When an employee leaves your company, they take skills and knowledge gained on the job with them. However, sometimes they may also take confidential information – including trade secrets. Sometimes, they may even use them to either start their own business or assist a competitor.

When this happens, you may lose the competitive advantage your business has built through things like developing a customer list or secret formula.  Your business may begin to suffer. You may feel that your former employee violated your trust.  But do their actions rise to the level of misappropriating a trade secret?

Arizona’s Trade Secret Laws

To prove a case of trade secret misappropriation in Arizona, you must show the specific existence of a trade secret and also that it was misappropriated. Injunctive relief is commonly sought as the remedy, although monetary damages may also be available.

Showing Something Is A Trade Secret

A trade secret is defined in A.R.S § 44-401.  It is information, including a formula, pattern, compilation, program, device, method, technique or process, that both:

(a) 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.

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Derives Independent Economic Value

Information that is publicly available or generally known will not be considered to be a trade secret. Rather, information must be unique, original, detailed, or valuable. Calisi v. Unified Fin. Servs., LLC, 232 Ariz. 103, 302 P.3d 628 (App. 2013).

A customer list that only contains basic contact information may not be a trade secret if the customers can be easily identified, but a list that contains detailed customer preferences, product specifications, birthdays, family milestones, or other valuable informaton may be. If your business invested substantial time and resources to develop information, it is more likely to be a trade secret.

Reasonable Efforts to Maintain Secrecy

You must treat information as secret in order for it to qualify as a trade secret. Requiring employees to sign a confidentiality or non-disclosure agreement is a good start, may will not offer comprehensive trade secret protection for all confidential information.

To improve the argument that information is secret, a business should also exercise good judgment and control over how information is divulged internally and externally by limiting access on a “need to know” basis. In addition to other regular employee training, reminders should be  included on a regular basis about respecting confidentiality of information and the process for controlling dissemination of any information.  If an employee gives notice that they are leaving the company, you may want to consider immediately restricting their access to any trade secrets.

Trade Secret Misappropriation 

Misappropriation is the acquisition of a trade secret by someone who knows or has reason to know that is was acquired by improper means. It also includes the use or disclosure of a trade secret by someone who used improper means to acquire the trade secret.

“Improper means” include theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy or corporate espionage through electronic or other means. Even if an employee acquired information legitimately during the course of their work, the retention, use or dissemination of that information after their employment has ended can constitute improper means. Enter. Leasing Co. v. Ehmke, 197 Ariz. 144, 151, 3 P.3d 1064, 1071 (App. 1999).

In addition to injunctive relief, a party may receive monetary compensation for actual loss or unjust enrichment due to the trade secret misappropriation, or for a reasonable royalty for the unauthorized use of the trade secret.

If the elements listed above are satisfied, you may have a claim for trade secret misappropriation, and should consult with a business litigation attorney to discuss your case.  If you want to evaluate whether you are taking appropriate steps to protect trade secrets, counsel can assist you with that.

Chernoff Law Firm handles complex business litigation matters, including misappropriation of trade secrets and other employment disputes. If you would like to discuss your employment dispute, call our office in Scottsdale at 480-719-7307.