Jeff on Call: File Trade Secrets

Jan 15, 2010


Q: How does the court system protect my client and candidate files as trade secrets?

If you have a valid employment agreement (only a 20% chance), there are two sure ways:

Injunctive relief to stop unauthorized use. The federal and state courts use procedures known as a temporary restraining order (TRO) and preliminary injunction to immediately stop and freeze any use of your client and candidate information.

This is followed by the award of money in the form of compensatory, punitive, and exemplary damages. These awards regularly extend into millions of dollars, and often include attorney’s fees.

In 1973 when I wrote the only trade secrets act for our industry (California Business and Professions Code, Section 16607). Since that time, there have been many general trade secrets laws enacted by state legislatures.

The most significant is the Uniform Trade Secrets Act. Since the UTSA is essentially the same in the dozens of states that have adopted it, there are many published decisions at the federal and state levels interpreting it.

The UTSA expands the definition of “trade secrets” far beyond merely contact information on clients and candidates. Today, it can include such items as:

  • Prospective clients and candidates.
  • Contacts (decision-makers) at prospective and present clients.
  • Hiring preferences at prospective and present clients.
  • Temp bid rates and markups.
  • Background and contact information on past, present, and future temps.
  • Unique compensation plane.
  • Unique recruiting techniques.

Now let’s look at how the court system works to protect your rights. The legal remedies available are the only two you could want: stopping the conduct and awarding money for the wrongdoing.

Temporary Restraining Order (“TRO”)

TRO’s are granted ex parte (“one party” – usually on 24 hours telephonic notice). They are psychological warfare.

You can’t afford to lose this hearing. That person who said “‘Tis better to have tried and failed than not to have tried at all.” Never tried a trade secrets case.

The decision is usually made by the judge in chambers. The burden of proof is irreparable injury. It is considered extraordinary relief, since someone is being deprived of his livelihood without having his day in court.

A judicial bond must be posted in case the judge made a mistake. The underlying complaint must be filed concurrently. That starts the lawsuit.

The TRO remains in force only 30 days. So the clerk of the court must set the hearing for an Order to Show Cause Re Preliminary Injunction within that time.

Preliminary Injunction

This is essentially a noticed TRO, whereby the other party has the opportunity to file opposing pleadings (court papers) including affidavits (statements under oath) and points and authorities (analysis and citations of cases, statutes, etc.).

Here too, the decision is almost always made by the judge in chambers. But oral argument in open court is usually permitted.

The preliminary injunction remains in full force and effect during the pendency of the litigation (until settlement or trial).

Permanent Injunction

This is issued at the trial. (A preliminary injunction ripens into a permanent injunction if it is ordered.

The 12 causes of action (legal theories) we use make trade secrets litigation a very expensive, painful experience for recruiters who violate the law.

The most important thing you can do is have a properly-drafted employment agreement. Over 80% are not. They are also not updated as statutory and case law changes, or administrative rulings are issued.

Use a well-drafted agreement, plead the case properly, and the court system protects your trade secrets very well!

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