Tag Archives: Advice

The DOJ Announced Another Trade-Secrets Prosecution. What Does That Mean For Your Company?

May 22, 2015 By in Advice, Trade secrets, Trade Secrets Best Practices, Trade Secrets In the News Tags: , , , , , , , , Leave a comment

There has been a lot of news coverage of the DOJ’s charges against Chinese professors for trade-secrets theft and violations of the Economic Espionage Act. Stories like this have become more common, as the DOJ has increased its focus on prosecuting trade-secrets theft. Often, these cases involve defendants with connections to foreign governments, and China in particular. As these cases have become more prevalent, the federal government has dedicated more resources to combating them.

Unfortunately, this will have little effect on most companies that fall victim to trade-secrets theft. The DOJ appears to have little interest in prosecuting run-of-the-mill trade-secrets theft, even though there may have been violations of a federal statute like the Economic Espionage Act. The DOJ simply does not have the resources to deal with the huge number of these cases. Thus, the vast majority of trade-secret misappropriation cases will be handled through civil lawsuits.

So what should you do if you believe your company has been the victim of trade-secrets theft? The answer is simple: you need to consult with an attorney specializing in this area of the law as soon as possible. Time is of the essence, and even a delay of a day or two could cause serious problems. Your attorney can advise you of your options. If your case is a good candidate for federal prosecution, your attorney should let you know. More likely, your options will involve civil remedies. Either way, you will need to make important decisions very quickly.

When It Comes to Trade Secrets, Ignorance Is Not Bliss

April 24, 2015 By in Advice, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , Leave a comment

Trade-secret misappropriation cases often involve bad actors who deliberately steal trade secrets. But perhaps just as frequently, trade-secrets are misappropriated by people who simply don’t know better. Many don’t even understand what a trade secret is, let alone that there are laws or other obligations prohibiting inappropriate use or disclosure of trade secrets.

I’ve personally seen this happen over and over. An employee leaves one company to join another in the same industry. He takes many of the documents he created at his old job. These documents contain trade secrets. In his mind, they are his documents. He created them, after all! And at his new job, he uses those documents on behalf of his new employer.

Now both companies have a problem. The former employer’s trade secrets are in a competitor’s hands. And the new employer has unwittingly exposed itself to significant liability.

Both companies are to blame for their problems. The first company did not educate its employees about their responsibilities and legal obligations regarding trade secrets and proprietary information, both while working for the company and after they leave. The second company failed to make sure that the new employee did not bring his prior employer’s trade secrets with him.

There are three primary tools for preventing this situation: contracts, training, and exit/intake interviews. Employees with access to proprietary information should sign a non-disclosure agreement that requires them to keep the information confidential. The agreement should provide that all information belongs to the company even if created by the employee, and must be returned upon termination of employment. And the contract should acknowledge that the employee is not bringing any proprietary info or trade secrets from her prior job.

But employees too often don’t read contracts before signing them. That’s where training comes in. During the on-boarding process, and periodically thereafter, use training sessions to reiterate your trade-secret policy.

Finally, use exit interviews to again instruct the departing employee about his post-employment obligations. Consider having him sign an acknowledgement that he has returned all info and is aware of these obligations. When hiring a new employee, talk with them up front about what info they have from their prior employer. Be sure to consult with an attorney if that discussion raises concerns.

I really believe that many misappropriation cases can be avoided by simply making sure that employees understand these issues. Too often, they do not.

 

2-Minute Jimmy Kimmel Clip Shows Our Cybersecurity Culture Crisis

January 16, 2015 By in Advice, Trade secrets, Trade Secrets In the News Tags: , , , , , , Leave a comment

This video speaks volumes about our country’s attitudes towards cybersecurity:

Last week, I wrote about the importance of creating a culture that makes protection of trade secrets a top-line priority. This video shows why this culture is so important. Your employees need to be constantly aware of surreptitious attempts to get passwords. Spear phishing attacks are becoming more and more sophisticated; your employees need to be immediately suspicious of any attempt to get personal information, particularly passwords.

In the real world, bad actors are far more subtle than a Jimmy Kimmel reporter with a microphone and a video camera. The fact that people are willing to turn over their passwords on TV shows—particularly now, when cybersecurity issues have never been more visible—is depressing. Make sure your employees know better.

Trade Secrets Best Practices: Exit Interviews

January 12, 2015 By in Advice, Noncompete, Trade secrets, Trade Secrets Best Practices Tags: , , , , , , , , , , , , , , Leave a comment

This is the next in a series of posts addressing best practices for protecting trade secrets and proprietary information. Today’s topic: exit interviews, which can be a powerful tool to avoid, or at least anticipate, unwanted disclosure.

