It’s a fact of business life that employees leave to join a competitor or start a competing business, armed with confidential information that is suddenly put at risk. While you want to protect those assets, pulling the trigger on litigation may be premature. Unless you have evidence that you’ve been ripped off, a concise warning letter is a typical and prudent first step.
In its classical form, the warning letter serves as a reminder of the employee’s obligations and as a notice that you are prepared to act. The goal is compliance, and it often works. When you get the usual response with soothing reassurance that your concerns will be respected, the risk of loss is not eliminated, but it is mitigated. The exchange is polite, with each side reserving its options.
But the Defend Trade Secrets Act creating original jurisdiction for trade secret claims, the assumptions behind this common minuet may no longer be valid. If there is going to be litigation, you may want to avoid federal court, and for the same reason your opponent may want to go there. (For my recent post “Be Careful What You Ask For,” click here.) So your warning letter needs to be crafted to prevent triggering a preemptive federal declaratory judgment action.
The key is to inquire, not accuse. This helps you stay in control of the process while you become better informed. You can find a sample warning letter below:
To Departing Employee
Dear Mr. Smith,
Since you have recently terminated your employment, we wish to remind you of your obligations to the company that continue after your employment ends. As you know the company possesses a great deal of highly sensitive and confidential business information. This includes customer lists, marketing plans, engineering data, product plans, and the like. During your employment you have been provided, or had access to, such information.
Both the law and the contract you signed when you came to work for the company prohibit any use or disclosure of such information after you leave. For your convenience, we enclose a copy of the agreement you signed. Because you have taken employment with a competitor of the company, it is especially important that you take care not to violate your obligations to keep this information confidential. While we have no reason at this time to believe that you have violated your obligations, it would be helpful to understand from you the steps that you intend to take in your new position to ensure that the confidentiality of our information is respected.
We look forward to your early response to this request.
Very truly yours,
To New Employer
Dear Mr. Jones:
We understand that Mr. John Smith, who until recently was employed by us, has decided to join your company. We draw your attention to the fact that Mr. Smith worked in our Advanced Widgets Department as a Senior Research Engineer. In that capacity, he became quite familiar with all aspects of our de-flanging process, which we consider and treat as confidential.
While he was with us, Mr. Smith signed an Employee Confidentiality and Invention Assignment Agreement, a copy of which we enclose for your reference. As things now stand, we have no reason to believe that any of our trade secrets in this area have been misused, and we expect that Mr. Smith will continue to comply with his obligations. We also trust that your company will not assign Mr. Smith to a position that might risk disclosure or use of this sensitive information.
If you have any questions regarding any of these matters, we will be happy to discuss them with you. For the moment, we ask that you describe what steps you are taking to protect against inadvertent misuse of our trade secrets.
We look forward to your early reply.
Very truly yours,