The Role of Contract

 
 

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To qualify as a trade secret, information must have independent economic value and it must be the subject of efforts to keep it secret. 

A duty to keep information confidential may arise even in the absence of a contract.  There may be an understanding based on customary practice in an industry or longstanding practices in a relationship.

Duty of Confidentiality

An owner may require employees or third parties to agree that they will not disclose information.  Such a confidentiality agreement directly serves to keep secret the protected information of a trade secret.  Sometimes a confidentiality agreement may arise where the arrangement is based on oral representations and circumstances. 

Confidentiality Agreement

A non-competition agreement bars an employee from engaging in activities that would compete with the employer, both presently and in the future after the employment ceases.  By barring employees from competing, a trade-secret owner reduces the likelihood that the employee would be a in position to disclose the confidential information.

Non-Competition Agreement
Unenforceable Employment Restraints

Non-competition agreements are not always enforceable.  They can be problematic because they introduce the possibility that a former employee cannot earn a living.  If the former employee has a specialized skillset for an industry and the noncompetition bars her from employment with any competitor in that industry, she is left without a means to earn a living (at least in the area in which she is skilled).  Courts, then, are wary of enforcing noncompetition agreements. 

The non-competition agreement must be reasonable, in terms of restrictions on the scope of activity, the time period, and the geography. 

Reasonableness of Restraints

Question 2

Barney works for BIG CANDY INC. (BCI).  As a condition of his employment, BCI requires him to sign a non-compete agreement.  The agreement specifies that he will never work for another candy-maker anywhere in the country, in any capacity.  Five years later, Barney terminates his employment with BCI.  Six years after the termination, he begins working for SMALL CANDY CO. (SCC). 

Question:  Is the non-compete agreement enforceable against Barney for working at SCC?

Question 3

MEAN COMPANY (MC) requires its employees sign a non-compete agreement, as a condition of employment, that forbids them from working for another company that competes with MC while employed with MC.  Sherry is an employee of MC who has signed the agreement.  She is terminated for selling confidential information to competitors of MC.  After Sherry leaves MC’s employment, MC seeks an injunction to preclude Sherry from working for any of the competitors.

Question: Is MC likely to prevail on its suit for an injunction?

Answers
 
 
 
 
 
 
 
Practice Problems

Question 1

Beatrice works for BIG CANDY INC. (BCI).  As a condition of her employment, BCI requires her to sign a confidentiality agreement.  The agreement specifies that she will never disclose any information relating to how to make any candies at BCI.  Five years later, Beatrice terminates her employment with BCI.  Six years after the termination, she begins working for SMALL CANDY CO. (SCC).  While there, Beatrice shares a secret recipe from BCI for making candy.

Question: Is the confidentiality agreement enforceable against Beatrice for disclosing BCI’s secret recipe to SCC?

Answer to Question 3

Perhaps.  The non-compete provision terminates upon Sherry’s employment termination.  So MC could not obtain an injunction on that basis.  However, Sherry has breached a duty to keep the trade secret confidential, resulting in trade-secret misappropriation.  As a remedy for the misappropriation, a court might enjoin her from working for the competitors.

Answer to Question 2

Not likely.  A noncompetition agreement must be reasonable, in terms of restrictions on the scope of activity, the time period, and the geography.  BCI’s non-compete agreement is not reasonable.  It restricts Barney from working in any capacity, at any time in the future, at any place in the country.  A court would not likely enforce this as it restricts Barney’s ability to earn a living for himself.

Answer to Question 1

Yes.  The confidentiality agreement specifies information relating to making the candies.  Beatrice must keep this confidential for as long as the candy recipes remain a trade secret.