Unfortunately, customer poaching and trade secret theft are all too common in the United States. Unscrupulous competitors and employees resort to these illegal tactics to bolster their profits and undermine their rivals. However, businesses can take legal measures to curb fraudulent activities.
Fraudulent competitive practices manifest in various ways, including:
- Departing employees who reach out to their former client contacts
- Executives defecting to competing companies, taking valuable proprietary information with them
- Employees absconding with trade secrets to their new employers
Examples of what can be illegally taken from one’s company and shared with another include customer lists, business plans, product designs, proprietary software code, and financial data.
Safeguard your valuable assets and confidential information.
Companies must take proactive steps to ensure the preservation of trade secrets crucial to their success. Marketing tactics, lead lists, development designs, and more are all susceptible to theft, which can inflict significant financial damage to the business.
Here are several strategies that businesses can employ to safeguard their interests:
- Catalog Trade Secrets: This entails identifying valuable data, client lists, trademarks, patents, and other similar information that provide a competitive edge to the company.
- Physical and Digital Security: Adequate measures should be taken to secure trade secrets, whether they involve locked cabinets, password-protected networks, or the utilization of watermarks and confidential stamps on physical and digital documents.
- Employee Training: Comprehensive training on confidentiality should be provided to all employees, ensuring they understand how to handle sensitive company information and recognize what constitutes a trade secret.
- Confidentiality Agreements: It is critical for all employees, even those without direct access to trade secrets, to sign confidentiality agreements. These agreements serve as a reminder that named assets are valuable, proprietary and must never be disclosed to competitors or third parties.
- Non-Solicitation Agreements: Employees should also be required to sign non-solicitation agreements, which prohibit them from contacting company clients for a specified period after retirement, resignation, or termination. Additional clauses can also stipulate that employees may not engage in communication with clients during that timeframe, even if the client initiates contact.
By implementing these measures, businesses can strengthen their ability to safeguard valuable trade secrets and mitigate the risks associated with their exposure.
Take Quick Action to Limit Customer & Trade Secret Theft
Whether the departing worker is a single incident or part of a larger defection, a business must immediately act to prevent the theft of valuable proprietary assets.
If a business learns that one or more employees are leaving, the following should be done immediately:
- Gather computers and any other electronics used by the employees in question.
- Ensure all backups are not overwritten, possibly destroying needed evidence.
- Check for missing files and documents.
- Talk with trusted employees about the situation.
- Contact a business attorney.
Issue Cease-and-Desist Letters
If you discover that a former employee is utilizing your customer data or trade secrets, you can seek legal recourse by having your attorney send a cease-and-desist letter. Such a letter serves as a formal demand for immediate cessation of their unlawful actions while also warning of potential further legal consequences if they fail to comply.
Cease-and-desist letters are typically appropriate in the following scenarios:
- Breach of Contract
- False Light
- Violations of Nondisclosure Agreements
- Intellectual Property Infringement
- Misappropriation of Trade Secrets
Civil Lawsuits Against Current or Former Employees
Internal company leads or client lists are protected by law under certain circumstances. To be considered a trade secret, the list cannot be ascertainable from public sources. If the stolen information caused injury to your business and there was a valid contractual relationship, a business can enforce their trade secret rights in court.
A court has the power to do the following:
- Grant an injunction ordering the individual to take or not take an action
- Order the employee to pay damages for the breach of contract or for intellectual property infringement
- Order the employee to compensate the company for any legal costs
A successful lawsuit must show that the employee knew of their duties to keep company information confidential, they intentionally breached agreements regarding confidential information, and purposely acquired the information for improper use.
Laws Against Unfair Business Practices
Arizona does not have a specific “Unfair Business Practices Act” that directly addresses the theft of trade secrets. However, trade secrets are protected in Arizona, as in most states, through various legal mechanisms, including common law and statutory provisions.
