Short answer: when an employee leaves for a competitor, your ability to stop them from using what they know comes down almost entirely to what you did beforehand: marking and restricting your confidential information, running exit interviews, and using confidentiality agreements. Starwood v. Hilton shows the payoff of protecting trade secrets, a $75 million settlement before the competitor even launched.
I tracked Starwood v. Hilton Hotels for exactly these lessons. The case settled in December 2010 (Hilton had been planning a competing boutique brand called Denizen Hotels), and the facts are a clean illustration of how this goes right, or wrong.
The Background.
Two senior Starwood employees who had developed the W hotel brand left for Hilton, allegedly taking around 100,000 documents with them. Hilton was planning a competing boutique brand. After the settlement, Hilton (a) could not develop a competing boutique chain for two years, (b) had to submit to an independent monitor overseeing its strategic decisions, and (c) paid Starwood $75 million, all before it sold a single room. That outcome was possible only because Starwood had protected its information properly. Here is what that looked like.
1. Identify and Mark Your Confidential and Trade Secret Information.
This case would not have gone Starwood’s way if it had not marked its confidential and proprietary material and restricted access to it. Once a document leaves your building, how does the person holding it know it is confidential? Unmarked information loses its protected character. If you want a court to treat something as a trade secret, you have to treat it like one first: mark it and lock it down. Under the Defend Trade Secrets Act (18 U.S.C. section 1839), information only qualifies as a trade secret if the owner took “reasonable measures” to keep it secret. That is the same requirement at the heart of the 358-trade-secret-cases survey.
2. Protect Business and Marketing Plans, Not Just Source Code.
Starwood had a “Brand in a Box,” brand handbooks, marketing plans, immersion plans, and it marked and protected all of it. Software and SaaS companies hold the same kind of strategic material: roadmaps, pricing models, go-to-market plans. Do not guard only the code and leave the business plans wide open. The most frequently litigated trade secret is actually business information like customer and pricing data, which is why keeping pricing confidential matters just as much.
3. Hold Exit Interviews.
When someone leaves, make them conscious of what the company owns and that they must return or destroy all company information. Do not let a departing employee assume that because they created something, they own it or can keep a copy. A short, documented exit conversation closes that gap.
4. Use Confidentiality Agreements Consistently.
Use them across employees, contractors, and partners. Beyond the obvious, they are powerful evidence that you took reasonable steps to protect your information, which is exactly what a court looks for. Where you also rely on non-competes or non-solicits, remember their enforceability varies sharply by state, so confidentiality and trade-secret protection is the more portable tool.
Strip those four away and Starwood does not get its result. Build them in and a departing employee is far less likely to walk off with your business. Trust me on this one.
For the broader frame on the four IP regimes that protect software businesses, including trade secret law, see Intellectual Property Basics for Software Companies.
Frequently Asked Questions.
Do I need a registered trade secret to sue? No. Trade secrets are not registered. Protection turns on whether the information has value from being secret and whether you took reasonable measures to keep it secret.
Are confidentiality agreements enough on their own? They are essential, but they work best combined with marking, access controls, and exit interviews. Together they show the “reasonable measures” a court expects.
What if an ex-employee just remembers the information? General skill and knowledge are fair game; specific marked confidential documents and data are not. The marking and access controls are what draw that line.
Resources:
Disclaimer:
This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.
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