An exit interview is exactly what it sounds like. When an employee is leaving your company, you have someone meet with him to discuss various aspects of his departure. There are several goals: remind the employee of his legal obligations; make sure he has returned all company information, documents, and devices; and gather intelligence about his next job to determine the risk of unwanted disclosure.

The key is to have a set process that is automatically followed each time an employee leaves. Depending on the size and structure of your company, a single person or department should be responsible for conducting the interviews. That person should work from a checklist that includes all topics that must be discussed. To develop this process, consult with an attorney who specializes in trade-secrets issues who can help customize it to fit your company’s needs.

The checklist should include, at a minimum, the following:

Review of restrictive covenants and related agreements: Give the employee copies of any agreements he signed and remind him of specific noncompete, nonsolicitation, nondisclosure, and related obligations.

Review of non-contractual legal obligations: Remind the employee of his ongoing legal obligations to, for example, keep certain information confidential. The applicable laws vary state-by-state, so make sure to consult with an attorney familiar with your state’s laws.

Review inventory of all company devices: Hopefully, you are keeping an inventory of all company devices issued to the employee. Go through this inventory and make sure he has returned all of these devices.

Company information and documents: Ask whether the employee has any hard-copy documents or electronically stored information on his personal computer, devices, and storage medium. If he does, give a set date for him to return or destroy the documents/information.

Sign acknowledgment: Have the employee sign an acknowledgment form that confirms he is aware of his legal obligations, has returned all company devices, and returned or destroyed all company documents/information.

Gather information: Ask the employee where he will be working next, and in what capacity. Also make sure you have the employee’s updated contact information.

Additionally, prior to the interview, you should work with your IT department to see if the departing employee recently accessed or used trade-secret information, particularly in an out-of-the-ordinary manner. If so, consult with an attorney, since it may be advisable to address this issue with the employee during the exit interview.

Often, this process will allow you to handicap the risk that the departing employee will illegally use your trade secrets and proprietary information. For example, be wary of an employee who refuses to tell you where he will be working next. Or an employee who refuses to attend the exit interview. In cases where you suspect something is amiss, consult with an attorney right away, since time is of the essence in these cases.

Again, there is no one-size-fits-all approach to exit interviews. Speak with with an attorney to develop the process that best fits your company’s needs.

Novel Legal Strategy Deflates Employer’s Trade-Secrets Case

April 24, 2014 By in Case Summary, Noncompete, Trade secrets Tags: , , , , , , , , , , , , , Leave a comment

Recently, in Putters v. Rmax Operating, LLC, 2014 WL 1466902 (N.D. Ga. April 15, 2014) (opinion linked below), the court dismissed a counterclaim for trade-secrets misappropriation, brought in response to a declaratory judgment action filed by the defendant’s former employee. When I first read this opinion, I thought that the defendant did not move fast enough, thereby allowing the plaintiff to select the forum. When I dug further, however, I found out I was wrong.

In this case, the defendant is a Texas company that manufacturers insulation materials. The plaintiff worked for the defendant for 26 years in Georgia as a sales manager, and had access to the defendant’s confidential information. After the plaintiff left the defendant to work for a competitor, the defendant discovered that the plaintiff “had downloaded documents containing proprietary and confidential information to an external hard drive.”

While not clear from this opinion, the complaint gives the back story. A copy is linked below. The defendant originally filed suit in Texas state court and obtained an ex parte temporary restraining order prohibiting the plaintiff from working for his new employer.

After that, the plaintiff made an interesting legal maneuver. He filed this lawsuit in Georgia state court, seeking a declaration that he is permitted to continue working for his new employer, and an injunction prohibiting the defendant from prosecuting the Texas action, since Texas courts did not have personal jurisdiction over him.

This maneuver worked. The case (after being removed to federal court) is proceeding in Georgia federal court, where the court dismissed the defendant’s counterclaim and denied the defendant’s request for a TRO.

Normally, when a defendant believes that there is no personal jurisdiction over him, he will simply litigate that issue in front of the court where the plaintiff filed the lawsuit. Here, the employee took an entirely different course and successfully redirected the litigation to a different forum. And he was able to get the case in front of a judge with much more favorable views of his case.

Takeaway: Companies should be wary of personal-jurisdiction issues when filing trade-secrets lawsuits. The last thing you want is to be bogged down in a personal jurisdiction fight before the court will even hear a temporary injunction motion. Or, even worse, you could end up like the employer in this case, who spent time and money getting a TRO, only to be whisked away to a Georgia court with a very different view of the employer’s arguments.

