A very timely article over at Computerworld that identifies a faltering economy as a circumstance that leads to greater theft of trade secrets and destruction of sensitive information. The article states that companies should be even more vigilant at these times to protect their valuable assets from literally walking out the door. Good advice. In fact, companies should always be vigilant about their trade secrets, but especially now there are no excuses not to believe that your own employees (or future layoffs) will one day be competing against you using your own trade secrets, or destroying those very same trade secrets so that they are of no use to anyone.
As it is, one of the biggest threats to corporate data and systems traditionally has come from insiders, who with their privileged access to data and systems, have the potential ability do more accidental or malicious damage than even the outside attacker.
That threat greatly increases at times when companies are laying off staff, cutting back on raises and bonuses, deferring promotions, consolidating operations and outsourcing work to save money.
Remember, as you take steps to keep your company competitive in this very difficult market (layoffs, deferred promotions, no bonuses) you should also keep in mind the emotional state of your employees and how it will affect their actions vis-a-vis your trade secrets.
The article goes on to say: “Tough economic times create uncertainty in the workplace . . . . Employees for instance, can be worried about losing jobs and promotions, concerned about financial liabilities, mortgages and rising energy costs.” Shelley Kirkpatrick, director of assessment services at Management Concepts, a Vienna, Va.-based management consultancy, states: “When there is uncertainty, it creates stress for employees. It makes the company more vulnerable” to threats.
The threats can manifest themselves in a number of ways. Insiders with access to corporate information, such as customer data or corporate secrets, might want to steal or disclose it for financial gain or simply to get back at their companies. Those with technical-savvy might seek to sabotage corporate data and systems by planting malicious code and so-called logic bombs that are designed to delete data at a future date on critical systems.
The danger is not confined to such actions alone. Stressed, unhappy workers make easy targets for opportunistic rivals as well, Kirkpatrick said. “If I am a competitor looking for a good opportunity to get trade secrets out of my competition, I am going to go after the people who may be stressed emotionally,” she said.
It makes sense at this time to re-double efforts to ensure that your trade secrets are adequately protected. Review your trade secrets protection plans and update as necessary as you make the necessary economic decisions that will inevitably affect your employees in a negative way. And if you don’t have a trade secrets protection plan, get one quick and stick to it.
Florida’s Herald Tribune is reporting that Alpha Mining Systems, a manufacturer of industrial mining tires, has won a $19.7 million verdict against former employee Sam Vance. You can find the story here.
According to the story, “in early 2005, Vance began working for China-based competitor Guizhou Tire Co. while still employed with Alpha. He would take Guizhou tire orders on his wife’s cell phone and through his personal e-mail account to avoid detection.”
He also handed over pricing and profit margin information and customer lists to Guizhou, which paid him a commission on every tire sold, records show.”
Beginning in August 2005, Vance went to work for Dubai, United Arab Emirates-based Al Dobowi Group, an upstart mining company.”
Vance gave Dobowi all of Alpha’s trade secrets, from pricing information to its customer list to the design blueprints for Alpha’s specialty tires, court records say.”
The damage to Alpha was extensive as court records show that “Del-Nat Tire Corp. and American Tire Corp. were buying a combined average of $1.9 million per month from Alpha until April 2005, when they stopped buying anything.”
From April 1, 2005, to Jan. 15, 2008, Alpha lost more than $10 million from Del-Nat alone, the court found.”
It’s a theme on this blog that I will keep repeating: the biggest threat to your trade secrets are your own employees. A comprehensive trade secrets protection plan is imperative for any company that depends on trade secrets for a competitive advantage. You must begin thinking about this critically before your company has its own Sam Vance and unlike Alpha, because you didn’t protect your trade secrets adequately, you are prevented from recovering any damages due to the misappropriation.
The $19.7 million award is one of the largest trade secret judgments in Florida history. But, how likely is it that Alpha will recover? Since, Vance didn’t show up to any court appearance, he’s probably living the high life somewhere outside the U.S. Hopefully, they’ll be able to find him and make him pay the piper for his misdeeds.
I was going to post some practical information about the effect and validity of non-compete agreements in California (they’re generally not enforceable) and alternatives that California businesses have to non-compete agreements to protect their businesses from employees who go to work for competitors (hint: it has to do with confidentiality agreements and non-disclosure agreements–which are enforceable), but there is an interesting exchange occurring right now on the net regarding overall policy relating to non-compete agreements which was started by some comments of Bijan Sabet last weekend (Mr. Sabet is a partner at Spark Capital in Boston, Mass.).
Essentially, the invalidity of non-compete agreements in California has been a source of consternation for many business owners trying to protect their businesses from employees leaving for competitors. On the flip side, proponents of non-competes have pointed to the explosion of businesses and technology in Silicon Valley as evidence that the California legislature got it right when they invalidated the non-compete agreement because of its function as a barrier to free markets. So who’s right? Continue reading