HR Can Help Prevent Misappropriation of Trade Secrets

By Allen Smith January 5, 2016

HR professionals can take steps to reduce the misappropriation of trade secrets, but the law would need to change before companies could pursue civil remedies against trade secret thieves in federal court.

The misappropriation of trade secrets is “incredibly common,” according to Jacqueline Johnson, an attorney with Littler in Dallas. Many employees copy files before leaving one company to go to another. However, misappropriation is not always motivated by evil intentions, she added. An employee who leaves one company for another may look at work product created while at the old employer and mistakenly think it is his or hers. Copied client lists and contact information are also common forms of misappropriated trade secrets, she noted.

Proactive Steps

Employers should inform new hires in writing that they should never bring files belonging to former employers to their new workplace, Johnson said. And managers should be trained to avoid asking new hires about a competitor’s trade secrets, Johnson added.

It’s easier to steal trade secrets now than it was 20 years ago, Johnson said, noting that employees once used copy machines to misappropriate such secrets. Now they can use e-mail or a flash drive.

Existing state trade secret law protects trade secrets from misappropriation. But “not all proprietary information rises to the level of a trade secret,” she cautioned, saying that companies should identify what their trade secrets are, then devise protections. Protections may include confidentiality and nondisclosure agreements for anyone with access to trade secrets. Noncompete agreements, where employees agree not to work for a competitor of the employer for a specified period, and customer nonsolicitation agreements are other useful tools, Johnson said.

Trade secrets can be the lifeblood of organizations, noted Robert Milligan, an attorney with Seyfarth Shaw in Los Angeles. Employees with access to trade secrets should be required to sign a nondisclosure agreement and told that they are expected to keep the secrets confidential. If they later dispute this, the company can point to the agreement in seconds, he noted.

Though it sounds harsh, Johnson said an employer should consider terminating someone immediately if he or she gives notice of resignation to work for a competitor. That person is “potentially a mole,” she said. But she noted that this situation would depend on how much an employer trusts, or distrusts, a worker.

$360 Million Penalty

The theft of trade secrets can ultimately be expensive for the thief, as Kolon Industries, a South Korean industrial company, discovered in April 2015. The company pleaded guilty for conspiring to steal trade secrets from DuPont, an American chemical company based in Wilmington, Del., involving Kevlar technology. Kevlar, a high-strength, synthetic fiber, is used in body armor, fiber optic cables and automotive products. Kolon was sentenced to pay $85 million in criminal fines and $275 million in restitution, according to the FBI.

A former DuPont employee who pleaded guilty to stealing trade secrets and obstruction of justice in December 2009 was sentenced to 18 months in prison.

“Protecting American companies from the theft of their trade secrets is a high priority for the FBI,” said Special Agent in Charge Adam Lee. “Each year, billions of U.S. dollars are lost to foreign competitors who pursue illegal commercial short cuts by stealing valuable advanced technologies.”

No Federal Civil Remedy

While the FBI can criminally prosecute trade secret thieves through the Economic Espionage Act of 1996, the law doesn’t give trade secret owners a private right of action in federal court, noted Sen. Chuck Grassley, R-Iowa, in a Dec. 2, 2015, hearing on the Defend Trade Secrets Act, proposed legislation that would give trade secret owners that right.

“I have heard from businesses, practitioners and law enforcement experts that creating such a remedy will improve the law by promoting uniformity and reducing the procedural hurdles that companies now face when stolen information is taken across state lines. Carefully written legislation will fill this gap in the law,” Sen. Patrick Leahy, D-Vt., stated at the hearing.

Businesses can sue in state courts, but state laws have different requirements for obtaining injunctions and some state court judges are not as experienced with intellectual property-type claims as federal courts, Johnson explained.

“The problem is not just variations in trade secret law from state to state,” said James Pooley, a lawyer in Silicon Valley, Calif., who wrote Secrets: Managing Information Assets in the Age of Cyberespionage (Verus, Press 2015), at the hearing. The problem is procedural as well.

“If a case in Illinois requires testimony of a witness in California, the plaintiff has to petition its home court to authorize a deposition, and then file an action in California based on the Illinois order, to secure the required subpoena,” he said. “During the weeks or months of this process, the witness could easily have left the country, with the secrets in her pocket.”

Johnson said that under the proposed legislation, it would be possible to seize a former employee’s property suspected of containing trade secrets if immediate and irreparable injury was shown, such as when that individual was considered to be at risk of fleeing the country.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.


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