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trade secret program: ADVANCED PROTECTION

woman whisperingAs your company grows and you develop increasingly valuable trade secrets, you’ll want to consider taking some additional security precautions.

Limit Employee Access to Trade Secrets

Obviously, the fewer people who know a trade secret, the less likely it will leak out. In very small companies, particularly start-ups, it may not be possible or desirable to limit access to trade secrets, since everyone is involved in every facet of the company’s operation. However, as a company grows, it’s a good idea to restrict access to trade secrets to only those employees who really need to know them.

One way to control employees’ access to trade secrets is to use project logs. Start by making a list of which employees need to have access to confidential materials for each of your company’s ongoing projects. Create a log for each project and have every employee sign in and out each time they use confidential materials. The log should contain room for the date, the employee’s name, the time in, the time out and perhaps additional information, depending on the project. The log can be maintained manually or via computer.

Using such logs won’t necessarily prevent your trade secrets from being stolen by someone bent on committing trade secret theft, but they will help you keep track of who has what trade secret materials and when they have them.

EXAMPLE: An ex-employee stole a stack of paper upon which software code was printed. The company did not file a lawsuit until more than two years after the theft because it had not discovered the loss of the papers. The lawsuit was dismissed because the court ruled that the company should have detected the theft by using document control logs—a common practice among high technology companies dependent upon trade secrets. Computer Assocs. Int’l v. Altai, Inc., 918 S.W.2d 453 (1996).

Trade Secret Project Log

Date: ____________________________

Document Title/Subject: ____________________________

Employee’s Name: ____________________________

Time Out: ____________________________

Time In: ____________________________

Beef Up Physical Security

In larger companies, you can take additional physical security precautions. Company trade secrets can be kept in a specified protected location or even in geographically separate facilities. Access to these areas can then be restricted. Large companies also employ security guards, surveillance cameras and perimeter fencing.

Restrict Photocopying

If trade secrets are written down, one of the principal means by which they can be lost is through unauthorized photocopying. Try to restrict access to photocopiers, particularly at night. One excellent method is to require key cards and passwords to use company photocopiers. Such systems allow you to keep a record of who uses the photocopier, how much and when.

In the absence of such a system, keep a logbook next to the copier and require anyone who copies a document marked “confidential” to record the following information: the date, name of person making the copy, name of the person for whom the copy is made, number of copies, and the subject matter and name of the document. In addition, a record should be kept of anyone who receives confidential copies—for example, the names could be written on a cover transmittal sheet. As always, those people should sign nondisclosure agreements.

Photocopy Log

Date: ____________________________

Person making copy: ____________________________

Person for whom copy made: ____________________________

Number of Copies: ____________________________

Title/Subject of Document: ____________________________

A photocopy log such as this is not nearly as effective as key cards and passwords, but it’s still better than nothing. It won’t prevent someone from making unauthorized copies, but will at least show you who has been making authorized copies of confidential material. It also helps make it clear to your employees that photocopying trade secret materials is a big deal and should be done with care.

Shred Documents

Don’t leave documents containing valuable trade secrets lying around in your wastepaper bins. Companies have been known to hire investigators to engage in dumpster diving at their competitors’ premises. Obtain a shredding machine to effectively dispose of any documents containing trade secrets.

Use Noncompetition Agreements With Employees and Consultants

In addition to using NDAs, many companies also require employees and consultants to sign noncompetition agreements. These are agreements in which an employee or independent contractor agrees not to compete with you for a certain time period.

Screen Employee Publications and Presentations

A trade secret is lost if it is disclosed to the public on an unrestricted basis. Employers may inadvertently disclose trade secrets in speeches and presentations at trade shows and professional conferences. Trade secrets can even be lost through advertising—for example, a company that lists its clients in an advertising brochure cannot claim later that its customer list is a trade secret.

Companies with advanced trade secret programs screen all papers, articles and advance texts of speeches and presentations. The screening can be done by a formal committee consisting of members who, taken together, are familiar with all the company’s products and trade secrets, or by individuals who specialize in a particular area.

Special care must be taken to avoid disclosing patentable inventions in articles or other publications. Patent protection in some foreign countries can be lost through such inadvertent disclosures. A disclosure in any country starts the one-year period during which a patent application must be filed in the U.S. or the right to do so is lost forever.

