Protecting Trade Secrets and Confidential Information in Georgia - C. Geoffrey Weirich and Daniel P. Hart

• Publication year: 2009

Protecting Trade Secrets and Confidential Information in Georgiaby C. Geoffrey Weirich^* and Daniel P. Hart^**

I. Introduction

To corporate and employment lawyers, it is a familiar conversation.

"I need your advice," says the General Counsel of one of your clients. "About a year ago we hired a new VP of R&D to oversee the development of a new product that we plan to launch next quarter. Unfortunately, just last week he gave us notice of his resignation, effective immediately. During his exit interview, he told our VP of HR that he plans to pursue some 'consulting work. He was pretty vague about it, but I've since heard through the grapevine that he's planning to work as a consultant for one of our major competitors.

Our management team is afraid that he's going to disclose confidential information about our new product before we even launch it. We re also afraid that some of our other top R&D people are going to follow him over there."

"To make things even worse, a few months ago one of our top sales guys left the company and is now working for a different competitor. During the time that he worked for us, he had access to all our confidential customer info. We suspect that he's using some of that info to solicit our customers on behalf of his new employer."

"If we keep losing our top people to our competitors, we just can't stay competitive in this market. What can we do to ensure that our employees won't use our confidential information to compete against us?"

New technologies and the emergence of a global economy have moved the United States from a manufacturing-based economy to an information-based economy. These and other economic and social trends also have made employees increasingly mobile. Now, more than ever, it is imperative that employers take appropriate steps to protect their valuable, confidential, and proprietary information before its security is threatened. This Article examines vehicles that are available for the protection of such information under Georgia law and gives some practical tips for avoiding common pitfalls.

II. Protecting Trade Secrets

Many types of confidential information can be protected through agreed-upon restrictive covenants. Information that qualifies as a "trade secret," however, receives a higher level of protection pursuant to the Georgia Trade Secrets Act of 1990 (GTSA).¹ Under the GTSA, employers can obtain both equitable and legal relief for misappropriation of their trade secrets.² Nearly identical to the Uniform Trade Secrets Act,³ the GTSA employs an expansive definition of "trade secrets" that protects many more types of confidential information than those that were previously protected under Georgia common law.⁴ Further, the GTSA establishes a carefully articulated enforcement scheme designed to protect such information.⁵

Nevertheless, the statute is not a one-size-fits-all solution for protecting confidential information. To state a claim for relief under the GTSA, a plaintiff must demonstrate both (1) that the confidential information in question constitutes a "trade secret" within the meaning ofthe statute and (2) that the opposing party misappropriated the trade secret.⁶ As discussed below, each prong of this test can be difficult to prove.

A. Trade Secrets

The GTSA defines a "trade secret" as the following:

[I]nformation, without regard to form, including, but not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or suppliers which is not commonly known by or available to the public and which information:

(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.⁷

Although this definition is comparatively expansive, the GTSA's protections are limited in two key ways. First, the GTSA does not

protect information—no matter how proprietary or confidential—unless the information in question was subject to "reasonable" efforts to maintain its secrecy.⁸ Second, the statute does not protect some types ofinformation regardless ofthe efforts that are undertaken to maintain its secrecy.⁹

1. "Reasonable" Efforts to Maintain Secrecy. Employers cannot prevail on a GTSA claim unless they demonstrate that they used "reasonable" efforts to protect the secrecy of the information in ques-tion.¹⁰ Although employers taking appropriate precautions generally can satisfy this standard,¹¹ in some cases Georgia courts have dismissed misappropriation claims because the employer's efforts to ensure the secrecy of its purported trade secrets were inadequate.¹²

For example, in Bacon v. Volvo Service Center, Inc.,¹³ an automobile repair company brought a GTSA action against its former employee for misappropriation of a confidential customer list. The employer alleged that its former employee, a repair technician, had, prior to quitting his employment, printed a list of the employer's customers from one of the employer s computers and then subsequently used the list to solicit customers on behalf of a new business that he started after he re-signed.¹⁴ The Georgia Court of Appeals determined that the company had not taken adequate precautions to maintain the confidentiality of the customer list because employees were not told that the information in the customer list was confidential, they were not asked to sign a confidentiality agreement, the list was available on two company computers and was not password-protected, and the same information could be gleaned from repair orders that employees were allowed to retain indefinitely.¹⁵ Accordingly, the court held that the customer list was not a trade secret under the GTSA.¹⁶

Likewise, in Diamond Power International, Inc. v. Clyde Bergemann, Inc.,¹⁷ a misappropriation action brought by a manufacturer against its competitor and a former employee, the United States District Court for the Northern District of Georgia found that information about the components of one of the manufacturer's products was not a trade secret under the GTSA because the manufacturer failed to take reasonable efforts to maintain the secrecy of that information.¹⁸ The manufacturer required its customers to refrain from opening the product (and, thereby, discovering the components of the product) at risk of voiding the manufacturer s warranty.¹⁹ Nevertheless, the court determined that this step alone was insufficient to confer trade secret protection because the components that made up the product were commercially available and the manufacturer provided an information sheet to customers at their request that included the confidential information.²⁰ Thus, the court held that although the manufacturer s process or method of manufacturing the product may be subject to protection as a trade secret, the identity of the product's components was not subject to the same protection.²¹

In contrast, in Stone v. Williams General Corp. ,²² a former employer sued three of its former salespeople for trade secret misappropriation, alleging that prior to resigning, the employees copied confidential customer lists and later used the lists on behalf of a competing business.²³ The Georgia Court of Appeals held that the employer had taken reasonable steps to ensure the secrecy of the customer lists in question.²⁴ Specifically, the employer had restricted employees' access to the customer lists, prohibited employees from leaving the building with them, and required employees to sign a restrictive covenant agreeing that for a period of one year after their termination or resignation they would not contact any customer whom they had contacted while with the company or give the names of these customers to any other individual or company.²⁵ Accordingly, the court held that sufficient evidence existed to support a jury's verdict in favor of the employer on the GTSA claim.²⁶

As these cases demonstrate, employers cannot adequately protect their confidential and proprietary information merely by passively relying on the protections of the GTSA. Although there is no universal rule about what measures are sufficiently reasonable in all situations, at a minimum employers should restrict access to confidential and proprietary information (through, for example, the use of passwords and locked filing cabinets), should make such information available only to employees who have a legitimate need for the information, and should implement clear policies prohibiting employees from disclosing confidential or proprietary information with which they are entrusted. In addition, employers who are seriously concerned about the use of customer lists and other information that is difficult to secure should require employees to sign restrictive covenants agreeing that they will not disclose such confidential information or engage in specified competitive activities during their employment and for a finite period of time thereafter.²⁷

2. Categories of Information that are Outside the Statutory Definition of "Trade Secret." Notwithstanding the broad language of the GTSA, some categories of information simply do not fall within the statutory definition of "trade secret," regardless of the efforts that are undertaken to maintain their secrecy. Among the notable examples of such information are "intangible" customer lists, which have been the subject of considerable litigation in Georgia over the past fifteen years. Although the GTSA expressly includes "a list of actual or potential customers or suppliers" in its definition of a trade secret,²⁸ it is unclear from the language of the statute whether trade secret protection applies not only to tangible customer lists that are...