Are You Letting Your Trade Secrets Walk Out the Door Each Night?

07/18/2012 / John A. Kvinge

Along with patents, trademarks, and copyrights, trade secrets form an important pillar of intellectual property protection. Trade secrets are attractive to many companies because unlike a patent, they do not require public disclosure of the underlying invention, and they never expire as long as the information remains a secret. 
At least 46 states have enacted some version of the Uniform Trade Secrets Act, which provides protection for information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.” The Uniform Trade Secrets Act allows the owner of a trade secret to bring a lawsuit for misappropriation against someone who uses a trade secret obtained through improper means. 
FormFactor, Inc. v. Micro-Probe, Inc., Case No. 10-cv-03095, a recent case in the United States District Court for the Northern District of California, is illustrative of certain difficulties a company may face in proving misappropriation of trade secrets by a departing employee. FormFactor accused its former employee, David Browne, of misappropriating its trade secrets when he left the company in 2010 to work for a competitor, Micro-Probe. The crux of FormFactor’s complaint was that during the time Browne was negotiating an offer for employment with Micro-Probe, he backed-up FormFactor files to a personal hard drive kept at his home. Upon leaving FormFactor, he was required to turn over his company laptop and company materials, but he was not immediately asked whether he had any FormFactor materials at home. A few weeks later, FormFactor’s attorney sent Browne a letter, asking about the status of FormFactor files at Browne’s house. Browne attempted to delete the files on his home computers, and then retained an attorney and gave the hard drives of his home computers to his attorney for safe-keeping. FormFactor brought suit against Browne for misappropriation of trade secrets.
At summary judgment, FormFactor ran into two significant problems. First, it failed to identify its trade secrets with reasonable particularity. In order to succeed on a trade secret claim, a plaintiff must identify each alleged trade secret with sufficient particularity –  i.e., what the trade secret is and why it constitutes a trade secret. FormFactor provided a list of several thousand files that it claimed were trade secrets, but did not articulate why each file possessed independent economic value – that is, why each file deserved protection as a trade secret.
Second, FormFactor failed to prove that Browne misappropriated any of the alleged trade secrets. Although FormFactor could prove that Browne had possession of the alleged trade secrets by virtue of the files located on his home computer, it could not prove that he came into possession of the files through improper means, or that he had improperly disclosed the files to his new employer. FormFactor argued that possession was sufficient to show misuse, but the Court disagreed, stating “the mere possession of trade secrets does not constitute misappropriation.” Moreover, Browne could not be faulted for backing up the files to his home computer when FormFactor had no policy against working from home or backing up work to a personal computer. 
As companies increasingly encourage or allow employees to work from home, it is  imperative for a company  to balance workplace flexibility against protection of trade secrets and other confidential information. This case may have had a different result if FormFactor had enacted a policy prohibiting employees from saving company materials to personal hard drives, or that only allowed employees to work from home through a system that kept all files stored remotely on company servers. Most companies think twice before allowing employees to take sensitive blueprints, design drawings, or prototypes home without safeguards in place to ensure their safety and confidentiality. Electronic documents should be treated no differently than their physical counterparts. Companies would be wise to make sure their policies clearly state the circumstances under which personal backups are allowed, if any, and the proper procedures that should be followed when employees take sensitive materials home.
For more information on the subject of this article, contact the author of this article, or the Larkin Hoffman attorney who customarily handles your matters. Larkin Hoffman Daly & Lindgren Ltd. has proudly served the legal and business counseling needs of clients since 1958. The firm includes over 70 attorneys serving clients’ legal needs throughout the state, the country and around the globe. As a full-service law firm, it provides counsel and legal guidance in more than 20 areas of law to clients ranging from individuals to emerging companies and Fortune 500 corporations.
While the information provided in this publication is believed to be accurate, it is general in nature and should not be construed as legal advice. You should consult an attorney for advice regarding your individual situation.