You own a great business with coveted schematics, a unique manufacturing process, and/or confidential information that directly affects the success of that business. Now that employees, associates, and potential investors are in place, what you need to do is have everyone sign a Nondisclosure Agreement to ensure everything stays safe and secure. That should do it, right? Well, maybe not.
Even though a nondisclosure agreement (NDA) is an official legally binding contract that is designed to protect intellectual property, it doesn’t prevent a disgruntled employee from revealing too much, a file from being misappropriated, or even a scheming competitor from obtaining proprietary information.
If you find an associate has violated your NDA, there are steps to take to protect yourself against the theft of your information. Essentially, a few examples of an NDA breach would include:
- A competitor that offers your employee a higher salary in exchange for trade secrets or dirty laundry about your business.
- A loose-lipped employee who talks about confidential information to others.
- A prototype of your business model that falls into the wrong hands.
- A hacker who breaks into secured files and publishes information.
Based upon the Uniform Trade Secrets Act (UTSA), there are a set of concrete rules that protect trade secrets and proprietary information, including patterns, formulas, devices, schematics, programs and codes, processes and techniques. In many jurisdictions, customer lists are protected as well.
What you do when an NDA is breached
Step 1. Review The Document
In a well-drawn up Nondisclosure Agreement, the terms and remedies for a breach of contract are written right into the NDA itself. If they are, the law is on your side.
Step 2. Investigate The Theft or Breach
This can be a very difficult process, unless you have concrete evidence that there has been a breach. It is crucial that you get the right information, because if you cannot prove your case, you may be responsible for legal fees that are accrued by both parties, according to the provisions set forth in the USTA rules and possibly in the NDA document.
Step 3. Contact Your Lawyer
If you think there has been a proven violation of your NDA, consult with your business attorney as soon as possible. An experienced attorney will review the original contract with the evidence (if any) so they can recommend the best way to take further action.
Step 4. Submit A Letter To The Breaching Party
At this point, your attorney will submit a “Demand Letter” that will consist of:
- A reminder of what the NDA details
- A summary that proves the person is in breach of contract
- A demand to take a required action, to stop sharing confidential information
- A warning of possible legal action if the breaching party does not conform within a set timeframe.
After this letter is received, one of two things will happen:
- The accused party stops the breach and you come to an agreement.
- The letter is ignored.
Step 5. Take Legal Action
If the Demand Letter gets no response, then you will need to discuss the legal grounds with your attorney on the next actions to sue this person who has leaked confidential information.
Depending on your specific case, there are a few legal claims that can be made, such as:
- Trade secret misappropriation
- Breach of fiduciary (ethical) duty
- Copyright infringement
- Patent infringement
- RICO (Racketeer Influenced and Corrupt Organizations)
Ideally the ruling will be favorable, and you will be granted an injunction, which requires the accused to stop disclosing information and return proprietary property back to its rightful place.
Additionally, the ruling may be for the accused to pay a predetermined amount of monetary damages. You and your attorney will need to decide what the monetary amount of the total loss is as a result of the breach. Regrettably, the amount awarded to you may not be sufficient to remedy the loss, as proprietary information revealed may not ever be revocable.
Our suggestion is, when having an NDA is to be proactive. First, be very selective with whom you hire, and second, make sure your nondisclosure agreement is protected and in compliance with all local, state, and federal laws. Label confidential documents and make aware that they fall under a NDA. Confidential information should only be shared with dedicated and motivated to your business. Have a secure system put in place, and a great attorney who has your best interests at heart.
This article does not represent legal advice. This is for informational purposes only, and is not intended to provide or take the place of legal consultation.