Published on November 29th, 2005 by Alan L Sklover
“Secrecy is the soul of business.”
– Spanish Proverb
ACTUAL CASE HISTORY: There I was, right in the middle of a court-ordered trial, on just six days’ notice, before a New York State Supreme Court Judge, a very astute and savvy jurist. I represented an executive who stood accused of stealing trade secrets. On the witness stand sat a forensic computer consultant, hired by my client’s former employer, explaining to the Court how he could prove my client had stolen trade secrets if he had access to her home computer. Without warning, the judge bellowed, “Stop the trial.” He looked straight at me. I didn’t know what to think.
I was representing Penney, formerly the Senior Managing Director of San Francisco’s most successful private equity firm. For three years she’d successfully convinced mega-millionaires – and some billionaires – to participate in her firm’s investments in internet companies. Just two weeks earlier, with one investor, she’d started her own private equity firm. Penney had come to me two months earlier to make sure her transition “out” of employment and “into” her own business were carefully planned, coordinated and executed. It was her intention to do everything carefully, legally, and smartly. And that’s exactly what we’d done: she hadn’t signed any non-competition agreements, and I carefully guided her regarding what to do, and what not to do, at each step in the process.
In the second week of her new business, Penney was served with legal papers that alleged that she’d taken “trade secrets” with her when she left her job. The legal papers demanded (1) that she immediately stop her new business, (2) that she immediately return all stolen trade secrets, and (3) that she pay damages to her former employer of no less than $10 million.
Looking quite sternly in my direction, the Judge said, slowly and carefully, “Mr. Sklover, will your client permit this forensic computer consultant to go to her home to inspect her home computer?” “When, Your Honor?” I asked. The Judge shot back, “Right now, so that he can report back to this Court first thing in the morning.” I looked to my client for guidance; she looked back at me. “Well, Mr. Sklover, what is your answer?” the Judge demanded. I said, “We’d welcome that, Your Honor.”
I was pretty confident that I understood the “game” being played, and that we were going to win that “game.” Penney’s former employer knew that she – and nearly everyone else at her former firm – worked over the weekends at home. To do so, they would transmit by email to their home computers documents, notes and files to work on. Now, to stop Penney from going into competition, her former employer was trying to prove that Penney had wrongfully retained trade secrets – these same documents, notes and files – on her home computer, and was hoping he could show that Penney was using them now. At the very minimum, showing the Judge that Penney had “kept” trade secrets after leaving her old job would make her appear to be less than honest.
The next morning the Judge walked into the Courtroom with a serious look on his face. He addressed everyone, “I’m disturbed to learn that some three weeks ago, the defendant removed and replaced her home computer’s hard drive, thus removing any information that had been on it. I don’t know why she did that. However, it leaves me with but one conclusion: she does not at this time have any of her former employer’s trade secrets in her home computer. This case is dismissed.”
I knew that would likely happen. Penney and her husband had done just what I had instructed them to do: remove and replace their hard drive. The forensic computer expert was stymied. The Judge ruled in our favor. Her former employer lost its case against her, and was also ordered by the Court to pay my very substantial legal bill. Penney was successful in court, and – more importantly – in getting her new business off to a great start.
LESSON TO LEARN: When you leave a job, the law requires that you not retain, use or divulge your former employer’s “trade secrets.” Keeping trade secrets when you leave a job is as illegal as is keeping money or a computer that belongs to your former employer; it’s a kind of theft, a very serious kind of theft.
What is a trade secret? This is a practical definition: (a) information of value, (b) not known to the public, (c) for which money, time or resources were spent to develop or obtain, and (d) that gives a business advantage to its owner. Examples of trade secrets include: customer names and addresses; recipes or chemical formulas; unique business methods; strategic marketing plans. The recipe for Coca Cola is often cited as the longest-held trade secret of all time.
Employers are increasingly concerned about guarding their trade secrets, and increasingly aggressive about protecting them. This concern and aggression is only heightened when a trusted employee leaves to go into direct competition. It is getting more and more common for employers to initiate litigation to stop former employees from going into direct competition – although it’s the epitome of our “free enterprise” system. And when litigation takes place, employers can almost always count on finding “trade secrets” sitting on the home computers of former employees, usually without their even being aware of it. That’s because almost all of us commonly send computer files home on the weekends. And keeping trade secrets in your possession after you’ve left an employer – even unknowingly – is a kind of theft.
