The Rules: Vast gray areas can turn blood red

Employees required to sign company confidentiality agreements often pay little attention to them and in some cases completely ignore the provisions despite the potential threat of legal action, according to many people who have signed such contracts.

Although these agreements form the basis for some of the most contentious and controversial legal battles in the industry, several high-technology employees interviewed by CNET's NEWS.COM say they believe such contracts are impossible to enforce and in many ways offensive to the libertarian philosophy that pervades Silicon Valley.

"I've only seen one instance of somebody actually pulling out of a meeting because of stuff he knew from his previous job," said one veteran employee of a large database company. "Ninety-nine percent of the time, nobody even thinks about it."

For years, it has been common practice for high-tech companies to require workers to sign employment agreements designed to keep intellectual property secret and to discourage defections to rival companies.

The most common provisions involve "nondisclosure agreements" aimed to protect trade secrets or "noncompete clauses" that seek to prevent employees from working at a competing company for specified lengths of time after leaving their jobs. Lawyers who specialize in claims of violation of such contracts acknowledge that the cases are extremely difficult to prove.

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"There is an immense gray area: What is general knowledge and experience, and what is a trade secret?" asked attorney Ken Wilson of Wilson, Sonsini, Goodrich & Rosati, a firm regarded as among the most expert in the field. "You can seek an injunction on use of trade secrets or to prevent an employee from working at a competitor, but that's pretty difficult."

That may help explain why so many high-profile lawsuits often end up being settled out of court. Those within the industry suggest that many legal filings are meant primarily to impose a "chilling effect" on employees and rival companies seeking to hire them away.

One 17-year industry veteran of several networking firms was accused of stealing secrets upon his departure from one Silicon Valley company to a nearby rival. It seems there was bad blood between the two top executives at the companies and that rivalry trickled down when this midlevel marketing executive jumped ship.

"It was a scare tactic letter. Nothing was heard after that. That's pretty normal in the industry--just to make sure you know they are watching," he said. The executive, who now works as an analyst, responded to the charges in an in-depth rebuttal letter, and the matter was dropped.

There is an immense gray area: What is general knowledge and experience, and what is a trade secret?
"helvetica"="" size="-1" color="#666666">Ken Wilson, Wilson Sonsini Goodrich & Rosati

Prosecutors agree that civil cases based on intellectual property claims are difficult to prove, and claims become even harder to verify when they are made in criminal courts.

Julius Finkelstein, a deputy district attorney who specializes in high-tech crimes in Santa Clara County, California, said his department will look for such physical evidence as printouts, electronic mail with source code, or a stolen disk. But if the case centers on what a former employee has memorized, then it's much harder to demonstrate that anything was stolen.

"When a person has taken property from a former employer, we handle that on a criminal basis," Finkelstein said. "If there is no physical evidence, as a practical matter, we don't prosecute."

Another obstacle for prosecutors is the vague definition of intellectual property under the law, especially when the knowledge in dispute is something other than the technology itself. One public relations specialist, for example, notes that companies have subpoenaed Rolodexes and other seemingly benign material in their claims.

"I've signed many nondisclosures and noncompetes. Quite frankly, most are experiences in wasted ink," he said.

Still, this executive said no blanket statements can be made about employee practices industrywide. "There are as many variables as there are ethical judgments in any other part of their lives," he added. "I've seen some situations where within six weeks they are regurgitating everything they know, others where they don't say anything at all."

Senior editor Dawn Yoshitake contributed to this report.