Six Steps for Protecting Your Trade Secrets
September 1, 2006
(September 2006) Review your policies and procedures to optimize your protection. Theft of intellectual property (IP) costs U.S. businesses about $250 billion each year. In May 2006, Coca-Cola's formula, perhaps the world's most highly-guarded trade secret, was being peddled by insiders to PepsiCo., its bitterest rival. Fortunately for Coca-Cola, Pepsi immediately contacted its rival and set up a sting operation to catch the would-be thieves, who were charged with wire fraud and unlawfully selling trade secrets. So if the formula for Coca-Cola can be breached, how safe are your company's secrets? I interviewed Edward M. Reisner, a litigator who specializes in patents and other types of intellectual property, with the New York City law firm of Cohen, Potanti, Liberman & Pavane LLP, who provided theses steps to help you protect your trade secrets. 1. Identify your trade secrets Know what constitutes a trade secret in your business so you can take steps to protect them. If you have a service business, trade secrets include your customer lists, pricing and information you may have on your competition. If you are a manufacturer, in addition to these trade secrets, others include product designs and formulas, suppliers and production procedures. To make something a trade secret, you must treat it as such. For example, if the information exists on paper, distribution should be limited on a need-to-know basis, and every page should be marked "confidential" and kept under lock and key. Areas of your facility where trade secrets might be observed should have restricted access. If you do not take steps to guard your secrets, they will not be accorded trade secret status. 2. Use confidentiality agreements No matter how few employees you have, all should be required to sign a confidentiality agreement that bars them from disclosing your secrets--during their employment or after they leave. Include in the agreement that all computer contents and communications (e.g., e-mails) are subject to monitoring and review by the company. For certain highly-skilled employees, such as designers and engineers, it also makes sense to use a non-compete agreement that bars them from working for a competitor or going out on their own for a limited period (usually one or two years). Depending on the nature of their work and your type of business, the non-compete agreement also may be limited regionally, so that if a departing employee wants to relocate across the country, this would not pose a problem. 3. Employ technology to your advantage For example, you can limit which workstations can print out design drawings or other sensitive materials to make it difficult to carry these secrets off site. All e-mails should be backed up and stored so that if an employee is suspected of passing on confidential information to a competitor, his communications can be checked. 4. Hire smart When adding someone to your staff, make sure you consider how trade secrets come into play. You don't want to hire someone who may bring legal baggage along--the former employer might come after you for violating its trade secrets. - Decide what you are hiring the person for--his/her talent and experience or merely for the information learned at the former company.
- Always review every job applicant's previous employment contract and/or confidentiality agreement (and non-compete agreement where applicable) to determine your potential exposure. Assess the likelihood that the former employer will come after you to protect its secrets, i.e., does it have a reputation for litigiousness.
5. Follow up when an employee leaves If someone is resigning to work for a competitor, don't wait until your trade secrets have been revealed to take action. Instead: - Conduct an exit interview (tied to receipt of a final payment) where the employee is reminded of his/her obligations regarding confidentiality. At this interview, have the employee sign a document acknowledging the requirement confidentiality regarding a specific matter that he/she worked on (e.g., the model X123).
- If you have a concern that the employee will review confidential information, then immediately contact the new employer to express concerns about proprietary information.
6. Litigate Work with a knowledgeable attorney to assess the merits of your case and whether it makes financial sense to proceed. If you did not take action when an employee left (e.g., you did not know which company he/she was going to), but later learn your trade secrets have been exposed, consider legal action: - Seek a temporary restraining order or preliminary injunction on the grounds that you would suffer irreparable harm if your trade secrets are revealed or used.
- Promptly commence a lawsuit to recoup monetary damages for your injury and to seek a permanent injunction against the use of your proprietary information.
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