Many companies that suffer trade-secret theft have no idea for months, if not longer. In the meantime, these companies often suffer substantial damage. Effective trade-secrets protection thus requires more than just proactive measures, such as restrictive covenants. Active monitoring is necessary to determine whether former employees, business partners, etc. are engaged in misappropriation.

Obviously, someone who is illegally using your trade secrets will try to keep their activity hidden. As a result, misappropriation can be difficult to detect. But there are warning signs. Here are five common red flags:

  1. A new competitor emerges. If a new competitor appears in your industry, investigate whether any of your former employees or business partners is involved. Particularly if there are high barriers to entry in your industry. This usually requires in-depth investigative work, which may require outside counsel, since the bad actors will try to hide their involvement.
  2. Your former employee lied. Hopefully, you’re conducting exit interviews when  employees leave your company. During that interview, ask where the employee will be working next. If he or she ends up at a competitor instead, there’s reason for concern.
  3. Data was downloaded. Whenever an employee with access to your proprietary information and trade secrets leaves, work with your IT department to determine whether there was any unusual downloading or exporting of key documents or information leading up to the employee’s departure.
  4. A business partner terminates an agreement unexpectedly. If your business partner had access to your trade secrets, be wary if they unexpectedly terminate what seemed like a mutually beneficial relationship.
  5. Clients leave suddenly. If one of your key sales/customer-relations employees leaves, keep an eye on the clients they worked with. If those customers take their business to your former employee’s new company, you have a problem.

Some of these may seem obvious, but companies are often so focused on their day-to-day business that they miss these warning signs. If you encounter any of the above, or there’s something else that makes you suspect trade-secrets theft,  contact an attorney who specializes in trade-secrets law immediately. Time is always of the essence in these situations.

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