client if your employer clearly stated their intention to maintain its confidentiality.
→ All disclosure is thus non-consensual. Can I tell my previous clients about my new work? Yes! You may inform any and all clients about your new employment at Lopez & Hala.
→ The law calls this notification or announcement. Can I pitch our services to them? No. Any attempt to sell the services of your new employer to previous clients lays the groundwork for a misappropriation suit. For example, Paul sends an email to the people he knows from his previous company, letting them know he’s moved on. He makes plans to follow up these notices with tailored advertising. Similarly, Daniel informs his clients that he has chosen to switch employers. He adds: “I’ll be working at a company with similar but better services. Please reach out if you’re interested in hearing more about it!” Paul and Daniel legally notified clients of their departure but erred in advertising their personal services.
→ The law calls this solicitation; Courts will find for misappropriation. Feel free to communicate with previous coworkers and clients. Please do notify them of your new post! Please do not solicit their business.
Step #1: Let’s establish whether you’re holding “trade secrets.”Is this information valuable to my previous employer? You’ll want to consider all obstacles—time, finances, etc—needed to acquire it and the value of its potential use. For example, your previous employer paid salaries to employees who developed client relationships with organizations in order to discover their price ranges for tours. The price ranges are therefore trade secrets.
→ If you answered “yes,” proceed to the next question. Is the information valuable because it is secret? Your previous employer may claim information is important to them, but if it is publicly available through a quick Google search, you have no legal obligation to withhold it. For example, the website of the tour business for which you used to work displays photographs and accounts of previous tours. These clients are thus publicly known. However, detailed information on these clients—like the countries, activities, or types of lodging they desire, etc—remains unpublished. The exclusivity of that information allows your previous employer to do good business with them.
→ The public client names are not confidential but unpublished details of their needs are. Did they try to keep the information secret? It is necessary to find effort on the part of the employer to substantiate a trade secret claim. The burden will be on the employer to show they indeed value the information enough to make it “a trade secret.” Oral and written protestations against disclosure suffice. Examples include non-disclosure agreements within employment contracts; meetings in which your previous employer urged employees to refrain from sharing information about business operations; password protected access to client lists and other data, etc.
→ There is no hard and fast rule for what meets the standard of “sufficient” but if your employer participated in any of the above, consider them to have met their burden. A “YES” to all three questions means you hold a trade secret. There is no time limit to the confidentiality of this information. Please refrain from sharing.
Step #2: Here’s how to avoid misappropriation of confidential information.What is misappropriation? Misappropriation is disclosure of trade secrets without consent. Revealing a trade secret might be as simple as identifying a client if your employer clearly stated their intention to maintain its confidentiality.
→ All disclosure is thus non-consensual. Can I tell my previous clients about my new work? Yes! You may inform any and all clients about your new employment at Lopez & Hala.
→ The law calls this notification or announcement. Can I pitch our services to them? No. Any attempt to sell the services of your new employer to previous clients lays the groundwork for a misappropriation suit. For example, Paul sends an email to the people he knows from his previous company, letting them know he’s moved on. He makes plans to follow up these notices with tailored advertising. Similarly, Daniel informs his clients that he has chosen to switch employers. He adds: “I’ll be working at a company with similar but better services. Please reach out if you’re interested in hearing more about it!” Paul and Daniel legally notified clients of their departure but erred in advertising their personal services.
→ The law calls this solicitation; Courts will find for misappropriation. Feel free to communicate with previous coworkers and clients. Please do notify them of your new post! Please do not solicit their business.
The Common Pitfalls
What if the general public does not know the information but people in the industry do? A trade secret must be exactly that: a secret! Consider whether peers in other organizations within the industry know about the strategy and use it themselves.
→ If so, courts will rule not a trade secret, favoring previous employees in cases like this. Can I say who has been sold on hiring a third-party tour company? When it costs companies to cut through the fluff and they belong to niche, highly competitive industries, courts consider disclosure of these clients as a loss of potential value for the former employer. For example, your previous employer hoped to provide UCLA with tour services. The university’s general contact information is available online, but it took you months of digging to locate the manager at the Office of Travel who is responsible for booking third-party tours. They only just expressed interest in learning about tour options. In this case, the value of the information is twofold: actual (i.e. investment of your time while employed) and potential (i.e. the unrealized deal between employer and Georgetown).