The law says that former employees must return to their former employers any and all trade secrets in their possession. For information on your home computer, there’s only one way you can effectively get rid of it: change your hard drive, because “deleting” a computer file always leaves it accessible, deep in the hard drive’s memory. Because technology moves like a rabbit, and the law moves like a snail, you’ve got to take extra steps to protect yourself.
The lesson is this: Whenever you leave a job, you are well-advised to take steps to make sure you return or destroy all trade secrets and other sensitive information in your possession or control. Your failing to do so could cost you dearly; in some states and circumstances it can even result in your being arrested.
WHAT YOU CAN DO: These are five simple steps you can take to protect yourself from being accused of stealing trade secrets:
1. Make a Record that Your Employer Knows You’re Regularly Sending Computer Files Home: Consider sending your boss an email – and keeping a copy at home – every now and then that says something like this: “To get work done on the weekends, I’ve found it necessary to email documents and notes to my home computer. I understand many employees do this, too. Perhaps we might consider a company policy about this, and how we want to handle this when employees leave. We always ask them for their door key and company I.D.; maybe we should ask for all computer files, too.” This would serve to show your boss was aware of your practice, how widespread it was, and your expression of concern.
2. Consider Asking Your Employer to Purchase a Computer for Your Use at Home: This would evidence your concern, and would have a second benefit, too: when leaving, you can simply return the company-bought computer, with all computer files on it. Just make sure you don’t put anything personal on it.
Been accused of misconduct at work? Prepare your best defenses in writing to your employer BEFORE your employer reaches its own conclusions. We offer 10 different Model Letters Responding to Various Allegations of Misconduct at Work. Shows you “What to Say, and How to Say It.”™ To obtain your copy, just [click here.] Delivered by Email – Instantly!
3. Avoid Mixing Company and Personal Information on Your Office Computer: While it’s a good practice not to use your office computer for any personal matters, that’s near impossible. However, if you do use your office computer for personal things, make a “Personal” subdirectory, and copy or download only that before resigning. Copying or downloading anything else will make you appear to be stealing trade secrets.
4. Upon Leaving Employment, Return or Destroy All Remnants of Trade Secrets: You can never be too careful with your professional reputation, and your personal reputation for honesty. Don’t even think of taking files or information with you. Don’t believe “they won’t find this,” because chances are they will. In potentially “sensitive” or “heated” departures, especially if you’re leaving to go to a direct competitor or to become a direct competitor, consider replacing your home computer hard drive, and discarding the old one. That way, you’re as safe as possible.
Been Accused of Breaching Confidentiality? Prepare and present your best defenses BEFORE your employer reaches its own conclusions. Use our Model Memo entitled ”Defending Yourself from Allegation of Use or Sharing of Confidential Information.” It gives you “What to Say, and How to Say It.”™ To obtain your copy, just [click here.] Delivered by Email – Instantly!
5. If A Problem of This Sort Arises, Don’t Take Steps to Cover Up Anything; Be Honest: Returning trade secrets or removing hard drives should be done only in the normal course of transitioning out of a job, not after hostilities have begun. Should you be in a situation where someone is accusing you of keeping, using or sharing trade secrets, once you’ve been accused of doing so, or litigation has begun, don’t take steps to conceal anything. Instead, be honest that any information remaining on your home computer is a result of unintentional transmission for the sake of weekend work. To make changes after accusations have been made could look like a response, a sort of cover up; changes made after litigation begins also could be viewed as interfering with evidence. Imagine yourself on a jury: Wouldn’t you see an attempted cover-up as suggestive of the commission of a crime? You are best-advised in either circumstance to immediately confer with experienced legal counsel.
P.S.: If you would like to speak with me directly about this or other subjects, I am available for 30-minute, 60-minute, or 120-minute telephone consultations. (Even 5-minute “Just One Question” calls). Just [click here.] Evenings and weekends can be accommodated.
SkloverWorkingWisdom™ emphasizes smart negotiating – and navigating – for yourself at work. To do that, you need to beware of risks in transition, and how to avoid or reduce them. When leaving a job, don’t consider taking trade secrets with you; it’s little short of highway robbery. And do consider having someone other then yourself help you think of all the ways you might overlook a trade secret in your continued possession.
Always be proactive. Always be creative. Always be persistent. And always do what you can to protect yourself, your family, your career. Take all available steps to increase and secure employment “reward” and eliminate or reduce employment “risk.” That’s what SkloverWorkingWisdom™ is all about.