Here are some key aspects of trade secret protection in Arizona:
- Uniform Trade Secrets Act (UTSA): Arizona has adopted the Uniform Trade Secrets Act, which provides a legal framework for the protection of trade secrets. This law allows businesses to take legal action against individuals or entities that steal, misappropriate, or disclose their trade secrets without authorization.
- Definition of Trade Secrets: The UTSA defines trade secrets broadly and includes information such as formulas, patterns, compilations, programs, devices, methods, techniques, or processes that derive economic value from not being generally known or readily ascertainable by others.
- Remedies: Under the UTSA, businesses can seek various remedies if their trade secrets are misappropriated. These remedies may include injunctive relief to prevent further dissemination of the trade secret, damages for economic losses, and in some cases, attorney’s fees.
- Statute of Limitations: Arizona’s UTSA includes a three-year statute of limitations, starting from the date when the misappropriation was discovered or should have been reasonably discovered.
- Confidentiality Agreements: It’s common for businesses to use confidentiality or non-disclosure agreements with employees, contractors, and business partners to protect their trade secrets.
- Employee Mobility: Arizona, like many states, balances trade secret protection with the ability of employees to move between jobs. The UTSA generally does not prevent employees from using general skills and knowledge acquired during their employment with a previous company.
- Consulting Legal Experts: If you believe your trade secrets have been stolen or misappropriated, it’s essential to consult with an attorney experienced in trade secret law. They can help you determine the best course of action, which may include filing a lawsuit to protect your trade secrets and seek damages.
Non-Compete Agreements in Arizona
non-compete agreements in Arizona are governed by state law. Here are some key points to consider regarding non-compete agreements in Arizona:
- Non-compete agreements are generally enforceable in Arizona, but they must meet certain legal requirements to be valid and enforceable.
- To be enforceable, a non-compete agreement in Arizona must be supported by adequate consideration. In the context of employment, this typically means that the employee must receive something of value in exchange for agreeing to the non-compete, such as a job offer, salary, or access to trade secrets.
- Non-compete agreements in Arizona must have a reasonable duration. What is considered reasonable can vary depending on the circumstances but typically ranges from six months to three years. Courts will assess the reasonableness of the duration on a case-by-case basis.
- Geographic Scope:
- The geographic scope of a non-compete agreement must also be reasonable. It should be limited to the areas where the employer has a legitimate business interest in protecting its trade secrets, customer relationships, or other confidential information.
- Legitimate Business Interests:
- Arizona law recognizes that non-compete agreements must protect legitimate business interests of the employer, such as trade secrets, confidential information, and customer relationships.
- Overbreadth and Blue Penciling:
- If a non-compete agreement is overly broad or unreasonable in its restrictions, an Arizona court may “blue pencil” or modify the agreement to make it more reasonable and enforceable. However, the court cannot rewrite the agreement entirely.
- Certain professions and industries in Arizona may be exempt from non-compete agreements. For example, physicians may have restrictions on non-compete agreements in certain situations to ensure access to medical care.
- Legal Advice:
- It’s advisable for both employers and employees to seek legal counsel when drafting, entering into, or challenging non-compete agreements. An attorney experienced in Arizona employment law can provide guidance on the enforceability and legality of such agreements.
- Trade Secrets and Confidentiality Agreements:
- In some cases, employers may use separate agreements, such as confidentiality agreements, to protect trade secrets and confidential information, rather than relying solely on non-compete agreements.
Businesses Have Legal Rights to Fight Customer Theft
At the Anthony Law Group, we offer decades of experience in handling business and contract litigation cases in both Arizona and federal courts. Our deep understanding of the legal landscape gives us a distinct advantage in advocating for our clients. We represent companies in safeguarding their trade secrets and seeking compensation for any financial or reputational harm they have suffered. Additionally, we provide robust defense for individuals and companies falsely accused of misappropriating trade secrets.
Have you experienced customer loss due to illegal business practices? Are you uncertain about the enforceability of your current employment agreements? Consult with one of our skilled attorneys to discuss your rights and explore your options. Contact us online or call 602-362-2396 to begin the process.