Recent evidence suggests that the biggest threats to a company’s intellectual property (“IP”) are internal. Biswamohan Pani, a former Intel engineer, recently admitted to stealing Intel trade secrets so he could use them at his new employer, Advanced Micro Devices. Intel estimated the value of the stolen trade secrets at over $200 million.
An isolated incident? Not according to a 2012 Symantec survey of over 3000 employees. The survey results show that over half of those who left or lost their jobs in the past year took company confidential information (“CI”) with them, and 40 percent plan to use it at their new employer. The majority of respondents did not think using a former employer’s CI at a new job was wrong. Importantly for technology companies, almost 60 percent of those surveyed attribute IP ownership to the employee who invents it, rather than the employer. An analysis of federal trade secret litigation found that over 85 percent of the time, the accused person was an employee or a business partner.
What should a company do to protect itself? There are many actions companies should take to proactively protect their IP.
Company Policies and Employee Handbook
Companies should have policies on appropriate uses of email systems (both personal and company systems), company networks, and CI. Employees should not be permitted to transfer CI to their personal computers, laptops, tablets, or smart phones.
Employee handbooks and employment agreements should state that an employee’s access to company networks, files, and CI is granted solely to further the company’s business purposes and any other access is unauthorized. Such handbooks and agreements should also state that an employee’s access ceases automatically when an employee is terminated or resigns.
Access to CI, particularly trade secrets, should be strictly controlled by company policy. Under Texas law, the owner of a trade secret must take reasonable steps to keep the information confidential. For example, limiting access to “need to know” basis only.
Companies should provide annual employee training on IP and appropriate and prohibited uses of company CI. Employees must understand that all IP they conceive or develop while being paid by the employer or using any company equipment or facilities belongs to the company. Companies should ensure that employees understand that company CI may neither be taken from the premises, physically or by electronic transmission, nor used by the employee for anything except the company’s business purpose. Companies should also ensure their employees know not to use or exploit any CI of their former employers.
When they are hired, employees should be required to assign all IP they create during their employment to the company and to list their own pre-existing IP. Frequently IP assignment provisions are included in employment agreements, which should also outline appropriate uses of company CI, and may also include non-compete and/or non-solicitation provisions. Employees should acknowledge in writing they understand their current employer does not want them to use any of their former employer’s CI in their current job.
Under Texas law, non-compete agreements may be enforced if they do not unreasonably restrain the former employee with respect to time, geography, and scope of activities that are limited, in light of the employer’s business interests. Companies should carefully review such agreements to ensure they are enforceable. Choice of governing law is important, as some states like California will not enforce non-compete obligations.
Companies must ensure their CI is securely stored. Access should be restricted to those who need the CI to do their jobs. In some cases periodic audits may be justified. Companies should also make clear to employees and business partners that inappropriate use of CI will have negative consequences.
Security systems should be in place to monitor downloading or emailing of unusually large amounts of information. Review of a departing employee’s outbound emails and recent computer downloads to verify no company CI was transferred may be appropriate. Companies should also consider restricting access to cloud storage apps like Google Drive and Dropbox.
When an employee resigns or is terminated, employers should immediately retrieve all company electronics, including laptops, tablets, portable disk drives, and smart phones, as well as all company CI the employee may have obtained during their employment. The departing employee’s access to the company email system and networks must be promptly terminated. Amazingly, in the case of Biswamohan Pani, Intel failed to terminate his access to their network until eight days after he started working at AMD!
During the exit interview, employees should be reminded that all IP they developed while employed belongs to the company. Employees should also be reminded of their continuing confidentiality obligations regarding CI. A follow up letter to the employee reminding them of their ongoing obligations and the negative consequences of taking or using CI, with a copy to the new employer, may be in order.
Third Party Agreements
Before a company shares its CI or proprietary materials with third parties, a suitable agreement is in place. Companies must carefully review confidentiality, material transfer, and beta test agreements to ensure they adequately protect the company’s interests. The duration of the confidentiality obligation in light of the information or material being shared is very important, as the other party may be free to use the shared information after that date. When sharing trade secret information, the duration of the confidentiality obligation should be indefinite. If the agreement includes a marking requirement, for example, that all CI must be marked at the time of transfer, all involved should be well versed on those requirements. Choice of governing law should also be considered, particularly when one party is not in the United States and requests foreign law.
When proprietary material is being transferred, the agreement should expressly prohibit reverse engineering or analyzing the material beyond the business purpose of the transfer. In light of the recently implemented first-to-file patent system in the U.S., the transferring company should consider filing a provisional patent application covering the material and/or method used to prepare it before making the transfer.
The company should also carefully investigate all potential business partners that it has not interacted with previously. Once a trade secret or other CI is disclosed, its value is lost or severely diminished.
Companies can reduce the risk of IP loss by maintaining a robust system of company policies, employee education, and security. When a possible leak is identified, the company must act promptly and be willing to take legal action when necessary.
John Burns is a corporate and IP attorney with over twelve years’ experience as in-house counsel. John is a member of Law Offices of John Burns, PLLC and is President and General Counsel of the Bioscience Industry Organization Austin.
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