What Should a Company do When it Suspects That an Employee Stole Its Trade Secrets?

Originally published by Leiza Dolghih.

Employees take their employers’ trade secrets all the time. It’s a fact of life.  No matter what systems an employer has in place, sooner or later a key employee will depart and take some trade secret information, data, or documents with them. Most employees take trade secrets because that information will help them land a better job or open a competing business. Some take it because they believe that the information belongs to them since they worked on it or created it. Whatever their reasons may be, the loss of competitive advantage resulting from the disclosure of trade secrets to competitors or release of that information in the open market may cause significant, and often irreparable, damage to the former employer.

So, what should a company do if it suspects trade secrets theft by a former employee?

First, the company should identify and collect all of the employee’s electronic devices in its possession – desktop computers, laptops, tablets, company-issued phones, and any other devices that the employee used during his work and that may contain company information.

Second, the company should have a qualified forensic examiner image the devices to preserve the relevant electronic evidence that may show whether the employee used any of these devices to copy or transfer the trade secret information and then search such devices for relevant evidence.  This should be done pursuant to a protocol devised by the examiner and a legal counsel to ensure that the evidence will later hold up in court.

Third, the company should search the employee’s emails for any evidence of trade secrets transfer.

Fourth, the company should interview its employees and/or third parties who may have relevant information.

** The company must move quickly and have an attorney supervise and coordinate the above efforts to make sure the collected evidence can later be used in court (i.e. is admissible) and to make sure the relevant communications are protected by the attorney-client privilege.

Fifth, if the company discovers evidence of trade secrets theft, it should file a lawsuit and seek a temporary injunction – a court order – prohibiting the former employee and anybody else acting on his/her behalf from using or disclosing the company’s trade secrets.  While this may be costly, this is the only effective way to stop the employee before he or she uses or discloses the trade secrets or does significant damage to the company.

Here is a real-life example where the above steps worked and helped a company stop a former employee from opening a competing business using the company’s trade secrets. 

Earlier this year, I wrote about a case that involved a Texas employer who followed the above steps and was able to obtain a temporary injunction and then a permanent injunction shutting down a competing business that a former employee opened using the gym’s trade secrets.  In that case, a Houston gym filed a lawsuit against its former regional vice president and his wife claiming that they took the gym’s confidential information and opened their own competing gym and medspa.  The gym obtained a temporary injunction against the former employee and his new company within four days of filing the lawsuit because it had emails and other electronic evidence establishing the trade secrets copying and transfer by the VP.

Just recently, the court in that case issued a permanent injunction prohibiting the former VP from opening or operating any new locations of his gym and medspa through September 2017 and from opening any gyms within a seven-mile radius of any of Life Time’s 123 existing locations, as well as employing or attempting to employ any current or former Life Time employees.

Additionally, within 20 days of the court order, the VP and his wife were required to return or destroy all of the gym’s documents and information still in their possession. After no more than 25 days, they had to provide the court with a declaration confirming that all sensitive data has been secured. Finally, between 20 and 90 days after the ruling, a forensic computer specialist “[had] the right to inspect and audit any computer systems” belonging to the VP, his wife, his business associate, and their gym to ensure that they had destroyed or permanently deleted the gym’s trade secrets.  This outcome would not have been possible, had the company  not followed the steps outlined above.

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at LDolghih@GodwinLaw.com or (214) 939-4458.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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