The movies have conditioned us to believe that trade secrets are most likely to be stolen by Eastern European cyber-criminals or foreign intelligence agents bent on preventing some worldwide disaster. However, a statistical study of trade secret theft shows that trade secret thieves are most likely to be those you already know: former employees.
It’s who you know
Several studies of relevant case law have found that most intellectual property (IP) misappropriation occurs at the hands of people familiar with the business. One study in particular found that over 85 percent of the thefts were committed by an employee, a business partner or a vendor.
How to protect your trade secrets
Protecting your trade secrets is protecting your business, and to do that properly, you will need to involve your entire staff. Studies show that the majority of IP thieves had signed nondisclosure agreements – meaning that preventing trade secret theft requires multiple steps. You cannot just rely on a contract to do the job.
Here are seven steps that can help protect your trade secrets:
- Identify your trade secrets: Any confidential business information that gives your business a competitive edge may be considered a trade secret. Examples include customer and supplier lists, source code, pricing and margins, formulas, processes and other methods of operation. If this information could help your competition, then it should be classified as a trade secret.
- Control access and compartmentalize: Most business materials that would be considered trade secrets are now stored digitally. Such confidential information should always be stored on a secure server with limited access. If information is printed out, mark it confidential and keep in a locked file. Only the right people should have access to your trade secrets.
- Put a trade secret team in place: Best practices suggest establishing a cross-functional team to ensure that trade secret protection policies are being followed. The team could consist of representatives from HR, information security, management, members of the legal department and others.
- Educate and train staff: Make employees and vendors aware of the importance of protecting your company’s trade secrets. Discuss the warning signs of IP theft and how to report suspicious behavior. Make this a part of your employee on-boarding process and have new employees sign strict IP and nondisclosure agreements. Use periodic reminders and follow-up training to keep the issue top of mind. Use the opportunity to have staff re-sign IP agreements if necessary.
- Hire properly: Check backgrounds of all potential new hires. If a potential hire offers to bring competitive intelligence from their former employer, walk away. If they would do that to their former employer, you can be sure they will do it to you as well. There is also a legal risk to your business if competitor trade secrets come to your company with your prior knowledge.
- Understand your legal protections: Colorado has trade secret laws adopted from the Uniform Trade Secrets Act, which provides trade secret owners a procedure to file civil lawsuits in federal court. Unlike other types of intellectual property, such as patents, copyrights and trademarks, you cannot register trade secrets to establish legal protections for them.
- Prosecute violators: If you suspect your intellectual property is being used or you have uncovered the theft of your trade secrets, consult with an experienced attorney right away. A cease and desist letter is often the first step, but your attorney will help determine the most prudent course of action.
Theft of trade secrets can cripple a company. Consider working with an experienced attorney before problems arise. Your attorney can guide you through the proper steps to manage your company’s risk and protect your competitive edge.