INDOINDO--AMERICAN CHAMBER OF AMERICAN CHAMBER OF COMMERCE COMMERCE -- USAUSA

Protecting Your Trade Protecting Your Trade SecretsSecrets

U.S. businesses lost over $60 BILLION due U.S. businesses lost over $60 BILLION due to intellectual property theft. 40% of this to intellectual property theft. 40% of this loss was from known or suspected loss of loss was from known or suspected loss of proprietary information such as TRADE proprietary information such as TRADE SECRETS.SECRETS.

-- U.S. Chamber of CommerceU.S. Chamber of Commerce

What is a TRADE SECRET?What is a TRADE SECRET?A TRADE SECRET is really just a piece of A TRADE SECRET is really just a piece of information, such as a customer list or a information, such as a customer list or a method of production or a secret formula method of production or a secret formula for a soft drink that the holder tries to for a soft drink that the holder tries to keep keep secretsecret. The only way the secret can . The only way the secret can be unmasked is by an unlawful activity.be unmasked is by an unlawful activity.Intangible business assets = Intellectual Intangible business assets = Intellectual Property + TRADE SECRETSProperty + TRADE SECRETS

Does your company have TRADE Does your company have TRADE SECRETS?SECRETS?Companies may have trade secrets and Companies may have trade secrets and not even know they exist, ornot even know they exist, orCompanies may be aware of their trade Companies may be aware of their trade secrets and fail to take necessary steps to secrets and fail to take necessary steps to protect the trade secrets.protect the trade secrets.

How To Identify Your Trade Secrets?How To Identify Your Trade Secrets?

Company attorneys should have their clients periodically Company attorneys should have their clients periodically ask employees:ask employees:1. What do we know that gives us a competitive edge?1. What do we know that gives us a competitive edge?2. Do other companies or outside individuals know this 2. Do other companies or outside individuals know this information?information?3. Is this information something our competitors would 3. Is this information something our competitors would want to know?want to know?4. Was the information difficult, time4. Was the information difficult, time--consuming or consuming or expensive to gain?expensive to gain?5. Would the company suffer significant damage if the 5. Would the company suffer significant damage if the competitors were to learn of this information?competitors were to learn of this information?6. Who knows this information within the company?6. Who knows this information within the company?

The number ONE risk factor associated with the The number ONE risk factor associated with the theft of TRADE SECRETS is from those with a theft of TRADE SECRETS is from those with a trust relationship with the organization, primarily trust relationship with the organization, primarily current and former employeescurrent and former employees..

Employee mobility = Employees who spend at Employee mobility = Employees who spend at least 50% of their business hours away from least 50% of their business hours away from their traditional office space. Also included are their traditional office space. Also included are those employees who work from a remote those employees who work from a remote location via VPN or such other network.location via VPN or such other network.

Employee mobility has a significant potential Employee mobility has a significant potential adverse impact on the ability to protect TRADE adverse impact on the ability to protect TRADE SECRETS from disclosure to competitors.SECRETS from disclosure to competitors.91% of organizations surveyed had never 91% of organizations surveyed had never inspected mobile employeesinspected mobile employees’’ work environment work environment and security glitches present at these remote and security glitches present at these remote work places.work places.Problem areasProblem areas: Private web email accounts such : Private web email accounts such as Yahoo, external storage devices such as as Yahoo, external storage devices such as ““thumb drivesthumb drives””, PDAs / Blackberrys, Instant , PDAs / Blackberrys, Instant Messages and other means of communication Messages and other means of communication that transcend the company email systemthat transcend the company email system

The TOP 4 areas of risk of loss of TRADE The TOP 4 areas of risk of loss of TRADE SECRETS:SECRETS:1. Research & Development Data;1. Research & Development Data;2. Customer Lists and Related Data;2. Customer Lists and Related Data;3. Financial Data; and3. Financial Data; and4. Strategic Plans and Roadmaps4. Strategic Plans and RoadmapsOther areas of risk include: Mergers / Acquisition Other areas of risk include: Mergers / Acquisition data, manufacturing data and unannounced data, manufacturing data and unannounced product specification & prototypesproduct specification & prototypes

Loss of TRADE SECRETS leads to:Loss of TRADE SECRETS leads to:1. Loss of Revenue;1. Loss of Revenue;2. Loss of Competitive Advantage;2. Loss of Competitive Advantage;3. Loss of Market Share;3. Loss of Market Share;4. Increased Research & Development Costs;4. Increased Research & Development Costs;5. Increased Legal Costs;5. Increased Legal Costs;6. Embarrassment & Damage to Company6. Embarrassment & Damage to Company’’s s Reputation; andReputation; and7. Increased Insurance Costs7. Increased Insurance Costs

Perils of Globalized market place:Perils of Globalized market place:

