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Safeguarding Confidential Information In Business Disputes

When an entrepreneur dreams of building a business, you picture all the success you hope to have. When you actually start the business, you are excited about being your own boss, making your own income, helping your clients or customers, or maybe even becoming a household name. What you might not think about is that one day, you could end up in a dispute with someone else and your business could suddenly be in jeopardy. Almost every business has confidential or proprietary information that, if revealed, could give the competition an advantage. Protecting this information is vital, but how do you protect this information during business disputes? If the dispute results in litigation, is there anything you can do to keep it confidential? Fortunately, there are steps you can take before any disputes arise and during litigation to protect your confidential information. If you are facing a potential business dispute, a business litigation attorney with Schwab & Gasparini may be able to assist in protecting your proprietary materials. Call our Syracuse office at (315) 422-1333, Albany office at (518) 591-4664, or our White Plains or Hudson Valley offices at (914) 304-4353 to schedule a consultation and discuss your confidentiality needs. 

What Is a Business Dispute?

Business disputes are more common than many new business owners might think. A business dispute is any disagreement between two or more parties that they do not seem to be able to resolve. Disagreements are even more common, but they only rise to the level of a dispute when both parties feel there is no resolution. These disputes can be between businesses, customers, employees, stakeholders, or any combination of these. Vendors and suppliers can also be involved in a business dispute. 

These disputes can be regarding a variety of issues. These issues could be contracts, service reliability, profit sharing, intellectual property, business direction, management decisions, or breach of partnership agreements. There are other issues that may also cause a business dispute. These disputes often lead to dissolving relationships or business litigation because the parties involved do not believe they can resolve them. 

What Confidential Information Might Need to Be Protected in Business Disputes?

There is a lot of confidential information that a business may have that is shared with others. This information is shared in good faith to allow everyone to perform the functions they have agreed to, but when the business relationship sours and a dispute arises, questions can arise over whether the information is still confidential and whether it still needs to be protected. 

Businesses should protect any information that they believe is confidential or proprietary. They should protect it before disputes arise as well as during and after disputes. Some of the information that a business may have that requires protection includes: 

• Intellectual property such as trade secrets, trademarks, inventions, and copyrights
• Business methods, processes, machines, or manufacturers
• Marketing strategies
• Compositions
• Customer information
• Financial records
• Company initiatives
• Payroll and personnel records
• Social Security numbers
• Passwords, logins, and other IT-related information
• Health information
• Credit card information
• Any information received from third parties
• Anything under development
• Negative knowledge (information about what does not work or what not to do gained during research and development)
• Any information that offers someone else a competitive advantage

How To Protect Confidential Information in a Business Dispute

Protecting confidential information in business disputes starts long before there is a dispute. In fact, business owners should take steps as early as possible, even as early as the planning stages before the business is a business, to protect proprietary information. Many protections can apply to employees, vendors, customers, and business partners, while others may be specific to the type of business relationship. 

Common Protections 

Common protections are protections that can be applied to any business relationship. While every business may not require every protection listed, it is important for businesses to carefully consider whether to apply a specific protection. Business owners may also want to speak with a business litigation lawyer at Schwab & Gasparini to learn more about how they can protect their confidential information. 

Common protections to protect proprietary materials and information include: 

• Require signed agreements such as non-compete, non-solicitation, assignment of employee inventions, and confidentiality agreements as appropriate to the relationship. Make sure the restrictions in each agreement are reasonable. 
• If the other party breaches an agreement, send a cease-and-desist letter to the individual with a copy of the signed agreement. If the other party is a former employee, send a copy to their new employer. 
• Restrict access to confidential information to the minimum amount of information required to perform the functions of the business relationship. This may mean different levels of access for different people and relationships. 
• When possible, keep electronic information on company-issued devices and have the devices returned when the business relationship ends. 
• Require unique logins and passwords for separate systems or databases that hold confidential information.
• Prohibit sending confidential information to any personal email account and restrict the ability to save information to thumb drives or other portable storage devices. 
• Mark all confidential information, both hard copies and digital, with the word “Confidential” before providing it to employees, vendors, customers, or business partners. 
• Avoid publishing confidential information online.
• When a business relationship ends, retrieve all devices and remove all access by deactivating logins, passwords, electronic key cards, and alerting security to the termination of the relationship. 

Employee Protections 

Other than the business owners, employees are often the people with the most access to proprietary information. While this is often required as part of their job duties, it does present the most difficulty when the employee leaves, particularly if they leave on bad terms. Employers can protect their proprietary information from business disputes with employees by: 

• Implementing written policies that mirror any confidentiality, non-compete, and non-solicitation agreements in place that remind employees of their obligations. 
• Periodically reminding personnel of the importance of protecting confidential information and the consequences of not doing so.
• Requiring employees to log out when leaving their work area or the system to time out and require the employee to log in again. 
• Having a pop-up message that requires acknowledgement before access reminding employees that the information they are about to access is confidential. 
• Restricting employees’ ability to print confidential information. 
• Requiring employees to keep hardcopies of confidential information in the office in locked drawers or filing cabinets. If they are granted permission to take hardcopies out of the office, require locked briefcases, drawers, and filing cabinets outside the office for storage as well. 
• Shredding documents when they need to be disposed of. 
• Deactivating employee voicemail accounts when employment is terminated. Consider re-recording the outgoing message to direct callers to another employee. 
• Conducting exit interviews with employees, whether they are leaving voluntarily or involuntarily, and providing a written letter reminding them of their obligation to keep confidential information confidential. 
• Creating a forensic copy of data on all returned devices to maintain a chain of custody in case of future litigation. 

