Is Coke All Flat? Unless you’re living under a rock, you’ve heard the buzz about Coca-Cola trade secrets being stolen by a secretary and being offered for sale to Pepsi by one of her genius ex-con accomplices. Pepsi blew the whistle – and now they’re sitting pretty with good press as the do good competitor. Kudos to the PR agency. But I digress. After the “oohs” and “aahs” subsided – these are, after all, the two giants of the Cola Wars – I thought to myself, heads must be rolling at Coke. How could this have happened? The formula for Coke is legendary for its trade secret status. It instantly springs to mind when you hear the phrase “trade secret.” Everyone knows it – lawyers and non-lawyers alike. So how the heck could a secretary gain repeated access to and steal Coke trade secrets apparently without detection? (They only got nabbed because Pepsi didn’t take the bait.)

It’s a safe bet that Coke requires every employee to sign a non-disclosure agreement that was drafted with more care than the United States Constitution. That’s all well and good, but if Coke failed to take other steps to guard its trade secrets, it may find itself out of luck on a trade secret misappropriation claim. The three defendants face criminal charges of wire fraud and unlawful theft and sale of Coke trade secrets. Coke could also sue them for trade secret misappropriation in civil court and seek an injunction to force them to return or destroy the stolen information. Putting aside the issue of damages (and whether Coke would have an ice cube’s chance in hell of collecting from these three), the primary question is whether Coke could even establish that the stolen items constitute trade secrets. “Heresy!” Dare I throw my drink at the legendary Coca-cola trade secret? You decide. Read on.

Non-disclosure agreements are an elementary building block of trade secret protection. But simply having your employees sign an NDA and stuffing it in your files is not enough. An NDA doesn’t actually keep your information secret and it may not be enough to afford you legal protection when it matters. You need to do more. Loosely defined, a trade secret is any business information that is valuable by virtue of it not being generally known and … here’s the kicker … that is subject to reasonable efforts to keep secret. If you don’t take reasonable steps to keep your information secret, you don’t have a trade secret or get the legal protection that goes with it. An executed and enforceable (read: well drafted) NDA is one example of secrecy measures that courts consider when evaluating a plaintiff’s claim of trade secret misappropriation. But it’s only one step. The business owner who cautiously heeds his lawyer’s advice to get employees to sign an NDA, but leaves sensitive files in the general file pool or otherwise fails to restrict access to trade secret information may find himself out of luck when it comes time to pursue a claim of trade secret misappropriation when a rogue employee (or a competitor) like Coke’s Joya Williams makes off with company trade secrets.

How do you satisfy the requirement of “reasonable measures?” That all depends on the circumstances of your business and the type of information you are trying to protect. Absolute secrecy is not required, but you must make efforts that are reasonable in light of the type of information you are trying to protect and the conditions of your workplace and industry competition. Computer files should be password protected, possibly encrypted; hard files should be under lock and key; employees should be given access on a need-to-know basis. You get the idea. In the case of Coke, unless Williams’ role as secretary necessitated access to sensitive files and new product samples, Coke may have been too lax in its secrecy measures. (No one claims she stole the key to the locked file room or product lab.) Williams’ lawyer, Wanda Jackson, hit the nail on the head when she rhetorically inquired, “Why would they leave a product in an office that was easily accessible?”

An NDA is at once protective and remedial – it identifies those things the business owner considers confidential, puts employees on notice of their duties regarding secrecy and describes what relief the harmed business owner is entitled to if the employee violates its terms. It’s a great tool, but it’s no substitute for a lock and key. An NDA doesn’t actually keep the darn stuff private, and the business owner who takes care to get his employees to sign those NDAs but gets lazy about information management is making an expensive mistake. In response to my more is more slant, a colleague reminded me that courts tend to protect business information in the face of a thief in the midst like Williams, but as far as I’m concerned, unless you’re Virgin’s Richard Branson, why be a risk taker?

Don’t get me wrong. I’m not suggesting that NDAs aren’t worth the effort or that they aren’t effective. They are. They are a key step in trade secret protection. But that’s all they are. They don’t provide actual protection. That’s up to you. If you fail to manage your business information on a day-to-day basis, that NDA offers little protection when it really counts. Take a lesson from the big grand daddy of them all – don’t fall flat when it comes to your trade secrets.

Labels: NDA, non-disclosure agreement, trade secret

  5:28 PM •