How can I protect my trade secrets from disclosure

　　There are two types of legal contracts that are widely used to help businesses protect trade secrets: (1) non-disclosure agreements; and (2) non-compete agreements. Often, these agreements are included as part of an “employee agreement’ that is signed upon commencement of employment.

　　(1) NON-DISCLOSURE AGREEMENTS (NDAs)

　　During the course of business, you may have to disclose your business secrets to your employees. What happens when you have a disloyal, untrustworthy, or dishonest employee and that employee knows your secrets? Is there anything you can do to stop the employee from telling others?

　　A non-disclosure agreement (NDA) is a confidentiality agreement that can be used to protect trade secrets. Often, during the regular course of business, your secret information may be disclosed to employees or business partners. An NDA requires that the information be kept a secret. The provisions of the agreement require the person to keep the information confidential. If someone has signed an NDA and uses your trade secret without your authorization, you can sue for damages and stop the violator.

　　(2) NON-COMPETE AGREEMENTS

　　During the regular course of business, you may have to disclose your business secrets to your employees. But what happens when these employees leave your company? By requiring your employees to sign a non-compete agreement, employees must agree not to work for a direct competitor for a certain amount of time after leaving your company. The theory behind this type of agreement is that after a certain amount of time, your trade secret will no longer be valuable because of technological changes as your business advances, and, accordingly, the technology will no longer need to be protected as a trade secret.

　　It is important to be aware that courts use a “rule of reason” in deciding whether a noncompete agreement is legal. In other words, the terms of a non-compete agreement must be reasonable as to the duration, territory, and scope of the activity. A restraint is generally enforceable if it is fairly designed to protect the employer’s trade secrets. For example, a one-year restriction is generally acceptable.

　　There are restrictions imposed on enforcing non-compete agreements against employees and some jurisdictions have even barred them. For example, California has state laws that heavily restrict, and in some cases, completely bar, non-compete agreements. California does not apply a rule of reason in evaluating an agreement that prevents an individual from pursuing any lawful occupation, but instead, requires that the trade secret holder prove that the non-compete agreement is absolutely necessary to protect its trade secrets.

　　You may wish to consult a lawyer in your local area if you have questions about either of these agreements or your state’s laws.