How to Mitigate Trade Secret Theft, Plus Remedies if It Happens

If your company has information that derives economic value from being secret, your company has trade secrets—provided you take “reasonable steps” to protect them.

Vigilant protection of trade secrets is essential, as someone is almost certainly trying to steal them. Today’s technology provides thieves with sophisticated methods for stealing trade secrets, and growing use of personal devices and unsecured work-from-home networks has made detecting trade secret theft increasingly difficult.

Companies can take reasonable steps to protect trade secrets, both to prevent theft and to preserve remedies in the event of a theft.

Access Review

One of the most effective steps in protecting trade secrets is also the most obvious—identify the trade secrets that need to be protected and restrict access. This key step is often overlooked, as many companies permit most or all employees broad access to all company information.

Of course, some people genuinely need to know your secrets—not just your employees, but also current and potential business partners and investors. Non-disclosure agreements can allow you to disclose trade secrets to employees, business partners, prospective investors, and partners pursuant to clear rules and limitations.

Remote work and the use of personal devices for business are pervasive practices that pose threat of disclosure through hacking.

A company policy that requires use of company-issued devices, company-managed VPN networks, and secure shared drives or secure file-transfer systems is the first step, but a policy isn’t useful if it’s not followed. Creating a culture of compliance through training and monitoring is essential.

Departing Employees

The risk of trade secret theft may be highest with departing employees who worked with, or perhaps even developed, your company’s trade secrets and are leaving either to work for a competitor or to become a competitor.

A well-designed exit interview will include a review of applicable NDAs and discussion of the proprietary information covered by the agreement. Collection of company property is an obvious step, but it is also wise to review data transfer history leading up to the employee’s departure and quickly disable access to the company network and email system.

If an employee had access to particularly sensitive information, consider preserving and imaging laptop hard drives, email accounts, and logging external storage devices that were recently connected to the electronic device.

Employees are most likely to steal trade secret information when they plan to leave the company or anticipate that termination is imminent.

While NDAs and securities policies will control the behavior of most former employees most of the time, it pays to adopt a trust-but-verify approach, particularly in instances where departing employees have worked with particularly valuable and portable trade secrets.

Depending on the industry, post-separation monitoring could include something as simple as periodic checks of social media or more sophisticated strategies like monitoring disclosures related to patent filings.

When Theft Happens

What happens when your carefully crafted NDA, airtight IT security policy, and comprehensive exit interview fail to prevent theft of your trade secrets? Two quite different approaches are available, and some initial investigation is necessary to make an informed choice between them.

The more common approach is to pursue civil remedies: negotiation and litigation based on claims such as theft of trade secrets, breach of contract, tortious interference, and patent claims—correction of inventorship, for example.

Negotiation and civil litigation allow companies more control over the process and can lead to resolutions that are guided by business considerations.

Where the theft is egregious and resolution through civil remedies unlikely, though, pursuing civil remedies can be a frustrating and costly path to nowhere.

In such circumstances, it may make sense to refer the matter for criminal investigation and potential prosecution. The Economic Espionage Act makes the commercial theft of trade secrets carried out for economic advantage a federal crime.

And many other federal and state statutes—anti-hacking, fraud, obstruction of justice, and transportation of stolen property—will often apply to theft of trade secrets.

Inviting government agents into the process cedes control but introduces considerable investigative powers into the equation. With court authorization, agents can execute search warrants, seize and monitor communications of suspects, conduct physical surveillance, and even conduct proactive undercover operations.

Prosecutors can serve grand jury subpoenas to preserve or collect key evidence from third parties that are not under the victim company’s control, including electronic evidence, and can compel testimony from witnesses or individuals who are unwilling to cooperate.

These powers can prove devastatingly effective, and the in terrorem effects of a criminal investigation sends a strong message to competitors. But the wheels of justice turn slowly, and prosecutors will require proof beyond a reasonable doubt before bringing charges.

For these reasons, a criminal referral is best reserved for instances where the theft and corresponding damages are readily provable, and where the value of the deterrent message is worth the wait.

Businesses can protect their trade secrets by limiting physical and electronic access, establishing clear contractual obligations, and adhering to sound IT policies. In the event a company suspects a theft of trade secrets, the company should escalate its suspicions to its in-house counsel.

They should also consider hiring an outside law firm that has a team of experienced former prosecutors and a strong track record in protecting trade secrets who can assist in navigating potential civil and criminal remedies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Kate Driscoll is of counsel in Morrison & Foerster’s investigations and white collar defense practice, with focus on health care and life sciences.

Nathaniel Mendell is partner in Morrison & Foerster’s investigations and white collar defense practice and former Acting US Attorney for the District of Massachusetts.

Peter Skinner is partner in in Morrison & Foerster’s investigations and white collar defense practice and a former Assistant US Attorney for the Southern District of New York.