Commercial entities, such as banks,
retailers and airlines, know that some
of their own employees are far more likely to steal from them than a thief outside of the organization breaking into their
facilities. This “likelihood” also ports to
companies that own or manage intangible
assets — ideas, know-how, confidential
information, inventions (patented or not),
works of authorship protectable by copyright, trade secrets, trademarks, trade
dress, business methods and patents.
“Employees can do serious damage to a
company’s future if they walk off with their
employer’s intellectual property, particularly its confidential information, including
trade secrets,” says William Munck, chairman of the Dallas-based law firm of Munck
Carter, P.C.
Smart Business talked to Munck to find
out how a company can better protect its
trade secrets and other intangible assets.
What is a ‘trade secret’?
Trade secrets may be thought of as any
information having independent economic
value and that is not generally known or
otherwise readily ascertainable. Examples
of trade secrets may be ideas, patterns,
compilations, programs, formulas, methods, techniques, processes and secret
devices. The courts have also found such
things as machining processes, blueprints,
computerized stock trading systems, customer lists, pricing information, unpublished inventions and nonpublic financial
data — overhead rates and profit margins
— that help companies price their goods
and services to be trade secrets.
How can companies prevent exiting employees or contractors from stealing trade
secrets and other IP when they leave the
company?
It is impossible to prevent all trade secret
theft by exiting employees or contractors.
The situation is unfortunately exacerbated
when a company fails to take appropriate
precautions. Some tools at the company’s
disposal include requiring employees and
contractors, when they are engaged by the
company, to sign engagement agreements, including (i) broad nondisclosure provisions and (ii) narrow noncompetition pre-visions that cooperate to prohibiting the
employee or contractor from using company confidential information to compete
with the company; educating employees
and contractors about trade secrets and
other IP and the importance of keeping
confidential information, such as trade
secrets, confidential; conducting exit interviews with departing employees and contractors to remind them of their duty to
keep confidential information secret; limiting access to confidential information to
those who need to know; and employing
electronic surveillance equipment and software to limit and monitor access to confidential information.
Are noncompete agreements enforceable?
Frankly, they must be appropriately narrow in scope to be enforceable. This means
that provisions must be limited, such as to
geographic areas, scope of employment and
duration in time. It is always recommended
that such terms be included in an initial engagement/employment agreement that is
executed by the employee/contractor and
the company at the start of the relationship.
In the event that such language is not initially included, and the company decides
that it is desirable later on to include such
terms, the situation is more complicated.
To add not-to-compete covenants into
existing agreements, there must be additional and adequate consideration exchanged between the employee and the
company for post-employment obligations.
With little USB drives, is it easy for current
employees to walk off with files?
While USBs are a new tool for stealing
confidential information, they are only
slightly different than e-mail or other tangible mediums for copying the same. The real
question is, ‘What can a company do about
an attempted or actual misappropriation of
confidential information or other IP?’
The company must immediately pursue
injunctive relief to prevent an attempt to
misappropriate confidential information
from becoming an actual disclosure of the
same. While such action involves retaining
an attorney and filing a lawsuit, it is often
necessary because once the confidential
information, particularly the trade secret
information, is made public, it is much
more difficult, if not impossible, to restore
the information to trade secret status.
It is important to note that pursuing monetary relief due to corporate misappropriation of confidential information may be
more practicable. Most jurisdictions actually permit recovery of both the actual loss
caused by the misappropriation as well as
any unjust enrichment gained by the wrong-doer as long as the ‘enrichment’ is not
included within the ‘actual loss’ portion of
the analysis. If such damages are not easily
proved, the company may seek to impose a
‘reasonable royalty’ damage model. If the
conduct leading to the misappropriation
was willful, most jurisdictions permit the
awarding of punitive damages and the
WILLIAM A. MUNCK is chairman of the Intellectual Property section at Munck Carter, P.C. He concentrates his practice on domestic
and foreign IP procurement, exploitation, enforcement and counseling. Dedicated to counseling clients concerning their development of
offensive and defensive IP portfolios, Munck emphasizes market-focused long-range corporate strategies for private financing, public
offerings, mergers, acquisitions and establishing market leadership. Reach him at [email protected].