Protecting Trade Secrets in the Era of Employee Mobility
Gone are the days when employees would stay at the same company their whole career. A 2024 government study reported that the typical employee stays with a job around 4 years. Another study showed that a staggering 85% of trade secret theft cases involved employees and other trusted insiders. Put these facts together and you’ve got a perfect storm for trade secret misappropriation.
In my trade secret law practice, we see employee trade secret theft on a daily basis—and the havoc it can wreak on a business. Here are some keys to protecting your company against trade secret misappropriation.
Understanding Trade Secrets
First things first: a trade secret is any confidential business information that provides a company with a competitive advantage. To be protected under the law, trade secrets must meet these criteria:
1. Information: Trade secrets encompass almost every kind of information imaginable. Financial, business, scientific, technical, economic, and engineering information—everything from business plans to chemical formulas—can all be trade secrets. This breadth of coverage is part of what gives trade secret law its power.
2. Commercial Value: The information must be commercially valuable because it's not publicly known. For example, a unique algorithm that powers a company’s software (Google) or a secret recipe for a popular product (Coca Cola) add unique value to the companies that own them.
3. Reasonable Efforts: The owner has taken reasonable measures to keep the information secret. The measures needed will be different for each company, but they include a range of digital and physical security measures as well as strong policies, protocols, and contracts. If a company fails to take these steps, it may not be able to claim trade secret protection in court. See more about this below.
Real-Life Examples: The Risk of Trade Secret Theft
Imagine this scenario: A top salesperson leaves to start a competing business, taking confidential customer information with her. As any business owner knows, this is the kind of thing that can abruptly impact revenues and damage the company’s reputation.
Another not-so-pretty picture: An engineer who has worked for your client’s company for several years resigns and takes a position with a competitor. Unbeknownst to you, the engineer has copied your proprietary technology to an ISB drive and gives it to his new employer. This act of misappropriation destroys the value of years of development.
Steps to Protect Your Trade Secrets
In my law practice, we love to get in front of business owners or hear from our attorney referral partners early enough to put the necessary protections in place and avoid a crisis and possible litigation. If legal action becomes necessary, the court will require the business to show that it took reasonable measures to protect the information. Here are some measures to consider to safeguard your secrets:
1. Evaluate Your Trade Secrets: While trade secrets don’t need to be registered like patents, it’s important to review them and what they do for your enterprise and to classify them appropriately. This is a crucial first step inputting effective protections in place.
2. Create Strong Agreements: Ensure your agreements with employees and others include strong protections for your information assets. Consider non-disclosure agreements, non-compete and non-solicitation agreements, and intellectual property and assignment agreements. These legal tools provide a strong foundation for protecting trade secrets and other proprietary information.
3. Include Trade Secret Protection in Your Onboarding: During the onboarding process, educate new employees about the importance of protecting trade secrets. Ensure they sign non-use policies and certify compliance with confidentiality agreements. This sets the tone from the beginning and helps prevent potential issues down the line.
4. Include Trade Secret Protection in Your Departure Protocols: When an employee resigns or is terminated, it’s essential to have protocols in place to protect trade secrets. These may include conducting exit interviews, reminding departing employees of their obligations under NDAs, and ensuring the return of company property, such as laptops and hardcopy documents.
Preparing for the Worst: What to Do if Your Trade Secrets Are Stolen
Despite taking all necessary precautions, the reality is that trade secret misappropriation can still strike. If it happens to you, you must act quickly—this can make all the difference between a manageable setback and a catastrophic loss. In some instances, you may be able to contain the damage and resolve things out of court. In others, litigation maybe the best or only means of remedying the harm that was done. Trade secret litigation is complicated, often calling for internal investigations, computer forensic analysis, and cutting-edge questions of law. More to come on all that in another blog. In the meantime, check this out for insights on trade secret litigation.
Safeguarding Your Clients’ Competitive Edge
Given the high degree of employee mobility in our economy, it’s more critical than ever before for businesses to get their trade secret houses in order. As intellectual property attorneys, we’re on the front lines, helping businesses get the most out of their information assets. Let us know how we can help you keep one of business’ biggest threats at bay and better harness the power of innovation to drive your business forward.
