Intellectual Property

Trade Secrets

A trade secret is a property right that exists under state law and is generally defined as information with commercial value that has not been publicly disclosed by its owner, and whose owner has taken commercially reasonable steps to protect it. Examples of information that may be afforded trade secret protection include formulas, customer lists, product designs, market research, business methods, and strategic plans. The hallmarks of a trade secret are that the information is a well-guarded secret.

Businesses should identify what information is considered a trade secret, and then take appropriate precautions to maintain the confidentiality and secrecy of that information (e.g., nondisclosure agreements, encryption and/or password protection of data files). Otherwise they may lose the ability to protect such information as a trade secret. Businesses should consult with an attorney experienced in trade secret law about what measures should be implemented to help protect their trade secrets.

Employees having access (or potential access) to confidential or trade secret information could pose a threat to their employers when they voluntarily or involuntarily leave their employ, especially when they join competitors or form their own competing business. For example, there is always the risk that former employees will attempt to divert business away from the company. To combat this problem, some employers have employment agreements containing restrictive covenants, including non-competition and non-disclosure restrictions.

Non-competition agreements are agreements by former employees not to compete with a former employer for a specified period of time in a specified geographical area. Such agreements must meet strict requirements to be enforceable in Texas. Since they may be difficult to enforce in courts, employers should consult an attorney before designing such agreements.

Non-disclosure agreements (or confidentiality agreements) identify the kinds of information that are to be treated as confidential (which may or may not include trade secrets). These agreements, which are generally easier to enforce than non-competition agreements, may also notify employees of the remedies the employer will pursue in the event there is an unauthorized use of this information. Again, employers should consult an attorney before designing such agreements.