→ It will be misappropriation to reach out to the manager as a Lopez & Hala employee because a win for Lopez & Hala will signify a major loss of resources for the previous employer. Does it matter how I source the “trade secrets”? Courts will not differentiate between a physical list of clients, an email data, or a list that exists only in your memory. For example, employee X worked with a roster of clients at City Tours until starting their own business. Their previous company had been careful to avoid publishing any centralized list of client names. Given that there is no defined customer list, X pulls client information from various email chains, contacts in their personal phone, and names from their memory to recreate their roster.
→ All mediums are covered by trade secret protection; X is misappropriating. What if the customer comes to you? You may hesitate when a previous client approaches you directly, especially after receiving this guidance. But there’s no need to worry~ Remember solicitation triggers misappropriation. If they come to you seeking information on your new employment, you have not solicited their business.
→ Please do share with them about Lopez & Hala and your involvement!
What if the general public does not know the information but people in the industry do? A trade secret must be exactly that: a secret! Consider whether peers in other organizations within the industry know about the strategy and use it themselves.
→ If so, courts will rule not a trade secret, favoring previous employees in cases like this. Can I say who has been sold on hiring a third-party tour company? When it costs companies to cut through the fluff and they belong to niche, highly competitive industries, courts consider disclosure of these clients as a loss of potential value for the former employer. For example, your previous employer hoped to provide UCLA with tour services. The university’s general contact information is available online, but it took you months of digging to locate the manager at the Office of Travel who is responsible for booking third-party tours. They only just expressed interest in learning about tour options. In this case, the value of the information is twofold: actual (i.e. investment of your time while employed) and potential (i.e. the unrealized deal between employer and Georgetown).
→ It will be misappropriation to reach out to the manager as a Lopez & Hala employee because a win for Lopez & Hala will signify a major loss of resources for the previous employer. Does it matter how I source the “trade secrets”? Courts will not differentiate between a physical list of clients, an email data, or a list that exists only in your memory. For example, employee X worked with a roster of clients at City Tours until starting their own business. Their previous company had been careful to avoid publishing any centralized list of client names. Given that there is no defined customer list, X pulls client information from various email chains, contacts in their personal phone, and names from their memory to recreate their roster.
→ All mediums are covered by trade secret protection; X is misappropriating. What if the customer comes to you? You may hesitate when a previous client approaches you directly, especially after receiving this guidance. But there’s no need to worry~ Remember solicitation triggers misappropriation. If they come to you seeking information on your new employment, you have not solicited their business.
→ Please do share with them about Lopez & Hala and your involvement!
Best Practice ~
Each time you think of disclosing industry knowledge, ask: Were there any gatekeepers in the way of obtaining the information? Do they still exist?
Firstly, whether you have a customer list in hand or holed up in your memory, consider the obstacles—financial or otherwise—to getting hold of this particular client information. Any investment on the part of your previous employer indicates value. If that value derives from the information being generally unknown, you are likely dealing with a trade secret.
Secondly, ask yourself whether the employer took reasonable steps to ensure its secrecy. In some cases, careless behavior that makes information vulnerable or a lack of substantive demands for confidentiality can repudiate a previous employer’s claim.
→ Still, do not disclose information that you suspect classifies as trade secrets.
→ Please do share strategies for research and client scouting that are considered “industry knowledge” so we can begin to implement them where they are needed.
→ Please continue to ask questions if and when you feel uncertain. We are here to help!
Thank you for your continued enthusiasm,
Lopez & Hala ~ Legal Team
Each time you think of disclosing industry knowledge, ask: Were there any gatekeepers in the way of obtaining the information? Do they still exist?
Firstly, whether you have a customer list in hand or holed up in your memory, consider the obstacles—financial or otherwise—to getting hold of this particular client information. Any investment on the part of your previous employer indicates value. If that value derives from the information being generally unknown, you are likely dealing with a trade secret.
Secondly, ask yourself whether the employer took reasonable steps to ensure its secrecy. In some cases, careless behavior that makes information vulnerable or a lack of substantive demands for confidentiality can repudiate a previous employer’s claim.
→ Still, do not disclose information that you suspect classifies as trade secrets.
→ Please do share strategies for research and client scouting that are considered “industry knowledge” so we can begin to implement them where they are needed.
→ Please continue to ask questions if and when you feel uncertain. We are here to help!
Thank you for your continued enthusiasm,
Lopez & Hala ~ Legal Team