In today's interconnected business environment, protecting trade secrets has become increasingly complex. Companies must navigate threats ranging from employee misconduct to sophisticated nation-state schemes while maintaining operational efficiency.
Understanding these challenges and implementing robust protection strategies were central themes in Robert Counihan, Matthew Damm, and Noah Solowiejczyk’s recent CLE session, “Navigating Trade Secret Misappropriation.”
Based on their conversation, here are some essential tips for preserving competitive advantages and avoiding costly litigation.
One of the most pressing threats facing companies today involves sophisticated schemes by actors outside the United States infiltrating businesses through seemingly legitimate remote workers. For example, the North Korean government has dispatched thousands of skilled IT workers worldwide as part of an elaborate deception designed to gain access to U.S. companies' sensitive data. These schemes exploit the prevalence of remote work arrangements, particularly in the technology and cryptocurrency sectors.
The typical pattern involves identity theft, where individuals assume the identities of real U.S. citizens through stolen documentation. Artificial intelligence has added another layer of complexity, making it easier to fake various aspects of the hiring process. Companies often unknowingly hire these actors through third-party vendors or staffing agencies, creating a particularly vulnerable entry point for malicious activity.
The FBI has observed cases where stolen trade secrets and proprietary code are publicly released on code-hosting platforms when ransom demands go unmet. This threat demonstrates the critical importance of robust employee vetting procedures and ongoing monitoring of workforce activities.
Protecting trade secrets begins with careful candidate vetting and continues throughout the entire employment lifecycle. During recruitment, companies should conduct thorough background checks and require at least one in-person interview when feasible. Consider implementing candidate non-disclosure agreements before sharing any sensitive information during the interview process.
Exercise caution when hiring from competitors. Exercise particular caution to avoid soliciting confidential information. Candidates should never be asked to disclose proprietary details from their current employers, and companies must ensure they understand any restrictive covenants that may bind prospective employees. The onboarding process requires clean separation from previous employers, meaning candidates should not perform any work until fully separated from their prior company and should never use devices issued by former employers.
Establish ground rules immediately. An Employee Invention Assignment and Confidentiality Agreement represents the most critical employment document for protecting trade secrets. When done properly, this agreement establishes protections for confidential information, ensures proper assignment of inventions, and defines post-employment obligations. Prioritize securing signatures on these agreements immediately upon hire, as gaps in coverage can severely undermine protection efforts.
Limit access to what the employee needs to do their job. Throughout employment, companies should implement system access controls that limit information exposure based on job requirements. This can include establishing clear policies, providing regular training, and maintaining "clean desk" protocols. Physical and cyber security measures should differentiate treatment for highly valuable information, and companies should work closely with IT departments to ensure appropriate permissions for each position.
Offboarding demands continued vigilance. The offboarding process requires careful attention to retrieving company property and affirming compliance with ongoing obligations. Employees should provide sworn statements confirming their adherence to confidentiality requirements, and companies should maintain contact information for monitoring post-employment compliance.
Companies regularly share confidential information through joint ventures, collaborations, partnerships, manufacturing arrangements, and investor relationships. While these arrangements are essential for business growth, they require careful protection through comprehensive confidentiality agreements and strategic operational controls.
Before sharing information, companies should clearly define what constitutes confidential material and establish expectations for internal controls. Where possible, recipients should implement firewalls, separate teams, and standard electronic protections to prevent contamination. When receiving confidential information, companies must avoid exposure to more data than necessary and should try to create electronic walls between collaboration teams and regular research and development operations.
Transparency about protective measures taken by both parties helps prevent future misappropriation accusations. Companies should also consider the broader implications of information sharing, including whether shared materials are protected through other means such as pending patent applications.
Trade secret litigation often relies on circumstantial evidence, such as employee movements between competitors or failed licensing negotiations. When litigation arises, these cases can be particularly intrusive, involving collection and searching of personal devices, depositions, and examination of personal conversations.
Companies should monitor competitor patent portfolios and product developments for potential signs of misappropriation. Collaboration team members serve as front-line observers who can identify suspicious activities or concerning developments. When potential breaches occur, involving counsel immediately is crucial for preserving evidence and developing appropriate response strategies.
The strength of any claim depends heavily on the reasonable measures taken to protect trade secrets. Courts examine whether companies implemented appropriate security controls and limited access to sensitive information. Companies with robust protection programs are better positioned to pursue successful enforcement actions.
The Economic Espionage Act provides federal criminal penalties for trade secret theft when certain elements are met, including economic motivation, intent to convert trade secrets, and knowledge that the offense will injure the trade secret owner. Victim companies considering whether to involve law enforcement should carefully consider multiple factors. The seriousness of the conduct and impact on business operations, the manner of theft, and potential for financial recovery through restitution all influence this decision. Companies should also consider whether law enforcement involvement will add value in uncovering the full scope of the theft through their investigative powers, including subpoenas and search warrants.
However, companies must understand that once they involve law enforcement, they do not control the investigative process. Criminal investigations can be expensive and time-consuming, requiring extensive cooperation with authorities. The law provides mechanisms to protect trade secrets during criminal proceedings through protective orders and sealed filings, helping address concerns about public disclosure.
By implementing comprehensive protection strategies across all these areas, companies can significantly reduce their exposure to trade secret misappropriation while positioning themselves for successful recovery when violations occur.
Register to see the full CLE session video.