Friday, August 17, 2018
Employer Weapons to Protect Trade Secrets
AHS Staffing, LLC (AHS), located in Texas, matches nurses and other healthcare professionals on temporary and permanent bases with hospitals, healthcare groups, occupational healthcare clinics, individual practitioners, psychiatric facilities, government institutions, and managed care entities through contract management groups. The healthcare staffing industry in their Texas market is highly competitive.
In order to ensure its competitive advantage, AHS compiled confidential and proprietary information including: customers, clients, healthcare providers, contacts, prospects, compensation plans, employee benefits, confidential market studies, pricing studies, business plans and strategies, non-public financial statements, methods of bidding, bids to customers, profit margins, unique software programs, databases developed by AHS, manuals, candidate performance, compensation and skill sets; all which it classified as “Confidential Information.”
AHS claimed in its Texas-filed federal lawsuit that its former employees maliciously changed the information for Candidates in the Database in order to hurt AHS’s business, then left AHS with a sizable amount of Confidential Information to work for its direct competitor. AHS then contended that they had been using its trade secrets and confidential business information to compete with AHS in breach of their contractual and common law duties to AHS.
On July 9, 2018, AHS filed suit against the departing employees asserting claims for: (1) violation of the federal computer fraud and abuse act; (2) harmful access by computer; (3) breach of contract; (4) misappropriation of trade secrets under the Texas Uniform Trade Secrets Act; (5) tortious interference; (6) breach of fiduciary duty; and (7) civil conspiracy. The Court held a hearing on AHS’s motions for preliminary injunction and ruled in favor of AHS’s request and granted the injunction on August 15, 2018.
Common Sense Counsel: The Computer Fraud and Abuse Act (CFAA), which provides a private right of action where a party knowingly and with intent to defraud, accesses a protected computer without authorization, or exceeds authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value. The Defend Trade Secrets Act (DTSA), which provides a federal cause of action to the owner of a trade secret that is misappropriated and is related to a product or service used in (or intended for use in) interstate commerce, are significant weapons to combat employee trade secret theft. For an employer to use these weapons, be prepared to quickly take these steps now: 1) update all non-disclosure agreements, confidentiality agreements, employment agreements, consulting agreements, and independent contractor agreements to include new DTSA non-disclosure provisions to include the required notice signed by all employees; 2) documents containing trade secrets should be labeled as confidential, their distribution should be limited, they should be maintained in secure areas, and individuals who are privy to such secrets should be trained on the nature of that information and how to safeguard it; 3) access to computer files containing such information should be restricted and tracked; 4) those with access should be trained on the files’ confidentiality; and 5) because trade secrets litigation needs to move quickly and often involves violations of non-competition or non-solicitation agreements, be prepared to bring such claims in tandem. Having legally sound documents gives the wronged employer a double-edged sword.