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Business Ethics

Best Practices for Protecting Trade Secrets


By Shelley Kilpatrick Apr 28, 2016

When PPG Industries set out to design windows for military aircraft, it ended up creating the industry’s first new transparent plastic in more than half a century.

Then one of its chemists retired. Two years later, the manufacturing specs for its innovative windows wound up in the hands of a Chinese competitor.

In today’s cutthroat business climate, rampant theft of corporate trade secrets has reached epidemic proportions. According to statistical analysis, federal court cases involving trade secret theft doubled from 1988 to 1995 and doubled again between 1995 and 2004 — and they’re expected to double once more by 2017.

It’s a costly problem, draining businesses of between $160 billion and $480 billion each year and totaling an estimated 1 to 3 percent of the U.S. gross domestic product.

“Illegal theft of intellectual property is undermining both the means and the incentive for entrepreneurs to innovate, which will slow the development of new inventions and industries that can further expand the world economy and continue to raise the prosperity and quality of life for everyone,” said the Commission on the Theft of American Intellectual Property.

While much of the media attention centers on corporate espionage — like the Chinese military officers who stole secrets from U.S. companies — these incidents are rarer than corporate leaders might think. In fact, more than 85 percent of trade secret thieves are insiders whom the business owner knows, such as employees or business partners.

It’s incredibly common for employees to steal company information on their way out the door, in part because such theft has become far easier than in previous times. Gone are the days when underhanded employees had to risk exposure by photocopying confidential files in the office after hours. Nowadays, stealing company secrets is as quick and easy as loading up a flash drive.

“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,” said Atlanta-based lawyer David Long-Daniels.

“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.”

While it’s impossible to protect against trade secret theft entirely, there’s a lot that business leaders companies can do to enforce business ethics policies that protect their economic secrets.

What Makes a Trade Secret?

The first step in defending your trade secrets is to know what they are.

While state definitions vary, a trade secret is generally considered to be “information that has independent economic value to outsiders, is not generally known outside your business and cannot be readily discovered through proper means,” said Smart Business magazine.

All businesses have proprietary information, but that’s not necessarily the same thing. A trade secret is something that, if revealed to competitors, could threaten your organization’s livelihood.

Once you’ve pinpointed what your trade secrets are, it’s important to communicate them to employees by clearly identifying the material as valuable and confidential. The best way to protect your company’s intellectual property is to create a sound confidentiality policy. Without one, employees can argue in court that there are no clear secrets to be stolen.

So, for example, if your valuable information is not labeled as confidential, your company has no written policy regarding confidentiality, and sensitive files are kept unlocked or out in the open, it probably won’t qualify as a trade secret. But if access to files is restricted, the circulation of sensitive information is controlled, and sensitive files are marked as confidential, you’ve got strong grounds for a case.

How to Handle Exiting Employees

The best way to keep employees from swiping secrets on their way out the door is to develop and execute an exit plan. Best practices for handling departing employees include:

Conducting an exit interview. When handled properly, the exit interview provides an ideal opportunity to remind departing employee of their obligations under your confidentiality policy and ensure they’ve relinquished all files and company equipment. Sample questions to ask include:

  • “Do you have any company documents or materials at home?”
  • “Have you returned all flash drives containing company information?”
  • “Have you stored any company documents in the cloud?”
  • “Do you understand that your non-disclosure obligations remain in effect?”

Disabling computer access. The sooner you cut off access to your IT and cloud systems, the less opportunity the employee will have to steal last-minute proprietary information.

Notifying vendors and customers. Depending on the nature of the employee’s relationship with third parties, it might be imperative to alert customers and vendors to their departure and make sure they understand they can no longer share proprietary information with the former employee.

Taking inventory. Use an IT solution to find out exactly which files the departing employee accessed and copied in the months prior to leaving. It’s also wise to double-check your electronics inventory to confirm all company devices have been returned.

While it’s impossible to keep your company’s trade secrets on total lockdown, the right policies and protocols can help make it harder for employees to steal valuable information upon leaving their jobs.

 

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