By Jeffrey B. Shapiro, Esq.
Are you protecting your business’s most valuable information? Losing control of it could give your competitors exactly what they need to take your customers and profits. In New York, trade secrets are the lifeblood of many businesses, whether you run a manufacturing company, a professional services firm, or a growing start-up. They can include client lists, pricing models, proprietary processes, source code, or strategic plans. The risk often becomes real when a trusted employee leaves. Imagine a sales director who copies your client database before resigning. With access to pricing structures, purchasing histories, and decision-maker contacts, they could quickly undermine years of relationship-building. This is why drafting enforceable agreements to protect this information can mean the difference between staying ahead of your competitors and watching them profit from your hard work.
The case of AdMarketplace Inc. v. Salzman1 shows how an employer’s ability to protect vital business information often depends on how effectively its restrictive agreements are drafted. AdMarketplace Inc., an online advertising company, sued two former employees and their new employer, a direct competitor, alleging they had taken confidential client data, solicited employees and customers, and attempted to access its password-protected database after leaving. Both employees had signed non-disclosure and non-solicitation agreements, and one reaffirmed those obligations in a separation agreement. When the defendants moved to dismiss, the court drew a sharp line between overbroad non-compete provisions, which it refused to enforce, and narrowly tailored protections for confidential information and client relationships, which it upheld.
Restrictive agreements can be powerful when drafted correctly. They define what counts as “Confidential Information,” limit how it can be used, and outline the consequences for violating those terms. In AdMarketplace Inc., the employer’s NDA barred disclosure of client data and solicitation of clients or employees after departure. The court struck down an overly broad non-compete clause but enforced the confidentiality and non-solicitation provisions because they were focused on protecting legitimate business interests, trade secrets and customer goodwill. The first takeaway for business owners is that while New York courts often reject non-competes2, they will enforce agreements that specifically protect confidential information.
Clauses that try to declare all information learned on the job as “confidential” are likely to be struck down. The protected material must be described with enough detail to show it is truly proprietary. Public information cannot be turned into a trade secret by contract alone.
Even the best contract will not help if you have not taken reasonable steps to protect your information in practice. Courts will look at safeguards such as password protection, limiting access to employees with a need to know, and training staff on confidentiality.
New York law also offers protection even without a signed NDA. To succeed on a trade secret claim, you must show that the information meets the legal definition of a trade secret, was shared in confidence, and was used without permission to your detriment. Courts consider how widely the information is known outside your business, the measures taken to keep it secret, and the difficulty of duplicating it. The most effective protection combines precise, enforceable agreements with operational discipline that keeps your trade secrets secure.
The key takeaway for businesses is that courts will reject overreaching restrictions on competition but will enforce targeted measures that protect the core of your competitive advantage. Identify your trade secrets, control access to them, use agreements that are specific and defensible, and be ready to prove both the breach and the resulting harm if your information is stolen.
1 2014 NY Slip Op 30813(U) (Sup Ct, NY County 2014).
2 This article does not cover strategies for drafting an effective non-compete.