In the last two months, juries in two states have each awarded more than $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 can be appealed and may be resolved. However, the size of the verdicts provides some important reminders for companies. First, the verdicts show that trade secrets can be of enormous value to companies. Companies that possess trade secrets must ensure that they are protected by non-disclosure agreements (“NDAs”) and other protections.
The extent to which NDAs will be needed varies from company to company. However, companies should seriously consider whether NDAs are needed with respect to the following categories of persons or companies: (1) employees handling confidential information or trade secrets, (2) consultants exposed to such information, (3) actual clients or (4) actual or potential suppliers, (5) other companies with which a company is considering a joint development effort or “partnership” arrangement, and (6) potential investors or candidates for mergers and acquisitions.
In addition to NDAs, a company will need to take other steps to keep the information secret. These steps may include limited distribution, regular warnings to employees about the need to maintain confidentiality, locked storage of confidential information, password protection, and a host of other potential protections.
Rather, companies that are hiring employees who previously worked for competitors must take steps to ensure that those employees do not bring their former employer’s trade secrets with them. This can be addressed through labor agreements and other measures.
Employees who are 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 in writing) with the employer regarding what the employee can and cannot take when leaving, and then following through on that understanding.
