KFC isn’t the only company with a ‘secret recipe’ to success.  Many entrepreneurs rely heavily on trade secrets to both begin their business and keep their established customer base. While most employers are concerned about outside companies stealing their trade secrets, there has been a recent trend in employees are stealing their employer’s trade secrets.  With new technological developments and an increase in companies relying on computers to store data, employers should be wary of how they store trade secrets and how much access employees have to company data.

Trade Secret Law:

Trade secrets can be a process, recipe, form of technology, or procedure that is not widely known, and gives a company a competitive edge.  Trade secrets are protected by law, and cannot be used or stolen by other companies.  Once a trade secret is stolen, many entrepreneurs cannot recover from the economic harm.

 

In May 2016, President Obama signed the Defend Trade Secrets Act (DTSA).  The DTSA allows employers to file trade secret theft cases in federal court, and while waiting on court remedies, the DTSA allows employers to seek civil seizure against individuals who wrongfully use their trade secrets.  The DTSA imposes criminal and civil penalties on individuals who steal trade secrets.  The DTSA also defined ‘trade secrets’ more broadly than previous legislation. Current Attorney General Jeff Sessions sponsored the DTSA while serving as a Senator in Congress.  Under President Obama, the Department of Justice had a policy of assisting employers whose employees stole their trade secrets.  While the current administration has not spoken about continuing the Department of Justice’s policy, it is likely that they will continue to help employers due to Attorney General Jeff Session’s role in passing the DTSA.

Internal Trade Secret Threats:

The Department of Justice prosecuted Sinovel Wind Group for stealing ASMC, Inc.’s software and designs for solar power wind turbines. Sinovel had contracted with ASMC to work together on wind turbines in China.  Sinovel was found to have paid an ASMC employee to steal the software and designs for their own use.  The court found that the software and designs were trade secrets protected by the DTSA.  The employee was able to steal ASMC’s information because ASMC did not limit what software engineers could see, even if they were not working on that particular project.

 

In November 2017, a jury awarded Sirona Dental Systems, Inc., a dental technology company, $ 6.8 million in damages after a senior employee stole their software and sold it to competitors.  The employee was found to have stolen the company’s trade secret.  The employee had access to the software because the company had no internal limitations on who could access company information.

These cases highlight how employers must be diligent about the access that employees have to trade secrets and how they secure and monitor their trade secrets.

Advice for Entrepreneurs:

Employers should make sure that their trade secrets are secured.  Storing trade secrets on cloud storage is not secure because cloud storage is relatively easy to hack.  Employers should consider keeping trade secrets in off-site locations, such as at a bank.  Many banks provide small, private vaults for companies who have their operating accounts through them.

Next, employers should make sure that only necessary employees have access to their trade secrets.  Employers should consider requiring employees who have access to their trade secrets to sign non-disclosure agreements.  Non-disclosure agreements may serve as a deterrent for employees who are considering stealing trade secrets.  They also provide employers with a remedy in the event that an employee does steal trade secrets.  Employers may also consider vetting employees who have access to trade secrets, such as conducting background checks.

Additionally, employers should consider implementing internal procedures that limit employees from taking data home with them.  Employers may want to develop policies that limit employees from co-mingling data on their personal USB’s.  Mandatory activity log software may also protect employers from employee’s who steal their data by determining what files an employee accessed while at work.

Employers should also consider other means of protecting and enforcing protection of trade secrets.  Owning a patent or copyright provides companies with greater protections under the law.  Employers who register their trademarks, copyrights, and patents have the broadest protections under federal and state law.  The United States Patent and Trademark Office allows employers to register their patents and trademarks for a relatively low cost.  Employers should consider registering their intellectual property to get the most protection under the law.

Finally, employers should be aware of developments in technology to best protect their trade secrets.  As new internal safeguards are developed, employers should consider implementing them.  In the past five years there has been an increase in internal protection software.  Employers may use these software programs to protect their trade secrets from internal threats, such as employees who may steal their trade secrets.

Sources:

1. https://www.justice.gov/opa/pr/chinese-company-sinovel-wind-group-convicted-theft-trade-secrets
2. https://www.reuters.com/article/us-sinovel-wind-gro-usa-court/chinas-sinovel-convicted-in-u-s-of-trade-secret-theft-idUSKBN1FD2XL
3. Sirona Dental Systems Inc., et al. v. Jian Lu, No. 2:15-cv-08777 (C.D. Cal. Oct. 19, 2017).
4. 18 U.S.C. § 2, ch. 90 (2016).
5. https://www.justice.gov/usao-mn/pr/former-lutonix-executive-sentenced-year-and-day-prison-stealing-trade-secrets
6. https://www.wsj.com/articles/chinese-firm-found-guilty-of-stealing-wind-technology-from-u-s-supplier-1516829326
7. 18 U.S.C. § 1839(3)(a) (1996).