Lessons in Trade Secrets from the NFL

Posted on September 23rd, 2009 by Tim Eavenson | No Comments »
Filed under: ., HR Issues |

The first day of law school, my Contracts professor told us that, by the time we graduated, everything we saw or did would trigger some legal concept or court case or statute in our brain.  Someone asks to borrow your jacket?  Bailment.  Get an invoice from a mechanic?  How many ways is it a deficient contract?  While I can get through my day without recalling Taylor v. Caldwell, I still can’t get away from labor & employment law when I try to relax.

This time around, all I had to do was watch Sunday Night Football.

This week, the Patriots and Jets revived one of the best rivalries in the NFL, a bitter divide that New England has dominated for years.  But the Jets had a little extra help going into the game:  two weeks ago, the Patriots let backup quarterback Kevin O’Connell go.  He was quickly signed by New York and drilled for any inside information he could provide the Jets on New England’s strategy.

According to the NY Daily News, both teams downplayed O’Connell’s information sharing.¹  Plus, this is not the first time one of the two teams has adopted what the paper called a “sign-pump-discard strategy” of hiring a recently-released player, drilling them for information, and canning them after the game.  But I think the results should speak for themselves – the Jets beat the Patriots in the Meadowlands for the first time in years, and so far, O’Connell is still playing for New York.

Here’s the takeaway: your business is not the NFL. ² In the corporate, non-professional-sports world, hiring an employee because of her knowledge of a competitor’s business a pretty big no-no.  A company generally has proprietary rights to its trade secrets, and employees that switch to rivals with these secrets to share can quickly run afoul of state employment laws.

So, what is a trade secret?  A recent blog post by TS expert (and new Twitter acquaintance) Russel Beck spells it out nicely:

“‘Trade secret‘ means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) derives independent 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 (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.”

*** In sum, a trade secret has three essential components: (1) information; (2) value; and (3) secrecy.

Normally, that means stuff like client databases, patents, and the like.  A playbook would likely fall into that category, too.  So, how do you protect your secrets from competitors that might snatch up one of your second-string quarterbacks?  A couple of suggestions:

1. Make It a Trade Secret.

Redundant?  Yes – and it may feel that way when you’re doing it, too, but making sure everyone knows a trade secret is just that – secret – is key to protecting your information.

If you don’t want a client list disseminated to the public, put “CONFIDENTIAL” on the document.  Keep your patents, formulas, code, etc. behind lock-and-key, either literally or virtually.

Many courts will ask what precautions you took to protect your info as a way of determining if something was a trade secret in the first place, so this step is really, really important.

2. Let Your Employees Know.

This, of course, means confidentiality agreements.  An employee’s signature acknowledging that your confidential information cannot be shared is probably the strongest defenses if that same info ends up in a competitor’s hands.  Depending on your state, these agreements may be piggy-backed with a noncompete agreement, but in many cases that’s not necessary or advisable.  See #3 for more specifics on that.

If your business involves any type of proprietary information – a recipe, an algorithm, a specific marketing or demographic study – your employees should sign something at least saying that they acknowledge your right to keep the thing secret.

You may also want to discuss the issue with your employees at some point.  Especially if you haven’t had nondisclosure documentation, asking a long-time employee to sign something like that can put a bad taste in their mouths.  Talking to them before you toss the piece of paper in front of them can put the issue in a positive light – protecting trade secrets should not be an “us versus them” thing, but without good communication employees may take it as just that.

3. Talk to an Attorney.

Trade secret laws vary from state to state, and many are piecemeal mixtures of statutes and decades of case law that can lead to intricate rules about what is a trade secret and how it must be protected.  If you are going to have your employees sign NDAs, or if you have something that you aren’t sure fits the description, call an attorney.

Don’t wait until it gets stolen and used against you – by then there may be little your lawyer can do.  Besides, a lot of times NDAs are issued as part of a larger anticompetition strategy, and only a good lawyer can tell you what’s legal and what’s not when it comes to restricting your employee’s ability to work for a competitor.

There are lawyers out there who can help  you regardless of the size of your business or budget.  If you need some help finding one, you can email me – I may know someone.

Finally…

Back to the NFL for one last piece of advice. After the game, some reporters asked Tom Brady about the significance of New York’s new backup QB and the information he may have provided.  In analyzing his team’s loss, Brady shows that the right mentality about trade secrets includes putting them in the appropriate place on the scale of importance.   From the NYDN:

“You’ve got to change some things because I’m sure Kevin has told them some things that can help them,” Brady said. “But at the end of the day, it comes down to how well you can execute. Having some inside information…you still have to throw the ball, complete it and block.”

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~~ Footnotes ~~

1. The Jets also entered the game with a new starting quarterback who I hear has done some good things elsewhere… |↩|
2. Unless you’re own a football team.  In which case, I can’t help you. |↩|