TRADE SECRET PROTECTION ANDENFORCEMENT TEAM

KEEPING SECRETS SAFE

MANAGEMENT’S OBLIGATION TO PROTECTCOMPETITIVELY-SENSITIVE INFORMATION

Trade secret laws provide a potent weapon for protecting

the confidentiality of competitively-sensitive business

information. This protection is easily lost, however, if a

business fails to actively guard the information’s secrecy.

Now, increased attention and regulation is being focused

on management’s obligation to protect and preserve

assets. As a result, the failure to appropriately protect

trade secrets may not only result in significant business

harm, but may also rise to the level of a breach of fiduciary

duty on the part of management.

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Framework for Protection

State law protects trade secret information fromuse or disclosure outside the business, providedthe business has taken reasonable steps tomaintain the secrecy of that information.Virtually any type of information can qualify as a trade secret as long as it is not generallyknown outside the business and is valuablebecause it is not generally known.

The courts have expressly recognized many typesof information as trade secrets, such as businessplans, financial data, customer lists, customerpurchasing data, pricing information, supplierinformation, product design and developmentinformation, formulae, recipes, manufacturingprocesses, and marketing strategies. Evencommercially available data and information may qualify as a trade secret if manipulated orcatalogued in a way that makes it unique orotherwise not readily ascertainable. The key to taking advantage of this legal protection is the effort a business makes to maintain theconfidential status of sensitive information.

Management’s Obligation To Preserve

Senior management has a legal obligation toprotect and preserve the trade secrets of acompany. For public companies, the Sarbanes-Oxley Act (SOX) of 2002 creates a statutory duty to identify, value, and control these assets,including “intangible assets.” Trade secrets areunquestionably within the scope of intangibleassets. As a result, public companies are obligatedto identify trade secrets, determine their value,and implement procedures to monitor and controlthese assets to ensure protection. Yet, many publiccompanies have not focused on trade secret

TRADE SECRET PROTECTION ANDENFORCEMENT TEAM

protection as part of SOX compliance procedures.This failure creates risk not only for the business,but also for the executives certifying the business’SOX compliance.

For non-public entities, the obligation to protecttrade secrets may rise to the level of a fiduciaryresponsibility. Drawing in part from SOX, tradesecrets clearly constitute an asset class. The seniormanagement of any business that has not takensteps reasonably necessary to preserve assets runsthe risk of a breach of fiduciary duty claim ifmaterial harm to the business results from such a failure.

Developing a Protection Plan

To protect trade secrets, businesses must begin by identifying their competitively-sensitiveinformation. An extensive audit of alldepartments is necessary to capture the array ofinformation that may ultimately be worthy oftrade secret protection. Once identified, the

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business must determine who currently has accessto the information and who actually needs access.Only then can the business make an informedand practical decision about what methods toimplement to best protect the information. Thesemethods of protection should be designed to:

1. Ensure, to the extent practical, that access tothe information is limited to those having abusiness need to know.

2. Establish controls to prevent disclosure of the information beyond those having a need to know.

3. Apprise anyone working with the informationthat it is confidential and must be treated as such.

4. Create a reporting mechanism to ensure that management is made aware of anyinappropriate or unauthorized use or disclosureof the information.

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TRADE SECRET PROTECTION ANDENFORCEMENT TEAM

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Protecting Our Clients’ Interests

Benesch has created a Trade Secret Protection andEnforcement Team drawn from our Labor andEmployment, Intellectual Property, and TrialPractice Groups. This interdisciplinary approachensures that our clients’ trade secret issues arethoroughly addressed from all perspectives,including whether seeking patent protection wouldbe advisable. We assist clients in conducting auditsto determine the type of information amenable totrade secret protection, in designing protectionplans to secure the information, and, working intandem with accounting professionals, in thevaluation of trade secrets.

In many, if not most instances, protection oftrade secrets involves the use of noncompeteagreements. Our Trade Secret Protection andEnforcement Team regularly advises clients onthe structuring, implementation and enforcementof these important agreements.

Protection of trade secrets also involves enforcingtrade secret rights when necessary. Benesch’sTrade Secret Protection and Enforcement Teamhas tried dozens of trade secret cases involvingmany different industries throughout the UnitedStates. A representative sample of these casesincludes the following:

• Obtained temporary injunction relief on behalfof a polymer processing company prohibitingemployment of a technical employee by acompetitor under the theory of inevitabledisclosure. We subsequently achieved afavorable settlement containing significantmarket restrictions on the competitor. (Ohio)

• Represented a publicly held aerospacemanufacturing company against former plantmanagers and a former supplier who formed

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a competing business using the client’smanufacturing operations trade secrets. Weobtained a preliminary injunction precludingthe competitor from manufacturing competitiveproducts that was extended via Consent Decreealong with a substantial settlement. (Ohio)

• Obtained temporary and permanent injunctiverelief on behalf of an industrial productdistributor in an action against a competitor,which hired away the majority of an entireregion’s sales force having extensive trade secretinformation regarding customers. (Texas)

• Represented a pharmaceutical distributoragainst two former executives who started acompeting business. The case was settled withextensive competitive restrictions and asignificant monetary settlement in favor of ourclient. (New Jersey)

• Represented an Internet Service Providerwhose former employee, together with acompetitor, surreptitiously gained access to theclient’s information system and transferred alarge volume of trade secret material. Wesuccessfully obtained preliminary injunctiverelief and achieved a substantial monetarysettlement. (Pennsylvania)

Helping You Protect Vital Information

Trade secret protection is evolving from a soundand necessary business practice to a matter ofregulatory and fiduciary compliance. Trade secrets are often among the most valuable assets a business possesses. Designing andimplementing a comprehensive plan to identify,evaluate, and protect trade secrets is a complexundertaking. Benesch’s Trade Secret Protectionand Enforcement Team is ready to help yourcompany achieve the level of compliance andprotection it needs in today’s ultra-competitiveenvironment. Talk to us about getting started orabout how to take your current protection effortsto the next level.

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Benesch, Friedlander, Coplan & Aronoff LLP has been providing sophisticated legal and business advice to regional and national middlemarket and emerging companies, public companies,entrepreneurs, venture capitalists, and privateequity funds and their portfolio companies since1938. We are committed to building relationshipswith clients, and strive to be counselors, advocates,and partners in all aspects of a transaction orlitigation issue. Playing an instrumental part inclients’ successes is the goal of each member of theBenesch team. Today, we have offices in Clevelandand Columbus, and our subsidiary, Benesch PacificLLC, has a representative office in Shanghai.

• BusinessReorganization

• China

• Compensation and Benefits

• Construction

• Corporate andSecurities

• E-Document Discoveryand Retention

• Estate Planning and Probate

• Franchising

• Health Care

• Insurance

• Intellectual Property

• Labor and Employment

• Litigation

• Loan Transactions

• Polymer, Plastics and Packaging

• Private Equity

• Public Law

• Real Estate andEnvironmental

• Tax

• Trade Secret Protection

• Transportation and Logistics

• White Collar Crime

Principal Practice/Industry Areas

Cleveland(216) 363-4500

Columbus(614) 223-9300

www.bfca.com

Cleveland

2300 BP Tower

200 Public Square

Cleveland, Ohio 44114-2378

Phone: (216) 363-4500

Fax: (216) 363-4588

Columbus

88 East Broad Street, Suite 900

Columbus, Ohio 43215-3506

Phone: (614) 223-9300

Fax: (614) 223-9330

www.bfca.com