I have been tracking this case (Starwood vs. Hilton Hotels), as it has some really practical things to remember for every software or SAAS company regarding protecting their confidential and trade secret information (especially when some of your employees go to a competitor). As it was settled in December 2010, I can now (from the perspective of a software copyright attorney), give you some useful insights and takeaways.

Background: Without going through the long details, 2 top level employees of Starwood who worked on developing the W brand of hotels went to work for Starwood’s competitor (Hilton Hotels), and apparently took with them 100,000 documents. Hilton was planning on creating a similar boutique hotel brand to the Starwood W Hotels, and probably thought that hiring these Starwood employees would help them grow into the new market for boutique hotels. Well long story short, Hilton now cannot (by court order) develop–for 2 years–a competitive boutique hotel chain, must have federal monitors supervise their strategic decision marking, and (according to the NY Times) must pay Starwood $75 million (all of this before they even started competing with Starwood). All I can say is WOW. This is unprecedented, and simply started from hiring 2 Starwood employees.

Ok, so what do you need to know about protecting your confidential and trade secret information (at least from the perspective of a company that could lose its key employees to a competitor).

1) ‘Identify’ and ‘Mark’ Your Confidential and Trade Secret Information. This case would not have gone as well for Starwood if they had not marked their confidential and proprietary information and restricted access to it. Think about it, once your documents leave your site how does the person in possession of it know that it is your confidential or a trade secret information? In a way–at least for argument’s sake–it may seem like documents lose their character once they leave your site if they are not properly marked (in terms of ownership and their confidential nature)!

2) Think About Your Business and Marketing Plans (not only Source Code). What is really unique about this case is Starwood had developed a ‘Brand in A Box‘ (brand handbooks, marketing plans, and immersion plans), and properly marked and protected this material. Lots of software and SAAS companies describe their key business and marketing strategies in this manner, so make sure you mark them and restrict access to them (as Starwood did).

3) Have Exit Interviews With Your Departing Employees. The goal here is to make your departing employees conscious about what the company owns, and that they should return or destroy all company information (i.e. you don’t want them to think that because they created it that they own it, or have the right to take a copy with them).

4) Confidentiality Agreements. Use confidentiality agreements where appropriate, as this helps to prove that you took all reasonably steps to protect your important confidential and trade secret information.

Now you can say–and I have heard this argument 100s of times from software executives–that after taking all these steps the Starwood information was still disseminated to a competitor. Well, if Starwood had not identified and marked its information, held exit interviews with its departing employees, and consistently used confidentiality agreements, they would probably not have come out so well in this case.

Think about it this way. Imagine if your significant competitor,

(a) cannot (for 2 years) compete with you in a very important growing market segment,
(b) must have federal monitors on-site reviewing their strategic decision making, and
(c) must pay you $75 million (even before they start to compete with you).

If you could put your competitor in this type of straight jacket by taking the above precautionary measures, then maybe you should consider them for your software or SAAS company! Hopefully you get the message, because departing employees sometimes go wild when they go to a competitor.

Resources:

 Do departing employees go wild in the tech industry too?

CA vs Quest Software – employees go to Quest Software

Intel vs AMD – employee leaves to go to AMD

Goldman Sachs – departing employee takes source code

Legal Disclaimer: This is for informational and educational purposes only, and does not constitute legal advice. Contact your attorney for legal advice, which should be provided after review of the facts and applicable law.