Mergers and Sales – Trade Secrets & Confidential Information

Ruth Binger

By Ruth Binger

Who Owns the Salesperson’s LinkedIn Account?

Owners/shareholders own businesses for many reasons, including selling the business at a value higher than the investment cost. However, when a business owner goes to sell his or her business and attempts to obtain the highest price available, it is important to understand where the value of that business lies and how to maximize that value to any potential buyer.

In many instances, a significant part of the business’s value is found in the intellectual property possessed by the employees.

Part of that intellectual property is found in the trade secrets and confidential information that the company develops to provide its services and products faster, cheaper, and better over time. A very critical component is the customer networks that its sales/marketing people developed over time.

Who owns those networks, especially LinkedIn, and the data associated with them?

With the complete transparency, and to some degree, anonymity of the internet, the owner’s duty to protect the intellectual property of his or her business becomes even more heightened.

Contrary to the new oracles, there is no such thing as free – everything that is created takes energy. Salespeople can be slowed down by nonsoliciations/noncompetes.

Companies can insist on owning the cell phones and smart phones. However, companies need to think about protecting the data that its employees develop on its time or downloaded from company data networks into LinkedIn, smart phones, emails, etc. This can be done by adding language protecting trade secrets and confidential information in data networks to employment manuals and employment agreements.

Today, businesses are bombarded with messages exhorting the establishment and maintenance of an organizational presence on popular Social Media sites and blogs. The members of Facebook, the largest social-networking site, with nearly 500 million members, or 22 percent of all Internet users, spend more than 700 billion minutes a month on the site. LinkedIn has over 75 million members in 200 countries and a new member joins LinkedIn approximately every seconds.

Your employees and your customers are becoming interdependent, sharing your trade secrets and confidential information at times when they are not careful. In short, your customers and employees are quickly and forcibly dictating your business operations and professional exchanges by becoming purchasing agents, spies, scouts, product reviewers and technical consultants for each other.

In every LinkedIn account that is established at the urging of the Company for the purpose of employment, there resides a goldmine of names, email addresses and other valuable contacts and professional information.

LinkedIn’s position is that the account constitutes a contract between the employee and LinkedIn. There are no cases in the United States regarding this issue.

Employees proffer free speech arguments and contend that employee owns the LinkedIn account because it is part of their knowledge base and they are entitled to take those contacts with them throughout their career. Employers, in turn, argue that they paid the employee to develop the data, or paid more to hire a person with extensive data, and therefore anything developed on its time with its money is its property. English courts have ruled that Outlook address books amount to employer proprietary databases and belong to the employer.

So, what does a prudent owner do?

Create a policy that is placed in the employment manual or noncompete agreement that makes it clear that the Company makes a significant investment in establishing or increasing the employee’s network of business contacts, that such information is protected confidential information or trade secrets and it is not to be disclosed. State affirmatively that direct dial telephone numbers, email addresses and other contact details that are generated on Company time or are provided by the Company are Company property and must be returned to the Company and deleted at the conclusion of the employment relationship.

New Hires can bargain with respect to who is exempted from the noncompete/nonsoliciation agreement and what information is exempt from the confidentiality/trade secret policy. This is in accord with Missouri and most states’ trade secrets laws. This policy would also accord with a 2001 Australian case where the Court held in a nonsocial media context that when an employee copies a significant number of client contact details into a personal address book used in the course of her job, such confidential list belongs to the employer, and must be returned at the conclusion of employment.

Today, noncompete and nonsolicitation clauses are invaluable, but they are not enough. Owners and employers must exercise more self help methods and stay ahead of the game.

Just as it is critical for the owner/employer to own the cell phone/smart phone number, and not the employee, it is also critical to own the employer’s confidential data infrastructure built on the employer’s time. If and when you, the owner, sell the business, you want something to sell that is protectable. You do not want to become another version of Wall Street giant Merrill Lynch that purchased AXA’s Advest Brokerage unit for $400 million in 2005 and by 2006 found that 417 of its 505 brokers had jumped ship with its customers and contacts.

Social media continues to rewrite the value of your business and you need to effectively manage and direct it or you will give it all away.

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