When a recession hits, businesses face challenges in protecting their intellectual property. One of the biggest issues is how to protect your trade secrets when employees are leaving the company due to layoffs or reorganization or simply to find a more stable position. Even the best intentioned businesses and the most honest employees have problems in preserving trade secrets when they part ways. Here is a short check-list to protect your trade secrets.

• Identify the trade secrets worth fighting for before a recession hits.

You cannot enforce trade secrets unless and until you can articulate them. Yet many businesses have only a vague notion of what among their secrets is important to them, or even what actually constitutes a trade secret. Not all of the information you keep confidential is a trade secret, and not all trade secrets are equally important. You need to know what your trade secrets are to protect them. For example, if you sell prepared meals, where you sell them and for how much is public information, but the unique recipes for your specialty dishes may be valuable trade secrets.

Yet even among your recipes, not all details may be worth protecting. As with anything else in business, you have to pick your fights. The "to die for" red velvet cake might be worth a fight. The fact that you put salt on your iceberg wedge salad, probably not. Make a list of what you will spend money and resources to protect, perhaps the recipe for your red velvet cake; locations where you sell the most red velvet cake; supply source for the icing you use on the cake; cost of red velvet cake, etc. Have each manager make a list of the trade secrets she believes are important. And then have your department heads prioritize those secrets according to what is worth spending money to protect from the competition.

Too often, businesses have not given any forethought to identifying or prioritizing their trade secrets, and in a dispute, default to claiming that "everything" is a trade secret. This immediately undermines credibility because not everything you keep confidential is (or can be) a trade secret. California has had a long-standing practice that you must identify your trade secrets before taking discovery. Recently, Massachusetts adopted a similar rule requiring early disclosure. And other courts have required early disclosure following the California practice. If you wait until a judge tells you to explain your trade secrets, you might unnecessarily put yourself into a time crunch, ultimately wasting time and money.

• Educate your employees on their obligations.

Many of your employees use trade secrets or confidential information in their jobs, not just scientists or engineers (or chefs). For example, your distribution manager knows the best and most cost-effective way to transport your products. But does that person understand the details of the distribution choices she developed are your trade secrets—or if they really are trade secrets at all? Employees must be trained to treat information, processes, and methods of doing business they helped develop at work belong to the employer. You might put together a short session that explains what a trade secret is, lists your company's most important trade secrets and explain your employees' obligations. This education will help honest people honor their commitments. And if a lawsuit happens, this will allow you to show a court later that you acted in good faith.

• Make sure you have up-to-date, clear NDAs in your files.

Files often get lost or mixed up over time. Make sure you already have in hand an NDA for each key employee, and for other employees before you lay someone off or give them their final severance. You also need to check your NDAs to be sure their terms comply with current law. Nondisclosure agreements signed years ago may not be enforceable under current law.

NDAs should list what is important, not "everything." People intuitively think that what is in their heads belongs to them, and an NDA stating that everything seen, heard or learned on the job is a trade secret might be ignored as overreaching "boilerplate." If you want your employees to protect your trade secrets after they leave, tell them what types of information must be protected, e.g., the recipe for red velvet cake. A fair and reasonable NDA will also be easier to enforce.

• Check your noncompetes.

Again, sometimes the biggest impediment to enforcing a noncompete is finding the contract the employee signed. As with NDAs, immediately confirm that you have executed copies of noncompetes for your key employees. The law on noncompetes varies from state to state and has changed over time, so make sure your noncompetes are valid under the choice of law in them, as well as in the jurisdiction where your business is located and where the employee works. A noncompete that is focused and limited in geographic area and time will always be easier to enforce than one that is broad, vague or extends longer than necessary.

• Prepare an enforcement strategy.

Protection of trade secrets is time sensitive. If you delay in enforcing them they may get publicly disclosed or misused by a competitor before you act. You should have an enforcement strategy now. At a minimum, upon exit, the employee should be given copies of her NDA and noncompete agreement, have her obligations explained to her, and asked to acknowledge that she understands her obligations. If the new employer is known, you should consider whether it is worth sending a nonthreatening letter, simply informing them that your employee has noncompete and NDA contracts, and advising the new employer that it should review those documents.

When layoffs are potentially in your company's near-term future plans, you should have the relevant contracts (i.e., employment agreement, NDA, noncompete, etc.) readily accessible, and a set of form court papers prepared, so that you can quickly file suit and get a temporary restraining order immediately if needed. You should consider preparing a draft complaint, with blanks to be filled in, and a draft supporting affidavit, again with blanks to be filled in as needed. You should also have a short list of lawyers; or if a significant round of layoffs is anticipated, lawyers retained and ready to go.

When it comes to protecting your trade secrets, a few simple steps now will avoid significant delays, expense and problems later. You get better results at a lower cost with advance planning than by reacting to a crisis.

Danielle Joy Healey is a senior principal in the Houston office of Fish & Richardson where she has been litigating complex patent litigation and trade secret cases in federal and state courts and handling arbitration proceedings for over 30 years. Healey is also a mediator and arbitrator. She can be reached at [email protected].