Work in the Time of COVID-19: FAQs for Employers

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Companies that spend significant amounts implementing computer systems to thwart hackers and creating policies to prevent employees from stealing trade secrets are all too willing to disclose such secrets to vendors.

Here's the problem. Just as every human being possesses a unique genetic code, every company has its own methods and processes. These trade secrets are the result of years of research and trial and error, and they are constantly evolving and improving. They are what distinguishes one company from another.

When a well-meaning vendor enters a business to discuss its product, perform a demonstration or propose a joint-development agreement, the host company often grants the vendor access to areas where the general public can't go. It too readily shares details about products and systems. This could include customer information, manufacturing processes, or plans for future products. Compounding the problem, the host frequently signs a nondisclosure agreement, in which it agrees to keep confidential the vendor's product information. However, no agreement is reached concerning the host's sensitive information — a vendor can walk out the door with trade secrets.

What starts as a harmless product demonstration can quickly become a legal battle over trade-secret theft that can cost both sides hundreds of thousands of dollars in legal fees. In one local case, the host company, after an extensive trial of the vendor's product, determined it was of little value and that its own plans for a similar product would achieve a much better result. When the host proceeded, the vendor sued. During two years of litigation, the parties fought over what was said during the demonstration and whether the host ripped off the vendor's idea or the vendor made improvements to its own product based on what it learned from the host.

The risk of such litigation can be greatly reduced by following these steps:

These steps will reduce greatly the risk of further litigation. If such litigation does occur, these steps will greatly increase a company's chance of prevailing.

Josh Durham, an attorney no longer with Poyner Spruill, was the original author of this article.

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