Also, had this company simply had its employees sign restrictive covenants (including a venue and jurisdiction clause), they would be in a far better legal position.

Order

Complaint

CREATe.org/PwC Report Makes the Case for Investing in Trade-Secret Protections

February 27, 2014 By in Noncompete, Trade secrets, Trade Secrets In the News Tags: , , , , , , , , , , 2 Comments

“Historically, . . . [trade secret protections] have been viewed as a cost, not an investment.” CREATe.org and PwC recently released a report titled “Economic Impact of Trade Secret Theft: A framework for companies to safeguard trade secrets and mitigate potential threats.” If you read this blog, you should read the report.

Next week, I will be interviewing for this blog one of CREATe.org’s principals responsible for the report. (CREATe.org is a non-profit “dedicated to helping companies and their suppliers and business partners reduce counterfeiting, piracy, trade secret theft and corruption.”)

The report seeks to change the mentality described in the above quote. It starts by estimating the cost of trade-secret theft, and concludes (based on a review of various proxies for trade-secret theft) that economic losses based on trade-secret theft amount to between 1 and 3 percent of GDP. Hopefully, numbers like this draw greater attention to the real risks companies face.

It next outlines of categories of “threat actors” — those who seek to steal trade secrets. These include nation states, malicious insiders (including current and former employees, third-party consultants, and suppliers), competitors, transnational organized crime, and hacktivists (who try to use corporate information for political or social purposes).

Regarding employees, the report notes that “cultural and technological factors may heighten the insider threat in coming years . . . The nature of U.S. employees’ loyalties to their employers is changing because of the much higher rate of lifetime job changes.” The report also identifies “bring your own device” policies as an increased risk.

The report presents a framework for companies to identify and evaluate their trade secrets, audit their current protections, and make value-based improvements to these protections based on measuring ROI. This approach involves key stakeholders, educates them about the risks of trade-secret theft, and helps make the business case for protections.

While I have some issues with the framework (which, if handled improperly, could create documents that may undermine litigation efforts, and would likely need to be altered for many small mid-sized businesses), it provides a comprehensive, incredibly useful starting point and roadmap.

Next week, I’ll examine the report in greater depth when I interview CREATe.org.

Ten Ways Businesses Can Protect Their Trade Secrets

March 18, 2013 By in Advice, Noncompete, Trade secrets Tags: , , 4 Comments

Since the purpose of this blog is to provide information that makes it easier for companies to protect their trade secrets and proprietary information, let’s get started with a list of steps that businesses should take to protect their trade secrets:

  1. Noncompete agreements. Make sure all key employees (or, ideally, all employees who have access to proprietary information) sign noncompete agreements.
  2. Nondisclosure agreements. All employees should sign an agreement that requires them to keep the company’s proprietary information confidential. This can be included in the noncompete agreement. Have employees without a noncompete sign a stand-alone nondisclosure agreement.
  3. Trade-secrets policy. Either as part of an employee handbook or on its own, implement a formal trade-secrets policy. Have each employee acknowledge in writing that they received and reviewed the policy.
  4. Employee training. A formal trade-secrets policy is only effective if employees know about their roles and responsibilities with regard to the company’s trade secrets and confidential information.
  5. Exit Interviews. All companies should be conducting exit interviews with departing employees whenever possible. These interviews should address trade secrets and confidential information, including making sure the departing employee is aware of his or her contractual and other legal obligations. This is also a good opportunity to learn where the employee will be working next, which could alert you to the risk of confidential information being disclosed if the departing employee will be working for a competitor or starting their own company that will compete with yours.
  6. Vendor Agreements. Anytime a vendor has access to confidential information, the agreement with that vendor needs a confidentiality provision.
  7. Restrict access. Make sure that confidential or proprietary information is only accessible to those employees who need this information to carry out their jobs. Access can be restricted through IT systems (e.g., password-protected documents) or more conventional means, such as providing employees with a locking drawer they can use to store printouts of confidential documents.
  8. Computer passwords. Make sure that all employees know to lock their computers whenever leaving their desks. Require all employees to change their passwords periodically.
  9. Reply all. Not only is it brutally annoying to receive unnecessary “reply all” responses, but inadvertent use of “reply all” can circulate proprietary information to unintended recipients. Discourage employees from using “reply all” unless absolutely necessary. Consider using an add-on to your email software that requires employees to confirm before “replying all.”
  10. Data-loss-prevention software. Install software that monitors sensitive information and alerts to possible improper disclosure of this information.

While some of these steps require the assistance of an attorney, others can be taken immediately.

In future posts, I’ll examine these in more depth.

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