Trade secret protections outside of the United States Trade secret protections outside of the United States vary widely and in some countries, corporate espionage vary widely and in some countries, corporate espionage is an acceptable business tactic. This kind of legal is an acceptable business tactic. This kind of legal system affords little or no protection for a companysystem affords little or no protection for a company’’s s trade secrets.trade secrets.Competition and employeeCompetition and employee’’s mobility has led to highly s mobility has led to highly lucrative pay packages. This in turn places enormous lucrative pay packages. This in turn places enormous pressure on the mobile employee to produce quick pressure on the mobile employee to produce quick results for the new employer. Key employees feel results for the new employer. Key employees feel compelled to take some or all of the workcompelled to take some or all of the work--product they product they created for their prior employer with them upon their created for their prior employer with them upon their departure.departure.Case Study: IBM Case Study: IBM –– HP HP –– Atul MalhotraAtul Malhotra

Responsibility of Senior Responsibility of Senior ManagementManagement

Senior management often does not fully Senior management often does not fully appreciate the scope of its obligations as it appreciate the scope of its obligations as it relates to protecting trade secrets.relates to protecting trade secrets.The The 3 largest problem3 largest problem areas are:areas are:1. Failure to identify, inventory and value trade 1. Failure to identify, inventory and value trade secrets;secrets;2. Failure to institute internal controls regarding 2. Failure to institute internal controls regarding confidentiality;confidentiality;3. Failure to protect trade secrets when 3. Failure to protect trade secrets when employees depart.employees depart.

Internal ControlsInternal ControlsIn litigation, courts consider whether the In litigation, courts consider whether the complaining party took adequate measures to complaining party took adequate measures to protect the confidentiality of the trade secrets at protect the confidentiality of the trade secrets at issue.issue.Every company should consider instituting the Every company should consider instituting the following internal controls:following internal controls:1. Drafting trade secrets, confidential 1. Drafting trade secrets, confidential information, noninformation, non--disclosure and nondisclosure and non--compete compete provisions in employment agreements and provisions in employment agreements and company manuals;company manuals;2. Requiring every employee to sign these 2. Requiring every employee to sign these agreements;agreements;

Internal ControlsInternal Controls3. Create an internal committee of key employees and 3. Create an internal committee of key employees and account for companyaccount for company’’s trade secrets;s trade secrets;4. Ensure confidentiality of & control access to trade 4. Ensure confidentiality of & control access to trade secrets;secrets;5. Tailor internal controls to cover mobile employees 5. Tailor internal controls to cover mobile employees who work outside the office;who work outside the office;6. Ensure that the company maintains an updated e6. Ensure that the company maintains an updated e--systems monitoring policy (spy software);systems monitoring policy (spy software);7. Institute site security measures that require visitors to 7. Institute site security measures that require visitors to sign in, restrict their movement and record their nature sign in, restrict their movement and record their nature of business;of business;

Internal ControlsInternal Controls8. Develop policies about the use of external 8. Develop policies about the use of external storage devices with company laptops, storage devices with company laptops, transmission of company data to private web transmission of company data to private web email account, usage of instant messaging email account, usage of instant messaging software, etc;software, etc;9. Require vendors, independent contractors, 9. Require vendors, independent contractors, and third parties who might access trade secrets and third parties who might access trade secrets to sign Confidentiality Agreements;to sign Confidentiality Agreements;10. Utilize an 10. Utilize an Exit InterviewExit Interview process for process for departing employees.departing employees.

Exit InterviewsExit InterviewsExit InterviewsExit Interviews are critical. During the are critical. During the interview, employers should attempt to learn: interview, employers should attempt to learn: (a) the identity of the employee(a) the identity of the employee’’s new employer s new employer and the new employerand the new employer’’s business interests; (b) s business interests; (b) the employeethe employee’’s new position; (c) and s new position; (c) and responsibilities; (d) the general nature of the responsibilities; (d) the general nature of the projects on which the employee will be working; projects on which the employee will be working; and (e) the incentives that motivated the and (e) the incentives that motivated the employeeemployee’’s decision to leave. s decision to leave. Remind the departing employee of his/her Remind the departing employee of his/her obligation to keep the employerobligation to keep the employer’’s confidential s confidential information secret.information secret.

Exit InterviewsExit Interviews

Memorialize the exit interview in form of a Memorialize the exit interview in form of a memorandum (and also have the employee sign memorandum (and also have the employee sign it)it)After the exit interview, the employeeAfter the exit interview, the employee’’s laptop s laptop should be accounted for and, in many instances, should be accounted for and, in many instances, its contents preserved its contents preserved –– Imaged.Imaged.Require departing employees to execute a Require departing employees to execute a certification detailing what external computer certification detailing what external computer media they used while employed.media they used while employed.

TRADE SECRET AUDITTRADE SECRET AUDIT::Are you familiar with the phrase Are you familiar with the phrase ““trade secret trade secret auditaudit””? You should be.? You should be.A trade secret audit should be conducted on an A trade secret audit should be conducted on an annual basis to assess the status of trade secret annual basis to assess the status of trade secret programs and protections. Trade secret audit is programs and protections. Trade secret audit is a prudent and proactive approach that is the a prudent and proactive approach that is the need of the day in identifying and protecting the need of the day in identifying and protecting the companycompany’’s trade secrets.s trade secrets.

ASHISH S. JOSHIASHISH S. JOSHIATTORNEY AT LAWATTORNEY AT LAW

Washington D.C. Washington D.C. -- Michigan Michigan -- New York New York -- IndiaIndia