This document discusses protecting trade secrets. It notes that U.S. businesses lost over $60 billion annually due to intellectual property theft, with 40% from loss of trade secrets like customer lists and formulas. A trade secret is confidential business information that provides a competitive advantage. The biggest risk of trade secret theft comes from current and former employees. Companies should identify their trade secrets, implement security controls like confidentiality agreements, and conduct exit interviews to protect this valuable information.
3. U.S. businesses lost over $60 BILLION due
to intellectual property theft. 40% of this
loss was from known or suspected loss of
proprietary information such as TRADE
SECRETS.
- U.S. Chamber of Commerce
4. What is a TRADE SECRET?
A TRADE SECRET is really just a piece of
information, such as a customer list or a
method of production or a secret formula
for a soft drink that the holder tries to
keep secret. The only way the secret can
be unmasked is by an unlawful activity.
Intangible business assets = Intellectual
Property + TRADE SECRETS
5. Does your company have TRADE
SECRETS?
Companies may have trade secrets and
not even know they exist, or
Companies may be aware of their trade
secrets and fail to take necessary steps to
protect the trade secrets.
6. How To Identify Your Trade Secrets?
Company attorneys should have their clients periodically
ask employees:
1. What do we know that gives us a competitive edge?
2. Do other companies or outside individuals know this
information?
3. Is this information something our competitors would
want to know?
4. Was the information difficult, time-consuming or
expensive to gain?
5. Would the company suffer significant damage if the
competitors were to learn of this information?
6. Who knows this information within the company?
7. The number ONE risk factor associated with the
theft of TRADE SECRETS is from those with a
trust relationship with the organization, primarily
current and former employees.
Employee mobility = Employees who spend at
least 50% of their business hours away from
their traditional office space. Also included are
those employees who work from a remote
location via VPN or such other network.
8. Employee mobility has a significant potential
adverse impact on the ability to protect TRADE
SECRETS from disclosure to competitors.
91% of organizations surveyed had never
inspected mobile employees’ work environment
and security glitches present at these remote
work places.
Problem areas: Private web email accounts such
as Yahoo, external storage devices such as
“thumb drives”, PDAs / Blackberrys, Instant
Messages and other means of communication
that transcend the company email system
9. The TOP 4 areas of risk of loss of TRADE
SECRETS:
1. Research & Development Data;
2. Customer Lists and Related Data;
3. Financial Data; and
4. Strategic Plans and Roadmaps
Other areas of risk include: Mergers / Acquisition
data, manufacturing data and unannounced
product specification & prototypes
10. Loss of TRADE SECRETS leads to:
1. Loss of Revenue;
2. Loss of Competitive Advantage;
3. Loss of Market Share;
4. Increased Research & Development Costs;
5. Increased Legal Costs;
6. Embarrassment & Damage to Company’s
Reputation; and
7. Increased Insurance Costs
11. Perils of Globalized market place:
Trade secret protections outside of the United States
vary widely and in some countries, corporate espionage
is an acceptable business tactic. This kind of legal
system affords little or no protection for a company’s
trade secrets.
Competition and employee’s mobility has led to highly
lucrative pay packages. This in turn places enormous
pressure on the mobile employee to produce quick
results for the new employer. Key employees feel
compelled to take some or all of the work-product they
created for their prior employer with them upon their
departure.
Case Study: IBM – HP – Atul Malhotra
12. Responsibility of Senior
Management
Senior management often does not fully
appreciate the scope of its obligations as it
relates to protecting trade secrets.
The 3 largest problem areas are:
1. Failure to identify, inventory and value trade
secrets;
2. Failure to institute internal controls regarding
confidentiality;
3. Failure to protect trade secrets when
employees depart.
13. Internal Controls
In litigation, courts consider whether the
complaining party took adequate measures to
protect the confidentiality of the trade secrets at
issue.
Every company should consider instituting the
following internal controls:
1. Drafting trade secrets, confidential
information, non-disclosure and non-compete
provisions in employment agreements and
company manuals;
2. Requiring every employee to sign these
agreements;
14. Internal Controls
3. Create an internal committee of key employees and
account for company’s trade secrets;
4. Ensure confidentiality of & control access to trade
secrets;
5. Tailor internal controls to cover mobile employees
who work outside the office;
6. Ensure that the company maintains an updated e-
systems monitoring policy (spy software);
7. Institute site security measures that require visitors to
sign in, restrict their movement and record their nature
of business;
15. Internal Controls
8. Develop policies about the use of external
storage devices with company laptops,
transmission of company data to private web
email account, usage of instant messaging
software, etc;
9. Require vendors, independent contractors,
and third parties who might access trade secrets
to sign Confidentiality Agreements;
10. Utilize an Exit Interview process for
departing employees.
16. Exit Interviews
Exit Interviews are critical. During the
interview, employers should attempt to learn:
(a) the identity of the employee’s new employer
and the new employer’s business interests; (b)
the employee’s new position; (c) and
responsibilities; (d) the general nature of the
projects on which the employee will be working;
and (e) the incentives that motivated the
employee’s decision to leave.
Remind the departing employee of his/her
obligation to keep the employer’s confidential
information secret.
17. Exit Interviews
Memorialize the exit interview in form of a
memorandum (and also have the employee sign
it)
After the exit interview, the employee’s laptop
should be accounted for and, in many instances,
its contents preserved – Imaged.
Require departing employees to execute a
certification detailing what external computer
media they used while employed.
18. TRADE SECRET AUDIT:
Are you familiar with the phrase “trade secret
audit”? You should be.
A trade secret audit should be conducted on an
annual basis to assess the status of trade secret
programs and protections. Trade secret audit is
a prudent and proactive approach that is the
need of the day in identifying and protecting the
company’s trade secrets.
19. ASHISH S. JOSHI
ATTORNEY AT LAW
Washington D.C. - Michigan - New York - India