Control Visitors

Visitors to your company should not be allowed to wander unsupervised in areas where confidential materials are kept. Visitors who might be exposed to trade secrets should be asked to sign a nondisclosure agreement before leaving the reception area.

Many companies require visitors to sign a logbook—but that’s a mistake. Visitors who sign in may be able to see who else has been visiting your company, which is often very sensitive information in itself.

Take Precautions When Hiring New Employees

Many companies have been sued for trade secrecy violations when they hired competitors’ employees. For example, Borland filed such a suit against Microsoft in early 1997 when it hired several Borland employees.

This is particularly likely to occur if you hire a large number of employees from a single competitor to obtain a competitive advantage—a practice known as “raiding.” Of course it is improper to hire anyone for the purpose of gaining access to another’s trade secrets. It can easily get you sued.

To prevent or defeat trade secrecy claims, it’s important to hire employees in a way that shows that you did not hire any particular person for the purpose of obtaining access to trade secrets. In other words, you want to be able to show that all your employees were hired because of their qualifications and expertise, not because they knew competitors’ trade secrets.

Here are some simple steps to take when hiring employees:

  • Spread your hiring around—avoid targeting a specific company.

  • Place advertisements for new employees that list the required qualifications and expertise; consider using a professional recruiter for particularly sensitive positions.

  • Make all job applicants complete an employment application and present a resume.

  • Interview all qualified job applicants, even if you already know them.

  • Maintain thorough records of your hiring program.

  • If you hire someone who has been exposed to a competitor’s especially sensitive information, consider placing the new hire in a position where that information will not be used for a period of time.

  • Require all employees to sign employment agreements containing a promise that they will not use or disclose their prior employer’s confidential information. The employment agreements in this book contain such a clause.

  • Make sure new employees don’t bring any confidential materials from their old job.

  • Obtain copies of any relevant agreements the applicant has signed with previous employers—including nondisclosure agreements, warning letters, invention assignment agreements and termination agreements like those discussed in the following section.

In addition, before you interview anyone for a sensitive job, have the applicant sign an interview nondisclosure agreement promising to keep confidential any company trade secrets learned during the interview process and promising not to disclose any trade secrets of a current or former employer. 

Deal With Departing Employees

The primary source of trade secret leaks is former employees. It is very important to take special precautions when an employee who has signed an NDA decides to leave or is fired.

Exit interviews and acknowledgment of obligations form

Before an employee leaves, your company’s security officer or other person in charge of the trade secrecy program should conduct an exit interview. Use this opportunity to remind the employee of the obligation not to disclose company trade secrets to others, particularly the new employer. Wherever possible, prepare a list generally describing the specific trade secrets the employee has knowledge of and review it together. Give the employee a copy of the list. Also, remind the employee to return all company documents and materials before leaving. If the employee wants to keep a work sample, make sure it contains no confidential information. Finally, try to find out as much as possible about the worker’s new employer and job responsibilities. This will help you determine whether the employee might be tempted to reveal trade secrets to a new employer. If you think this is possible, you may want to send the new employer the letter in Section 9b below.

Give the employee a copy of any nondisclosure and/or noncompetition agreement you and the employee have signed. Go over the agreement and make sure the employee understands the provisions and appreciates that the company is serious about protecting its trade secrets. Finally, ask the employee to sign an acknowledgment of obligations (a sample form is shown below). If the employee refuses to sign, be sure to note that in your personnel files. The refusal may be helpful if you later attempt to obtain a court order to prevent the employee from disclosing company trade secrets. The full text of the Acknowledgment of Obligations agreement is below

EXAMPLE - Acknowledgment of Obligations LETTER

1. I acknowledge that during my employment with Mystery Web Development, Inc. (the Company) I have received or been exposed to trade secrets of the Company including, but not limited to, the following: [Check applicable boxes]

  • Financial data

  • Price or costing data

  • Customer and vendor lists

  • Marketing plans and data

  • Personnel data

  • Technical information concerning Company research and development projects, including  [Describe]

  • Product design and specification data, including [Describe] 

  • Patent applications and disclosures, including [Describe] 

  • Product information, including [Describe] 

  • Other [Describe]

2. I have read, signed and been furnished with a copy of my [Choose one] Employment/Nondisclosure Agreement with the Company. I have complied with and will continue to comply with all of the provisions of the Agreement, including my obligation to preserve as confidential all of the Company’s trade secrets.

