The exact language by which a “trade secret” is defined varies by state. However, there are three factors that are common to such definitions. A trade secret is some sort of information that:
• Is not generally known to the public.
• Confers some sort of economic benefit on its holder.
• Is the subject of reasonable efforts to maintain its secrecy.
Some of the factors courts consider when determining whether information is a trade secret are:
• The extent to which the information is known outside of the agency.
• The extent to which it is known by employees and others involved in the agency.
• The extent of measures taken by an agency to guard the secrecy of the information.
• The value of the information to the agency and its competitors.
• The amount of effort and / or money expended by the agency in developing the information.
• The ease or difficulty with which the information could be properly acquired or duplicated by others.
How Do You Protect Your Trade Secrets?
A company must carefully plan and implement an organized program, which identifies its trade secrets, and then take steps to protect against their misappropriation. The company will then be in a position to demonstrate to a court of law the measures taken to protect its trade secrets by documenting the program.
At a minimum, a trade secrets protection program involves the establishment of internal security procedures that should include:
• A written policy of confidentiality included in employee procedures manuals and employment practices guidelines, emphasizing that all internal communications should be handled in strictest confidence.
• Include the company’s confidentiality standards in employee training and educational programs.
• Customer lists, client information and other trade secrets should be distributed only on a need-to-know basis, and marked “confidential” where possible.
• Execution of well-drafted Confidentiality / Non-Disclosure Agreements by all employees, producers and independent contractors.
• Security codes or barriers in the company’s data processing computer systems and other management records that are revised on a regular basis to prevent infiltration.
• Storing confidential information in a secure manner and shredding documents when no longer needed.
In our view, the best way to demonstrate the information that is confidential is to examine an insurance account and identify the information that an agency has spent time and money developing that is not readily available to a competitor, and that gives the agency an advantage over a prospecting agency. So here is an offering of some questions regarding what the agency knows about an insurance account that could qualify as “confidential information” of the agency, and thus, be worthy of trade secret protection:
• What is the ownership of the insured, and who among the owners controls the insurance program?
• Who is in control of the company today, and who will control it in the future?
• What is the financial condition of the insured?
• Who are the insured’s major clients and / or vendors?
• Does the insured require specific coverage modifications to meet the contracts they normally execute with its customers?
• What is the claims history of the insured?
• Has the insured had any lawsuits filed against them, and what is the nature and current status of those lawsuits?
• What loss control measures has the insured initiated?
• Does the insured manufacture products, or modify or assemble the products of others?
• What are the products or services of the insured that cause major exposures?
• What is the history of the insured’s workers’ compensation and / or general liability modifiers?
• Does the insured carry products liability and / or professional liability coverage?
• Does the insured have a need for contingent business interruption coverage?
Vigilance Is Required
While the confidential information and trade secrets you need to protect may be as simple as customer lists and client information, it is very important to take effective steps to protect the information from misappropriation.
Consult with an attorney that is well-versed in matters of confidentiality, non-disclosure and employment practices to assist you in devising and implementing an information protection program.
Should you encounter a breach, or threatened breach, act expeditiously to retain competent counsel to take action to protect your competitive advantage. A trade secret, once lost, is gone forever.
Thomas M. Braniff, JD, CPCU is an attorney / insurance consultant in Houston, Texas providing management, regulatory and technical assistance to the insurance industry and others faced with insurance-related problems or opportunities. Information regarding Mr. Braniff can be found at http://www.texins.net.
Roy L. Phillips, CIC, CISR, AAI, CPIA is an insurance consultant based in Houston, Texas, specializing in agency valuations, mergers and acquisitions as well as expert witness testimony and other litigation support services. Information regarding Mr. Phillips can be found at http://www.kingphillips.com.
American Association of Insurance Management Consultants (“AAIMCo”) is an association of consultants to the insurance industry, insurance companies, agents, brokers and their consumers. Information regarding AAIMCo can be found at http://www.aaimco.com.
by
Thomas M. Braniff, JD, CPCU
and
Roy L. Phillips, CIC, CISR, AAI, CPIA
The authors of this article have been retained in the evaluation of insurance agencies for over twenty years. Many of those evaluations involve disputes between parties such as former employees and the agencies from which they were departing and taking confidential information with them in order to solicit the insurance clients of the agency.
Other assignments have involved bankruptcy, tax matters, the sale of books of business, internal perpetuation acquisitions, mergers and other non-disputed events that occur eventually in the life of every insurance agency.
