In the past two months, juries in two states have each awarded over $30 million in damages in separate trade secret cases. A California jury awarded Hansen Medical, Inc. $36.3 million in damages in a trade secret and breach of contract case against Luna Innovations, Inc. in late April. More recently, a jury in federal court in Atlanta awarded Lockheed Martin $37.3 million in a trade secret case against L-3 Communications Corp. and a subsidiary.
Each of these cases may be appealed and will perhaps be settled. Nevertheless, the size of the verdicts alone provides some important reminders for businesses. First, the verdicts show that trade secrets can have enormous value to businesses. Companies holding trade secrets should make sure that they are protected through non-disclosure agreements (“NDAs”) and other protections.
The extent to which NDAs will be needed varies from business to business. However, businesses should strongly consider whether NDAs are needed regarding the following categories of people or businesses: (1) employees handling sensitive information or trade secrets, (2) consultants exposed to such information, (3) actual or potential customers, (4) actual or potential suppliers, (5) other companies with whom a business is considering a joint development effort or “partnering” arrangement, and (6) potential investors or merger and acquisition candidates.
In addition to NDAs, a company will need to adopt other steps to maintain the secrecy of the information. These steps can include limited distribution, periodically warning employees of the need to maintain confidentiality, storing sensitive information under lock and key, password protection, and a host of other potential protections.
Conversely, companies who are hiring employees who formerly worked for competitors should take steps to make sure that those employees do not bring their former employer’s trade secrets. This can be addressed through employment agreements and other measures.
Employees considering leaving their employer and working for a competitor or starting their own business should also take steps to avoid becoming involved in trade secret litigation. This can be as simple as having a clear understanding (preferably written) with the employer regarding what the employee can take and cannot take upon leaving, and then abiding by that understanding.
John L. Watkins is a Shareholder of Chorey, Taylor & Feil, A Professional Corporation, a business litigation and business law firm in Atlanta. John has been a business litigation attorney for over 25 years, and currently concentrates on trade secret, insurance coverage, corporate, shareholder and commercial contract disputes. John also handles various business issues for clients, including reviewing and negotiating equipment sales contracts, non-disclosure agreements, and other business documents. John represents domestic companies and a number of international companies or their U.S. subsidiaries.