Home » Preventing trade secret theft — 3 tips businesses can use today to reduce risk

Preventing trade secret theft — 3 tips businesses can use today to reduce risk

By Peggy B. Lyndrup and Michelle Browning Coughlin
Attorneys, Bingham Greenebaum Doll

(April 8, 2013) — A recent report from White House officials states that the pace of economic espionage and trade secret theft against U.S. corporations is increasing. As the federal government seeks to find ways to support the private sector’s ability to prevent the theft of trade secrets, businesses can take actions today that will help to reduce the threat to their valuable proprietary information.

Think your company isn’t at risk for trade secret theft? Think again.

confidentialTrade secrets are broader than many business owners realize, and their theft poses a threat to U.S. businesses, national security and American jobs. Trade secrets can include formulations, including recipes or scientific formulas, as well as processes and methods. Perhaps more importantly for the majority of businesses, trade secrets can also be compilations of information that are not generally known and confer an economic advantage over competitors or customers of the business. These can include customer lists, supplier or distribution lists, pricing lists and so on. Nearly all businesses possess these types of valuable lists, and they should be protected.

The risk of trade secret misappropriation for some types of businesses can be incredibly costly.  DuPont recently reported the theft of trade secrets valued at $400 million, stolen by a research chemist who was employed by the company. A Ford Motor Company employee copied 4,000 documents containing the company’s trade secrets onto an external hard drive and sold them to a foreign competitor, the loss of which was valued at $50 million. Goldman Sachs spent $500 million to develop proprietary computer source code, but suffered a similar loss of its trade secrets when an employee computer programmer transferred proprietary computer code to an external server and his home computer prior to going to work for one of Goldman Sachs’ competitors. Clearly, businesses big and small need to take steps to mitigate the risk of trade secret theft.

Best practices for trade secret protection

Part of the U.S. national plan to reduce economic espionage involving trade secrets includes the adoption of voluntary best practices by private industry. Below are three basic – but very important – protections that businesses can take immediately to reduce the risks to their trade secrets.

1. Take inventory: What trade secrets does your business possess and what is their value? Businesses need to assess which information, processes, data or lists comprise their valuable trade secrets. Without a clear understanding of what comprises a company’s trade secrets, keeping it confidential and secure will be impossible. Once the trade secret inventory is complete, businesses should assign a value to those trade secrets and ensure that the protection provided to that intellectual property is commensurate with the value of the assets to the business.

2. Review and update your agreements with employees and others with access. Non-compete and confidentiality agreements should be used with employees, suppliers and others who may have access to trade secrets. Remember, a trade secret is only protectable as a trade secret to the extent that the business takes the necessary steps to keep the information secret. Furthermore, trade secrets should only be shared with employees or others who have an absolute need to know the trade secret to perform their duties.

3. Assess and fortify your physical and technical security. Companies must be vigilant regarding where and how trade secrets are stored. If in paper form, the trade secret material should be stored in a securely locked cabinet or office. Access to the cabinet or office should be limited and monitored vigilantly. Trade secrets that are stored electronically must be stored securely and guarded vigilantly. Cyberhackers target U.S. companies’ servers or networks to try to gain access to the companies’ intellectual property, including their trade secrets. Various regulatory schemes, such as the security requirements under the Health Insurance Portability and Accountability Act, better known as HIPAA, can provide a framework for implementing security policies and procedures to protect the business’s valuable trade secrets.

Access the full report released by White House officials by clicking here.

For more information, contact attorneys Peggy B. Lyndrup or Michelle Browning Coughlin.