Defending Trade Secrets More Difficult with New Technology

By Allen Smith, J.D. Oct 21, 2016
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​Julie King, vice president, general counsel and corporate secretary with Alliance Career Training Solutions

SAN FRANCISCO—As companies develop technologies that allow them to spy on competitors, employers should prepare to defend their trade secrets, speakers said at the Association of Corporate Counsel Annual Meeting on Oct. 18.

In one recent case, a competitor of DuPont's flew a drone over a new facility that was under construction to try to identify how the company produces methanol, noted Julie King, vice president, general counsel and corporate secretary with Alliance Career Training Solutions in Monterey, Calif., which provides computer training for business professionals.

She also recalled working for a small company where the president was meeting with a group of people in a conference room and suddenly motioned everyone out of the room. Apparently, someone outside the building had a hand-held satellite dish and had it pointed at the conference room. "This kind of thing happens more than most ever imagine," she said.

And with an audio recording of the sounds emitted from a 3D printer, even a smartphone audio recording, a product can be recreated with 90 percent accuracy, she added. "We're long past dumpster diving," King said.

She also worked for computer-manufacturer Toshiba, where she said the business totally changed every six months. A Toshiba executive who helped plan, to the extent possible, where the company was headed for the next 18 months was leaving the company to work for Dell. To ensure its trade secrets weren't misappropriated at Dell, King negotiated with Dell to put him on paid leave for six months so he wouldn't use trade secrets to Toshiba's detriment.

Steps to Protect Trade Secrets

A trade secret is information that derives independent economic value from not being generally known to the public, King noted. A company needs to take reasonable measures to keep the information secret.

A trade secret may be verbal or written, she added. Trade secrets run the gamut from formulas, techniques and methods to new product names before the products are launched, she noted.

Even as technology is making it more difficult to protect trade secrets, the basic tools for protecting secrets remain tried and true. Michael McCarthy, chief legal officer with QuantumScape Corp., an electrical energy storage company in San Jose, Calif., listed these techniques:

  • Develop a process to identify and capture trade secrets.
  • Physically secure trade secrets—protect their location.
  • Limit access to trade secrets to a need-to-know basis.
  • Limit the physical copies of trade secrets.
  • Include appropriate labeling on documents—identify them as "proprietary and confidential."
  • Ensure all employees sign nondisclosure agreements.
  • Limit vendors' access to trade secrets.

Going to the Next Level

Sometimes business leaders say that they don't care if someone coming into a company is bringing trade secrets; though unethical, they want that information.

When that happens, King said she will tell that manager that she's going over his or her head and go up a level to protest the decision to use a competitor's trade secrets and will continue doing that until she reaches the president, if necessary. At least then there will have been discussion of the issue that is protected by the attorney-client privilege, she added.

To head off rogue managers, McCarthy said he questions incoming employees whether they have brought any files from their former employers. He communicates to them early on that the company does not want the trade secrets from the new hires' former employers because this "exposes the company to damages and litigation."

Dedicated Computers and Phones—But Not BYOD

Be particularly careful with those on international travel, McCarthy said. Provide employees on international travel with loaner personal computers. That way, their usual computers that have tons of information on them aren't subject to being hacked.

Provide dedicated phones with international calling capability on them, too, recommended Amy Loggins, an attorney in Marietta, Ga.

She criticized bring-your-own-device (BYOD) policies as making it easier for employees to take customers with them.

Some of the risk of BYOD policies can be limited by wiping a company's data from employees' own devices before they leave. But you don't know whether employees have backed up company data on another device at home, King noted.

Loggins underscored advantages to not having BYOD policies. If an employer provides a device to an employee that it retrieves prior to the employee's departure, then distributes that device to the new employee, customers will call the new worker and not the former one, she said. People think BYOD is economical, she noted. But she concluded that, "Maybe it's not so economical in the long run."

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