Trade secret theft by employees is a serious and growing problem in the U.S. According to an analysis of federal court cases, 85% of such theft is committed by employees or business partners.
And while that’s disturbing enough, there’s been a significant escalation in the number of trade secret thefts over the years: cases doubled from 1988 to 1995 and again from 1995 to 2004, and they are on track to double yet again in the next few years.
According to a study by PricewaterhouseCoopers, suits brought against former employees over restrictive covenant agreements increased 60% in the 10 years ended 2013.
The law firm of Foley & Lardner LLP, which specializes in employer litigation, recommends the following to protect your company’s secrets from internal misuse:
• Identify your secrets – In order to protect your trade secrets, you need to know what they are and where you store them. Broadly speaking, any confidential business information which provides an enterprise a competitive edge may be considered a trade secret. Trade secrets encompass manufacturing or industrial secrets and commercial secrets. Legally, you should know that different states define trade secrets differently, so you should familiarize yourself with your state’s definition.
• Limit access – Restrict trade secret access to those who have a need to know. Have these employees sign a confidentiality agreement in which they:
– Acknowledge receipt of confidential material
– Agree to keep the material confidential
– Agree to return the material when employment ends
– Agree to advise you of the identity of their new employer and to make the new employer aware of the agreement
– Agree to allow you to provide a copy of their agreement to a new employer
– Acknowledge that forensic analysis may be done on their devices, such as computers and phones, when their employment ends
– Acknowledge that irreparable harm would be done if they violate it
• Use non-compete agreements – Have employees who have access to your trade secrets and customer information sign non-compete and non-solicitation agreements. You can customize the agreement to ensure it reflects the worker’s role in the company, so you have better chance of enforcing the agreement should it be breached. Do not use a “one-size-fits-all” form and don’t have workers sign such agreements when there is no legitimate business reason.
• During employee meetings, regularly address the importance of keeping information confidential. This will convey that you are serious about safeguarding your company information, particularly when an employee leaves your company.
• Conduct exit interviews with employees who had access to trade secrets and:
– Confirm in writing the obligations the employee has by contract, or otherwise by law, to keep confidential information confidential and, if applicable, not to compete or solicit
– Confirm that all confidential material has been returned
– Inquire about the person’s next job
• Perform forensic analysis on computers and other devices of departed workers who had access to trade secrets to determine whether any thievery of trade secrets or other prohibited conduct occurred.
The takeaway
While the above steps are not foolproof, they can go a long way towards protecting your company’s trade secrets. And if an employee or departing worker makes off with any of this data, you will be in a better position to minimize and mitigate any harm that may come from it.