3. I do not have in my possession original documents, copies of them or any other thing containing Company trade secrets. I have not disclosed Company trade secrets to anyone not authorized by the Company to receive them.

4. I have returned to my supervisor all identification badges, keys and other access devices issued to me by the Company.

Jennifer Jones

Date: 2/15/0X

Informing new employers about nondisclosure agreement

If, as a result of your exit interview or for some other reason, you’re concerned that a departing employee may reveal company trade secrets to a new employer, consider sending the new employer a polite warning letter. You can let the company know that your ex-employee has signed a nondisclosure agreement and that you are serious about enforcing it. Your letter serves two purposes:

  • It may help deter both the employee and new employer from breaching the nondisclosure agreement.

  • If a breach does occur, it will establish that the new employer knew that the employee possessed your trade secrets and had a duty not to disclose them without your permission. This will make the new employer, along with your ex-employee, liable for any unauthorized disclosure. And if the ex-employee makes an unauthorized disclosure, it will enable you to obtain a court order barring the new employer from using any of your trade secrets.

Be careful how you write this letter. Don’t accuse anyone of trying to steal trade secrets; just stick to the facts. A letter making wild accusations could get your ex-employee fired because the other company fears you might sue. If this occurs, your ex-employee might sue your company for defamation or slander. Also, don’t describe the trade secrets involved in detail; a general description of the subject matter is sufficient.

The full text of this sample letter is below. Send this letter by certified mail, return receipt requested. A copy should also be sent to the former employee.


July 12, 20XX

To Whom It May Concern:

We understand that Olivia Williams has decided to join your company. We would like to inform you of the following facts:

During her employment by the PineTree Robotics Company, Olivia Williams had access to our trade secrets including, but not limited to, advanced information about robotic visual scanning algorithms.

In connection with her employment, Ms. Williams signed an Employment Agreement in which she promised not to disclose or utilize any of our trade secrets without our permission. The Agreement remains in full force and effect.

At the time Ms. Williams left our company, she was informed of her continuing obligations under the Employment Agreement. She signed an acknowledgment of these obligations, a copy of which is enclosed.

We are confident that Ms. Williams intends to comply with her obligations and respect our trade secrets. We also trust that your company will not assign her to a position that might risk disclosure of our trade secrets.

If you have any questions regarding these matters, we will be happy to clarify them for you. In addition, if at any time you wish to know whether information provided you by Ms. Williams is a trade secret owned by us, we will be happy to work out a procedure for providing you with this information.

Very truly yours,

Jane Matthews

cc: Olivia Williams

Trade Secrets and the Government

Information that is held by the U.S. government may be disclosed upon request of citizens under the Freedom of Information Act (5 U.S.C. § 552). If you disclose trade secret information to the government—for example, your company creates software for government use—how can you prevent further disclosure of those software secrets under the Freedom of Information Act? There is a way the information will not be disclosed if the trade secret documents are clearly marked with the following notice:

This material is subject to exemption under the provisions of the Freedom of Information Act, specifically, 5 U.S.C. § 552(b)(4).

In addition, if you contract with the federal government, any proprietary materials you license or transfer should be marked with a legend that restricts rights. This is particularly important in the case of software. We suggest the following legend, for example, in the case of software licensed to the federal government:

The software is furnished with RESTRICTED RIGHTS. Use, duplication or disclosure is subject to restrictions as set forth in paragraph (b)(3)(B) of the Rights in Technical Data and Computer Software Clause in DAR 7-104.9(a) and in subparagraph (c)(1)(ii) of 252.227-7013; 52.227-19(a) through (d) and applicable ADP Schedule Contract. Unpublished rights are reserved under the copyright laws of the United States. The U.S. Government agrees that any such products licensed which have appropriate RESTRICTED RIGHTS legends applied on them shall be provided only with RESTRICTED RIGHTS

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