Vendor and Supplier Protections 

Vendors and suppliers do not always have access to confidential information. When they do, it may be as simple as the fact that they provide a proprietary ingredient, process, or machine. Regardless of how or why they have access to the confidential information, protecting that information from business disputes with vendors and supplies is important. Steps businesses can take include: 

• Assess the vendor or supplier before onboarding them. Perform due diligence and check their track record, policies, and security practices to ensure they align with the business’s values and goals. 
• Implement security measures such as encrypting data, using strong passwords and methods of authentication, and limiting privileges and access to data. 
• Define the terms of confidentiality and ensure that both parties understand the terms. 
• Develop an incident response plan to respond to any data breaches that may expose confidential information. Identify the specific confidential information, such as financial records, trade secrets, or personally identifiable information for which the response plan should respond. 
• Restrict the vendor or supplier’s access to only the information required for them to provide the purchased materials. 
• Implement a data retention policy that specifies what data the vendor or supplier may retain, how long they may retain it, and how to safely dispose of the data when it is no longer needed. 
• Take physical security measures, such as requiring the vendor or supplier to perform background checks, limiting the number of keys or key cards the vendor or supplier has if they need them, and requiring the vendor or supplier to use the same employees each time they come to the business to pick up or drop off materials. 

Customer Protections

For most businesses, it is rare that a customer would have access to their proprietary information. However, it is still possible that a customer could gain access to the information, either unintentionally or intentionally. A disgruntled customer may even try to hack a business’s computers to try to find confidential information. Steps that a business can take to protect confidential information from business disputes with customers include: 

• Secure computers and communication methods. Encrypt data and emails, use strong passwords and logins, and ensure all devices have updated anti-virus, anti-malware, and anti-spyware programs. 
• Keep device screens and keyboards out of view of customers so they cannot see an employee’s login and password information or any confidential information that may be displayed on the screen. 
• Train employees on data protection and best practices. Give them clear, concise reponses to provide to customers if customers ask about proprietary information. 
• Make sure physical copies of confidential information are stored in locked cabinets or drawers and not left where customers can access them. 
• When sending information by text or email, teach employees to doublecheck recipient information to confirm it is going to the right person. 

Business Partner Protections 

Business partners can be two or more people in the same businesses and can also be two or more businesses partnering together for a product, project, or other purpose. Partnerships can complicate confidential information, particularly when multiple partners believe the confidential information belongs to them. Steps to take to protect confidential information from business disputes with business partners include: 

• Draw up and sign contracts that clearly indicate who owns any intellectual property such as trade secrets, copyrights, trademarks, or inventions, and any other confidential information being contributed to the partnership. 
• Draw up and sign contracts that clearly indicate who owns any intellectual property or other confidential information that is developed as a result of the partnership. Identify how it will be determined that the information is the result of the partnership. 
• Secure a mutual non-disparagement agreement that prevents all parties from causing reputational harm to each other and the businesses involved. 
• Thoroughly review all access controls and confidential information to ensure a departing business partner does not have access once they leave. 
• Foster positive relationships with open communication to avoid breaches of trust that might lead to a partner feeling as though stealing or revealing confidential information is necessary. 
• Have a separation agreement drawn up from the onset that outlines the handling of intellectual property, client information, and non-compete, non-solicitation, or other clauses to curb disputes when the partnership dissolves. 

Can You Keep Confidential Information Confidential During Litigation Resulting From Business Disputes?

Cornell Law School’s Legal Information Institute defines the Uniform Trade Secrets Act (UTSA) as a model law that has been adopted by 47 states and the District of Columbia. This law seeks to make state laws regarding trade secrets uniform, which can be very important for companies that operate in two or more states. UTSA defines what information is eligible for protection as a trade secret as well as remedies for misappropriation. Unfortunately, New York has not adopted UTSA. However, Assembly Bill A2701 in the Committee Assembly that would create a UTSA for New York.

While UTSA does not currently apply in New York, the state does provide a way that businesses can protect trade secrets and other confidential information if a business dispute results in litigation. CPLR 3103(b) states that a person who is entitled to assert the privilege can object to the other party obtaining privileged information. If this happens, the privileged material is not obtainable. Additionally, New York Courts can grant a protective order that limits the ability to review, copy, disseminate, or file confidential or proprietary documents and information produced by either party, their respective counsel, and non-parties. 

Why You Should Consider Hiring a Business Litigation Attorney

Proprietary and confidential information can be the lifeblood of a business. When this information is revealed publicly, or even just to a single competitor, it has the power to destroy a business. When business disputes arise, a party who feels wronged may seek to hurt the business by disclosing this confidential information. A skilled attorney may be able to assist you with cease-and-desist orders, non-disclosure, non-compete, or confidentiality agreements, and other steps to protect your confidential information. If the dispute proceeds to litigation, an attorney may be able to help keep your confidential information out of open court and build a strong case against the other party. If you are in the middle of a business dispute or worried about the possibility of one, a knowledgeable business litigation attorney with Schwab and Gasparini may be able to assist you. Call our Syracuse office at (315) 422-1333, Albany office at (518) 591-4664, White Plains or Hudson Valley offices at (914) 304-4353 to review your business needs in a consultation. 

Mon Sep 9 2024, 12:00am