SECURITY

How to Avoid Becoming a Victim of Trade Secret Theft

Bad actors from former employees to Chinese hackers are costing U.S. companies as much as $480 billion each year.
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Criminal theft of corporate trade secrets is reaching epidemic levels, experts say. According to a statistical analysis by law firm O'Melveny & Myers, the number of trade secret cases in U.S. federal courts doubled between 1988 and 1995, doubled again from 1995 to 2004, and is projected to double again by 2017.

The theft of secrets from companies like U.S. Steel and Westinghouse Electric by five Chinese military officers has made lot of headlines recently, but incidents like that represent a small minority of all thefts. The O'Melveny & Myers study found that over 85 percent of the time, the alleged "misappropriator" is someone the trade secret owner knows (usually an employee or a business partner).

The financial imapct on your business is potentially devastating. U.S. Senators Orrin Hatch (R-Utah) and Chris Coons (D-Del.), who introduced the Defend Trade Secrets Act in April to give trade secrets the same legal protections as other forms of intellectual property, estimate the financial loss due to these types of heists at between $160 billion and $480 billion each year.

David Long-Daniels, a lawyer based in Atlanta and the co-chair of the global labor and employment practice at Greenberg Traurig, says close to 60 percent of his workload involves representing companies in corporate espionage and trade secret cases. "The amount of trade secret cases are on the incline, significantly so," he says. "There was one instance where a client's employee took 13 boxes of documents over time. But this affects everyone, including the president and CEO."

But is taking projects and documents you worked on, created, or ran while employed at your company a crime? Long-Daniels says absolutely. "It's a crime no different than walking into a bank and giving the teller a note in exchange for cash. This is theft at its basic essence and it ought to be criminal," he says. "We need stronger criminal penalties, not just for the person who does it but the co-conspirator who assisted them, opened their doors, and gave them a job and a bonus."

Until the laws change, check out Long-Daniels's suggestions to better protect your company from being robbed of its most prized property.

Limit info on laptops

Long-Daniels says that taking a company computer on a business trip could be disastrous to your business. Make sure the laptops are wiped clean and have only documents essential for the trip. "Depending on what country you're visiting, especially ones known for serious espionage, take only what documents you need," he says. "Don't use the hotel Wi-Fi. People set up fake Wi-Fi service and download all your banking information and company information."

Solidify your policies

Long-Daniels says you need to look at your trade secret policies, as well as your non-compete, non-solicitation, and confidential documents agreements to make sure they comply with state laws. "The worst thing for you would be to have a non-solicitation policy that violates the state you're in. It will be invalid and allow [former employees] to solicit every one of your customers," he says. "It would be even worse to have a confidentiality policy that violates your state law--the employee would be able to take whatever he or she wants."

Beef up protocols

What kinds of procedures do you have for managing your research, patents, and secrets? "Documents that are true trade secrets should have protocols in place that ensure they do not get in the hands of people who really don't need them. Stamp them 'confidential,' and stamp important ones 'highly confidential.' Password your board files, and limit the number of assistants who have that password to only the people who absolutely need it," Long-Daniels says. He adds that if you don't work to prevent theft of your secrets, you'll be out of luck later: "If you put policies and protocols in place first, then if they are stolen you'll have a reasonable argument that they are trade secrets because you took responsible steps to protect them," he says. 

Watch departing employees

After an employee gives notice, it's time to keep careful watch. "CEOs need to take a close look at the number of files copied by people who have access to trade secrets, especially during the end of their employment," Long-Daniels says. "Make that part of your protocol--someone leaves, take a look. Look at your printers and find out who printed what. ... It's the unfortunate CEO who believes in an individual who worked for them for years, only to find out what has been given to their competitors."

Get rid of BYOD

Bring-Your-Own-Device policies are dangerous, Long-Daniels warns. Instead he suggests buying your employees smartphones so you can control the information flow--it's expensive, but a great investment. "When they get an email, it goes to their device. People usually have two or three devices, so that means company information could be on their iPhone, BlackBerry, laptop, and iPad," he says. A single company-issued device is easily wiped when an employee leaves for a new job. If you can't afford devices for everyone, he suggests having employees sign consent forms that explain the company will need to wipe parts of their devices before they depart. 

IMAGE: Everett Collection
Last updated: Jun 4, 2014

WILL YAKOWICZ | Staff Writer | Reporter, Inc.com

Will Yakowicz is a staff writer for Inc. magazine. He has covered business, crime, and local politics for The Brooklyn Paper and was the editor of Park Slope Patch. He has also reported in the West Bank and Moscow for Tablet Magazine. He lives in Brooklyn, New York.




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