Ying and Yang of Protecting Trade Secrets

Let us once again talk about departing employees and protecting your business' trade secrets. let me say about the first example that I am taking the allegations as being true just for the purposes of discussion.

If the allegations are true, then I think Starwood has a problem showing that it properly protected its trade secrets.

Bloomberg.com provides us with Hilton Sued by Starwood Over Claims of Trade-Secret Theft

Hilton recruited the employees, Ross Klein and Amar Lalvani, after it was acquired by Blackstone Group LP in 2007, according to the suit. Both men were involved in developing White Plains, New York-based Starwood’s “lifestyle and luxury” hotels, including the St. Regis, W and Luxury Collection brands, and downloaded confidential Starwood information to use later at Hilton, the suit claims.

“This case involves corporate espionage and the looting through computer fraud of a mountain of information,” the lawsuit claims. “Klein and Lalvani took and encouraged other Starwood employees to take with them to Hilton over 100,000 electronic and hard copy files, many containing highly confidential and proprietary Starwood information and trade secrets,” according to the complaint.

Strategic Plans

The materials included strategic development plans, negotiation tactics, explanations of how to convert hotels into luxury brands, and marketing and demographic studies.

Courthouse News Service may provide a clue how the information was taken and a reminder that it is not always the lowly, hourly employee needing watched:

Starwood claims that Hilton's president of global development and real estate, Steven Goldman, began recruiting Lalvani to join Hilton in March 2008. And it claims that "Before joining Goldman at Hilton, Lalvani, too, misused his position at Starwood and secretly downloaded large quantities of confidential documents, which he brought with him to and used at Hilton."

Thanks to HotelChatter for the article that originally tipped me off to this case.

At the other end, we have from George's Employment Blog a report on an employer going overboard on protecting its trade secrets. Expensive Trade Secret Protection Lesson for Employer — $17.5 Million Verdict in Lawsuit Over Employee’s Hard Drive

The former employee is Dallen Trealoff, who founded an RV-related company with his wife in 2003. In 2002, Trealoff’s former employer, Forest River, Inc., removed the hard drive from Trealoff’s personal computer, alleging that Trealoff was preparing to make off with company trade secrets in order to found his company.

Trealoff had used his spare time to develop a software program that kept track of Forest River’s sales and production information.

In removing the hard drive, the company was pursuing protection of that information, which it considered trade secrets.

However, the computer also contained Trealoff’s personal financial information.

George provides five points where he thinks the employer fouled up their case, and for our purposes I am pikcing on the following (I do suggest reading the other points, all are good ones for employers):

4 Trealoff’s employer may have failed to take sufficient security and confidentiality precautions to establish that the information qualified for trade secret status.

One of the requirements for information to qualify for trade secret protection is that reasonable efforts have been taken to maintain secrecy. Lack of a noncompete agreement, confidentiality agreement, or computer policy, and allowing the use of a personal computer for company business may have all been factors supporting the conclusion that the company failed to take such precautionary efforts.

Both employers did not take proper precautions. Which should serve as a reminder that an ounce of prevention beats a pound of cure. The second employer overreacted without a plan for dealing with trade secrets. Both were preventable.

Take a look at your business and ask yourself if your business can survive loss of its trade secrets.

Remember, if you want more information about retaining me for a case, please give me a call at 765-641-7906.

Updated 5/13/09: Trade Secrets: Hilton Looking at Criminal Charges?