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Trade Secret Risks Lurk, Even in Baby Monitors, During Telework

April 28, 2020, 10:31 AM

Companies face an increased threat of trade secret theft as the coronavirus pandemic keeps more employees at home and drives layoffs.

More than 26 million Americans have lost their jobs, and further cuts could be coming. Employees uneasy about their own job security may be more willing to take trade secrets—which can be anything from recipes to computer software code—during a widespread shift to telework that can leave information less protected, attorneys and security analysts say.

Companies also face risks as they move quickly to collaborate with unfamiliar partners to make items in high demand—like medical equipment and protective gear for health workers fighting the pandemic.

Attorneys say companies should take steps now to protect themselves.

“I think we can expect more trade secret litigation in the next years,” said Nicholas Armington, an attorney at Mintz Levin Cohn Ferris Glovsky and Popeo PC.

Bigger Security Threat

Trade secret thefts have risen following recent economic downturns, studies show. Common examples of trade secret thefts involve employees downloading computer files or copying confidential information before their departure. But other cases have been more brazen.

After the 2003 SARS outbreak, a group of fired workers broke into the office of their former employer and left with “a literal truckload” of files and computers, said James Tunkey, a New York based risk management consultant and chief operating officer of I-OnAsia . They started a new company a month later, Tunkey said in an email.

“We have recently seen very similar cases, and expect the numbers to get worse in the year ahead,” Tunkey said.

Leading up to the financial crisis of the late 2000’s, there were around 900 new trade secret cases filed in state and federal courts annually. That number rose to more than 3,000 in 2012 and 9,000 in 2014, according to Mintz Levin research.

Lawsuits brought against workers who lost their jobs and moved to new companies, or started their own rival businesses using their former employer’s confidential information and trade secrets, likely played a role in the increase, attorneys said.

Risks in the current pandemic are heightened as workers across the country have been ordered to stay home. Engineers building software and other workers have remote access to sensitive business information. Telework can make it more difficult for businesses to monitor their employees.

“If we see the same employee mobility events, combined with the crown jewel data being accessible from engineers’ homes, it creates a bigger security threat,” Armington said.

Resourceful Outsiders

Telework also creates vulnerabilities to outside threats. Home environments can be less secure, and personal computers might not have the same firewall or virus protections as those in the office.

Baby monitors or virtual assistants, like Alexa, and other home devices susceptible to hacking, as well as unsecured internet connections, could be an opening for outsiders looking for information about a rival’s strategies or new products in development.

Google’s Threat Analysis Group recently warned hackers have been exploiting the pandemic with coronavirus-related malware and phishing messages. This includes messages that mimic employer communications to employees working from home.

Some bad actors “have been very resourceful in trying to take advantage of the fact that we’re all working from home,” said Debbie Berman, co-chair of the Trade Secrets and Restrictive Covenants practice at Jenner & Block LLP.

Courts require companies to take “reasonable steps” to safeguard their trade secrets to get protection. Attorneys encourage businesses to require workers to take various precautions, including encrypting shared data and safely securing hard copies of materials with trade secrets.

Companies might also consider monitoring network systems for unusual downloads, and reminding employees, in writing, of their confidentiality obligations, attorneys said.

“You don’t want it stolen, period. That’s the number one goal,” Berman said. “But two, in the event that a trade secret does get misappropriated, you want to be able to go to court as a business and say you took all these simple steps to keep that secret a secret.”

Joint Venture Risks

Another source of risk is the unusual partnerships that the coronavirus pandemic has created. Automakers are teaming up with medical device companies to make ventilators, drug companies are working together to develop vaccines, and clothing retailers are making protective gear for health care workers.

Companies in these collaborations may be sharing expertise, know-how, and other information with their new partners. A clear understanding of the boundaries of the arrangement—including when it ends, and who owns what—could head off future disputes.

“You’re playing both offense and defense in these joint ventures,” Catherine Lui, a partner at Orrick Herrington & Sutcliffe LLP, said. “You’re thinking, ‘How am I protecting my own trade secrets’ and also ‘How am I going to play defense in terms of, if someone is going to attack me and say that I have stolen something.’”

Even in normal situations there can be a communication gap between attorneys and workers on the ground about information access or changes to the scope of a project, Orrick partner Jacob Heath said. While this is a fast-moving situation, businesses should keep legal teams in the loop to moderate potential risks.

“We don’t want to hamstring the results, which in this case may be life saving,” Heath said. “They really need to be working hand-in-hand so that legal is not necessarily hindering progress in another area.”

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergtax.com

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