Three Quick Steps To Avoid Startup Death By Trade Secret Misappropriation Lawsuit

Startups have a lot to worry about. Chances are they are behind schedule, not getting enough traction, and running out of money, so why worry about something as unlikely as a trade secret misappropriation lawsuit? Not because it is more important than funding or traction, but because the cost of addressing it is so small […]

Startups have a lot to worry about. Chances are they are behind schedule, not getting enough traction, and running out of money, so why worry about something as unlikely as a trade secret misappropriation lawsuit? Not because it is more important than funding or traction, but because the cost of addressing it is so small while the risk of ignoring it so large. There are three simple things you could do that will protect you from a trade secret misappropriation suit. But first, let me scare you into action.

Culled Paper by Dvortygirl

Trade secret misappropriation is a very popular type of litigation brought against successful startups. It can ruin your company and land you in jail. If you (or your employees) have a poor relationship with a former employer, that employer could file a trade secret case alleging that something your company built was based on something you learned at your last job. If they can show you removed work files from your workplace, they might just have a case. If you have ever emailed yourself a work file, saved something on Dropbox, kept a copy of an old file to use as a template, or have an old research document backed up at home, then you removed work files. You are now vulnerable to a lawsuit. You might have to spend all of your cash and attention fighting it. Your investors might sue to recover their investment because you might not own the IP anymore. You might lose your startup, land in jail, or your friends might tell your story to their kids when they misbehave.

Or you could follow these three steps and be done with it before lunchtime.

1.) Make sure your Invention Assignment Agreement is rock solid.

Make it broad and use a lot of synonyms. Look how law firm Orrick defines the word “Invention” in their Invention Assignment Agreement, available as part of their Free Startup Forms:

‘“Inventions” means discoveries, developments, concepts, designs, ideas, know how, improvements, inventions, trade secrets and/or original works of authorship, whether or not patentable, copyrightable or otherwise legally protectable.  I understand this includes, but is not limited to, any new product, machine, article of manufacture, biological material, method, procedure, process, technique, use, equipment, device, apparatus, system, compound, formulation, composition of matter, design or configuration of any kind, or any improvement thereon.  I understand that “Company Inventions” means any and all Inventions that I may solely or jointly author, discover, develop, conceive, or reduce to practice during the period of the Relationship…”‘

If it doesn’t already have it, bake some of that language into your own Invention Assignment Agreement. Or download and use Orrick’s with this link.

2.) Have every new employee sign the following checklist and certification, provided generously by the lawyers at Wilson Sonsini.

It may seem excessive, but this thing is a shield you can use to fend off future trade secret attacks.

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CHECKLIST AND CERTIFICATION FOR NEWLY-HIRED EMPLOYEES

1.  I hereby confirm that I have not retained any documents or information relating to the business of any of my prior employers, in any form (including personal email and electronic files), that I obtained in my role as an employee of my prior employers.

Confirm  Unable to Confirm 

2.  I hereby confirm that I have performed a search of my home computer, hard drives, USB drives, email, and paper files to confirm that I do not possess the information described above.

Important:  If you need to perform a search before completing this document, please inform [NAME] so that you can do so.

Confirm  Unable to Confirm 

3.  I hereby confirm that I have not disclosed or used, and that I will not disclose or use, any non-public documents or information relating to the business of any of my former employers during my work at [COMPANY].

Confirm  Unable to Confirm 

4.  I hereby confirm that I am not subject to an agreement that prohibits me from working for a competitor of any prior employer.

Confirm  Unable to Confirm 

If such an agreement exists, I have provided a copy to [HR] for review.

5.  I hereby agree that if, during the course of my employment at [COMPANY], I am asked for information relating to any of my prior employers’ business, and if I cannot answer without providing non-public information, I will refrain from providing such information.

Confirm  Unable to Confirm 

6.  Do you have an agreement that prohibits you from soliciting or otherwise inducing employees of your prior employer(s) or customers of your prior employer(s) from leaving your prior employer(s)?

Yes  No 

(a)  If yes, I hereby confirm that I will not take action in violation of such an agreement.

Confirm  Unable to Confirm 

7.  I understand that [COMPANY] may inspect my computer, email, and other company equipment and documents at any time to ensure compliance with its confidentiality policies.

Confirm  Unable to Confirm 

CERTIFICATION

By my signature below, I hereby certify that I have answered all of the questions above truthfully, and that I have conducted a complete search of my home and personal property for information originating from prior employers.  If I located any such material – apart from my personal compensation and benefits records, which I understand I may retain – I have complied with the terms of any applicable agreement(s) with my prior employer(s) by, according to such terms, (a) returning such material to my former employer such that I no longer possess any copy of it; or (b) deleting such material.

Acknowledged by:

_________________________

Signature

_________________________

Printed Name

_________________________

Date

3) Investigate and respond promptly to any threat letters. 

You’ve got a bulletproof Invention Assignment Agreement and a certification that new hires aren’t bringing any trade secrets into your startup. If you get a threat letter alleging trade secret misappropriation, hit reply and copy and paste the following text:

Dear [Lawyer]

Thank you for bringing your concerns to our attention. We take allegations of trade secret misappropriation very seriously and will investigate thoroughly and promptly. We also take stringent measures to ensure all of our employees and consultants have not and will not misappropriate any confidential information or trade secrets.

Section 2019.210 of the California Code of Civil Procedure provides that a plaintiff suing for misappropriation of trade secrets must identify the alleged trade secrets with “reasonable particularity” before commencing discovery.  Should you be unable to identify with the appropriate specificity the alleged trade secrets, then we will seek attorneys’ fees under the California Uniform Trade Secrets Act (“CUTSA”) for trade secret misappropriation claims brought in bad faith.

With regards,

[Your name]

If you have any other tips or resources on this subject, please share them in the comments section below.


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