A company’s trade secrets may be among its most valuable intellectual property. Unlike copyrighted original creations, patented products or trademarked logos, trade secrets are often not eligible for formal registration. Companies do not want to disclose trade secrets to others, including government entities.
They may carefully limit who has access to certain information to protect non-public information that gives the business a competitive advantage. Business leaders may also include restrictive covenants in contracts to prevent the disclosure of trade secrets. Nondisclosure or confidentiality agreements can play a key role in preventing employees, service providers, vendors and others from sharing information that gives a business a competitive advantage.
If there is proof that a party with access to information about an organization shared that information with another business or on social media, it may be necessary to take legal action. Enforcing restrictive covenants through civil litigation can limit the harm caused by the disclosure of trade secrets.
Restrictive covenants persist after arrangements end
Certain aspects of employment and business contracts end with the working relationship. However, restrictive covenants often include language intended to make them enforceable for years after the end of a business relationship. A nondisclosure agreement might include terms that make it inappropriate to disclose non-public information indefinitely after the end of an employment relationship.
An executive with non-public information about proprietary manufacturing processes or special formulas generally cannot use that information to start a competing business or as leverage when seeking a position with a competitor. Former employees or vendors with information about how a company operates cannot provide that information to others while still subject to a nondisclosure agreement.
In some cases, the initial agreement may have penalties built into the contract. Other times, it may be possible to seek damages based on how the disclosure of non-public information may have affected a company’s profit margins or market share.
Taking the matter to court can lead to an injunction that prevents the disclosure of non-public information during and after the court proceedings. Judges may enforce penalty clauses or award plaintiffs damages.
Not only can successful litigation related to restrictive covenant violations lead to compensation, but it can also serve as a deterrent to others who are subject to similar agreements with the business. Employees and outside businesses may be less likely to engage in contract violations when they know that a business is assertive about enforcing its contracts.
Including the right provisions in business contracts and monitoring conduct to identify violations of those agreements can both be critical for the protection of a company’s intellectual property. Business leaders may need help adopting appropriate protective measures and identifying when legal action is necessary for the protection of trade secrets, and that’s okay.