When your employee leaves for a competitor there are always questions about what he’s taking with him. Is he taking general knowledge and expertise that he has developed over the years or is he taking trade secrets?

That’s a big question for the employee, the former employer and the new employer, and they all have their own points of view. Trade secret law attempts to balance these competing interests.

Under federal law, a trade secret is any information that is not generally known in the industry and is valuable.

It does not matter how the information is stored, but the owner must have taken reasonable efforts to keep it secret. This may include policies and procedures restricting internal dissemination of the information, confidentiality agreements and security procedures.

The value of the trade secret is based on the “injury” that would result if the competition learned the secret or secrets. In Valassis Communications, Inc. v. Garberg & Associates, Inc., d/b/a The Sunflower Group, the jury found that the information was valuable enough to warrant a $16.6 million verdict, one of Michigan’s biggest verdicts in 2001.

In the case, Valassis accused its only competitor Sunflower of inducing a Valassis plant manager to jump ship and reveal trade secrets regarding Valassis’ products, customers and costs. The two companies account for 90 percent of the newspaper polybag sampling business.

The trial took two weeks in U.S. District Court, Eastern District of Michigan, and 28 witnesses were called. To those who watched the case, the message was loud and clear. Employers who hire their competitors’ former employees need to be extra cautious not to use the trade secrets that the employee might know.

This case also demonstrates the high cost of misappropriating trade secrets. On top of the verdict, there was the cost of litigation that spanned two and a half years and 50 depositions.

If your company has trade secrets, we suggest you develop policies to guard these valuable assets. If you are thinking about hiring employees away from your competitor, we suggest you take steps to protect your company against charges of trade secret infringement. It will be time well spent.

For further information regarding these matters, please contact Mr. O’Connor at 248.740.5691 or click here to send an email.