91ÊÓƵ

Theft of trade secrets is on the rise. 2013 has been replete with news stories of U.S. businesses suffering such theft by competing companies, foreign governments and militaries and hackers. Advances in digital media, peer-to-peer networks, cloud-based applications and interconnected supply chains have given would-be thieves new ways to misappropriate trade secrets.

A 2010 study by Gonzaga Law Review revealed that the number of trade secret cases in federal courts doubled between 1988 and 1995, and doubled again between 1995 and 2004. At that rate, the number is likely to double again before 2020.

Not surprisingly, the annual cost of trade secret misappropriation is in the billions of dollars, and no company with potential trade secrets is immune from such acts.

Trade secrets can be considered information that gives the owner some form of advantage over competitors. Trade secrets may include chemical formulas, company marketing plans, pricing strategies, client lists and software source code.

To qualify as a trade secret, the protected information must be commercially valuable and not generally known or ascertainable by other persons. Additionally, the owner must take steps to maintain its secrecy. Some companies choose to protect their intellectual property as a trade secret because, unlike patents, trade secrets may give an indefinite protection to the holder (for example, the formula to Coca-Cola will remain protected as long as the trade secret remains secret).

When thinking of trade secret theft, it’s easy to imagine a spy infiltrating a highly secured space and covertly removing a “Top Secret” file. However likely that “Mission: Impossible” scenario may be, research indicates that in more than 75 percent of cases, trade secret misappropriation is performed by current or former employees and business partners. As a result, it is important for employers to have policies and procedures in effect that protect confidential information from being hacked, disclosed, transferred or otherwise improperly disseminated. The focus should be on the most likely threat: dishonest employees.

Trade secret misappropriation generally follows competition. We often hear about former employees taking company information and using it to compete directly with the former employer, usually by starting a new business or helping a new employer.

Recently, for instance, a former DuPont employee was hired by Kolon Industries of South Korea. Kolon sought to use DuPont’s Kevlar technology and other trade secrets retained by the former employee for its own benefit. Ultimately, DuPont was awarded $920 million in damages and the former employee was sentenced to 18 months of imprisonment.

Former employees may retain trade secret or confidential information not because they intend to sell it or use it to compete with their former employer, but rather because they feel entitled to the information. They also may not believe retention is wrong, or that the company will do anything about it.

A 2013 international online study by Symantec entitled “What’s Yours is Mine: How Employees are Putting your IP at Risk” showed that most employees do not believe that using competitive data from a previous employer is wrong. Moreover, half of the employees who lost their jobs in the previous 12 months retained their employers’ confidential information, and 40 percent planned to use that information in their new jobs.

The study further illustrated that only 38 percent of employees said that their employer viewed the protection of information as a business priority, and fewer than 50 percent of those surveyed said that their organization takes action when sensitive data is removed against company policies.

Employers should know that both federal and state laws like the Uniform Trade Secrets Act protect company trade secrets, though the specifics of the laws may differ slightly from state to state. In most instances, as in Oregon, the holder of a trade secret can seek to have the misappropriator enjoined from using the trade secret for a period of time or indefinitely. The owner may also seek to recover damages and possibly attorney fees.

That said, an ounce of prevention is worth a pound of cure. Instead of having to litigate the issue after the fact, employers are better served dealing with the potential of trade secrets on the front end.

One option is to have employees sign a noncompete agreement. In Oregon, however, a noncompete agreement is voidable and may not be enforced by a court unless certain factors are met. For example, the employee must sign the noncompete agreement two weeks before starting work, and the employee’s salary has to be a minimum amount. Also, the noncompete has a temporal limitation of two years from the date of termination.

An employer can have nondisclosure agreements with employees and implement employee policies that address in an employee handbook how trade secrets should be handled. Employers should also minimize the risk of losing sensitive information by granting access to only those employees who have a need to the information and by instituting safeguards like passwords, sign-out sheets, and labels on sensitive information as appropriate. At termination, an employer should require the employee to return all company property and information in possession.

The employer should also take steps to educate employees about what it considers confidential information, as well as employee rights and obligations. The employer should also enforce its agreements to safeguard against misappropriation.

Samuel Hernandez is an attorney with Barran Liebman LLP. He provides compliance advice to employers and represents management in employment law litigation. Contact him at 503-276-2175 or at [email protected].