While it is always good policy to require that high-level employees sign non-disclosure agreements, this does not guarantee sensitive information will remain secret if and when an employee leaves. In fact, there is not much you can do to guarantee secrecy. But collecting documentation of the employee's work - such as memos, e-mails, and project information - and depositing that documentation with a neutral third party will prove to be the best deterrent to trade secret infringement because that information can be used as undeniable physical evidence in the court of law.
Protecting Intellectual Property
Such was the case when the in-house counsel for a well-known high-tech company recommended that all of the firm's intellectual property be "frozen" at the time when one of its senior executives was lured away by a competitor. The company gathered all of its intellectual property, especially summaries of all works in progress and key technologies with which the departing employee was familiar, and placed it with DSI in a technology protection account.
"If we needed to prove the status of our intellectual property at the point of the employee's departure because he subsequently designed something that was familiar to his previous employer, we would already have the documentation dated and time-stamped by a trusted third party," said Richard Goodkin, former in-house counsel for the high-tech firm. "This way, if there was any litigation or misappropriation of the intellectual property, the company could turn to its escrow deposit as incontrovertible evidence that the former employee was privy to that information."
Goodkin feared that if events led to the filing of a lawsuit, and the company had waited to produce evidence at that time, then not only would it have been more difficult to collect the information, but the documentation would not carry as much weight.
"I am a big believer in contemporaneous documentation. Evidence compiled after the fact can look fabricated," Goodkin said. "To complicate matters, if you wait a year or two, it's much harder to gather the pertinent information. People who worked with the departing employee have, perhaps, left the company, and then the intellectual property is even more difficult to find. Also, having documentation date-stamped by a third party makes it a lot easier to make a claim in court."
A Serious Problem
Goodkin's worries are not rooted in paranoia. Economic espionage is big business. According to the FBI, $24 billion worth of U.S. trade secrets and other intellectual property assets are stolen every year. And while that statistic only reflects activity among unscrupulous foreign governments, the FBI asserts that the main source of vulnerability is from disgruntled or recently discharged employees who try to sell trade secrets for profit or simply want to retaliate against their former employer by exposing its secrets.
Information to consider documenting includes strategic plans, blueprints, memos, key customer relationships, potential customer relationships, technology under development, and existing technology. Experts also suggest researching information created or shared by employees who had worked with a departing employee.
In his case, Goodkin used a technology protection agreement with DSI to complement a confidentiality agreement and a non-disclosure agreement signed by the former employee, whose title was director of research and development. Other DSI clients have used escrow for this purpose even when the employee has signed a non-compete clause.
This is not only recommended when employees leave, but it's also prudent when dealing with ownership issues or other circumstances when the value of documenting intellectual property with a trusted third party makes good business sense. Examples of when a technology protection agreement might be useful are:
- Joint ventures - Two or more parties decide to contribute to the development of a new project. How do you know later, if the venture goes sour, who contributed what to the project? If the project is successful, but there is argument on royalties or rights, how do you define the level of contribution by each party?
- Non-disclosure agreements or mutual disclosure agreements - When these type of agreements stall or fall apart after sensitive information is disclosed, how can you claim what was a secret when the other party says it was in the public domain and uses it to further their cause?
Forward thinking companies realize the value of true intellectual property depositories with trusted third parties and would rather err on the side of caution. They are the leaders in applying the virtues of a trusted party to the concept of intellectual capital management that defends their intellectual property rights, a practice that will soon become commonplace. In the event of an intellectual property dispute, it is the companies that are prepared that will be fully protected.