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5 Biggest Mistakes Businesses Make Protecting Trade Secrets

Businesses continue to endure massive losses from the theft of trade secrets—in a recent survey, 40% of companies surveyed reported actual or suspected loss of trade secrets. The problem stems primarily from the rapid growth of computerization in the marketplace which makes it easier to copy, steal and misappropriate information, and therefore increases the likelihood of trade secrets theft.

Indeed, the biggest threat to your company’s trade secrets comes from within—your current and former employees are stealing your trade secrets and typically using your computers to do it. Furthermore, businesses are often unwilling accomplices to the theft because of ineffective trade secret protection strategies. Following are five mistakes businesses often make with respect to their trade secrets protection plan. Because trade secret protection is largely a managerial issue, taking these steps will decrease the chances that your trade secret information will be misappropriated, or that trade secret protection will be lost.

1. New Employee Hiring Procedure. A non-disclosure agreement should be signed as part of every new employee package. Especially where it is anticipated that the new employee will come in contact with trade secret information, a non-disclosure agreement is essential and must be a condition of employment. While many businesses have non-disclosure agreements in their new employee packages, they often don’t spend the time necessary to instruct the new employee on the purpose and importance of the non-disclosure agreement. Understandably, during the new hire process, when many different forms require the new employee’s signature, the non-disclosure agreement becomes “just another form” for the employee to sign. However, it is critical that a new employee is put on notice of the terms contained in the non-disclosure agreement and is clearly instructed about the obligations of the agreement—as part of the new hire checklist, you may want to add a hand-out on the importance of trade secrets and the duties arising from the non-disclosure agreement, along with an acknowledgement of receipt form for the employee to sign.

2. Failing to Limit Distribution. Oftentimes, businesses fail to limit the distribution of trade secrets within the company to only those employees with a need to know the information. Typically, this occurs when the information is freely available on a company network with no restrictions on access. It is unwise to allow your employees to view trade secret information merely because they have provided the necessary information to log in to the company network. Any company trade secret information should only be accessible on the network via an additional password—and only designated employees should be given the password. Likewise, trade secret information that is not stored electronically should be secured by locked filing cabinets, stamped “confidential” and/or tracked by control numbers—only designated persons should have access to these files and all employees who view the information should be logged. Without such restrictions on access, there is the possibility that trade secret protection will be irrevocably lost.

3. Failing to Follow Policy and Procedure. A trade secrets protection plan is only effective if it is followed. The best trade secrets protection plans are nearly worthless if they are only followed part of the time or by part of the employees. These types of problems usually arise when there are unwarranted restrictions placed upon access. Companies must make reasonable decisions about the protection afforded their sensitive information—not all trade secrets require safekeeping in a locked vault where only two people have the key. Trade secrets protection only requires that the company’s actions to protect the information must be reasonable. Be sensible about balancing the needs of your employees with the importance of the information—a reasonable balance of interests will result in a higher probability that the policy is actually followed and, as a result, trade secret protection is more likely to be preserved.

4. Failing to Regularly Communicate with Employees. It must be an ongoing policy of the company to regularly communicate the importance of protecting trade secrets and the company’s policies regarding trade secrets. Employees who are clear on the “handling procedures” for trade secret information are less likely to break those procedures and more likely to feel an obligation to protect the company’s information. There are several ways to accomplish regular communication with your employees regarding trade secrets policies and procedures: (1) hold annual or semi-annual meetings; (2) send out regular company emails and memos; (3) regularly distribute policy manuals and updates; and/or (4) hold regular training sessions regarding the proper handling of trade secret information. These types of actions remind the employees of the importance of the information they have been entrusted with and will result in decreased chances of theft; they have the additional affect of bolstering any argument that the information was the subject of reasonable efforts to keep it secret should you be forced to protect your trade secrets in court.

5. Failing to Capitalize on the Exit Interview. The exit interview is a critical time for your trade secrets protection plan. Every departing employee must be reminded of his duty and obligation to protect the company’s assets to which they have become privy by virtue of their employment. Thus, part of the exit interview should focus on a review of the company’s trade secrets. There should also be an exit interview checklist to ensure that all company information is returned. The employee should be required to return any company laptops; to delete any company information presently on any personal laptops, or personal computer disks; to leave any company information not stored electronically at her desk; and to certify that she has done so. In some cases, where the termination is involuntary and there is a high likelihood that the employee will be going to work for a competitor, the employee should be escorted out of the building (ensuring that she has only personal belongings), and a letter should be sent to her future employer stating all consequences if the former employee should disclose the company’s trade secrets.

For more information on how your company can avoid the 5 Biggest Mistakes Businesses Make Protecting Trade Secrets, to update your trade secrets protection plan, or to discuss litigation issues with respect to your trade secrets contact Benjamin C. Johnson, Esq.

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    Pingback by Heading Off Trade Secret Theft « The Trade Secrets Blog | December 13, 2007


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