Fred Mendelsohn is a partner at Burke Warren and is the regular author of “Industrial Distribution’s” Legal Watch column. Craig McCrohon is one of Fred Mendelsohn’s partners at Burke Warren and has co-authored articles with Fred from time to time for ID. The following article is authored by Craig McCrohon and appeared in our Sept./Oct. issue.
Business secrets — information not available to the public — can range from complex business procedures to things as simple as client lists. All businesses, including distributors, have “business secrets,” yet many fail to undertake some basic steps to protect their proprietary information from competitors or disgruntled former employees.
A few practical low-tech steps can significantly improve the chances of distributors protecting their business secrets or other valuable confidential information. Once converted, business secrets and other IP can be effectively lost forever. To recover this intellectual property is next to impossible, and to stop its use and/or get it back can require years of litigation at significant legal cost.
What to Protect
Business secrets might include customer lists, formulas, software, business processes, or market information. Theft of IP items can damage a company just as much as, if not more than, the loss of a valuable piece of equipment or expensive inventory or component parts.
Value of Low-Tech Precautions
Many businesses, unfortunately, too often “skip the small stuff” when protecting their business secrets, confidential information and other IP items. Many use complex confidentiality agreements (which is not necessarily bad) and expensive labor-intensive techniques like securing patent protection, when a few low-tech procedures are capable of providing as much protection as the pinnacle of innovation.
Under the law, the mere presence of corporate “policies and practices” protecting sensitive information helps retrieve stolen secrets. Courts often find that a business that demonstrates “habitual protection” of its confidential information will more likely prove that the information is valuable and merits protection under the Uniform Trade Secrets Act (which has been adopted in almost every state). The opposite also holds true: a business that ignores strict protection of confidential information and other IP items can create a presumption of low value and little confidentiality.
Like unraveling a political cover-up, the best way to catch an information thief is to follow the trail of cover ups, copied emails, IP downloads and rogue hard copies. The more impediments that are put in place to copying and removing information, the more likely that the perpetrator will leave a trail of theft.
10 Tips to Save Confidential Information
• Lock Doors and Drawers. Keep the documents, disks or other IP items in a locked room or storage cabinet.
• Use Document Passwords. Amazingly, emails fly around offices and through cyberspace without password protection. Companies that habitually lock secret, or even semi-secret, documents with passwords avoid years of litigation. If a computer forensics expert can show that the culprit broke the password, or sent separate emails sharing the passwords with others, a judge is far more likely to acknowledge the confidential status of the information.
• Create Virtual Compartments. Business secrets, regardless of the type of storage media, should be available only to those persons with a need to know. Rather than simply dumping IP items into communal drives, distributors should create levels of security to limit access. Some businesses, for example, even take steps to prevent their programmers from seeing the entire code, granting access to only that portion of the software code being developed by that programmer.
• Use Snail Mail. Documents and other media can be delivered in hard copy, marked with confidential stamps. Does the other party need to make copies? Do it for them. Mark all copies with a notation such as “Do Not Copy. This Stamp In Red.” If a black and white copy lands in the bandit’s hands, it should be easy to prove that he or she should have known better and was not authorized to have the material.
• Organize Confidentiality Agreements. Many businesses can get lazy about this. Don’t. Routinely execute and file these agreements — whether from new employees or other business partners. Such habits, while not foolproof, demonstrate serious commitment to confidentiality and will often sway judges to rule against an information thief.
• Leave Your Mark. Companies should aggressively apply copyright symbols, confidentiality stamps, or trademark notices, appropriately. When in doubt, mark the document, but make sure you do so legally. For example, if you claim common law rights in a name, use the often seen ™ at the end of the word. As with other practices, this puts the thief on notice, demonstrates commitment to secrecy by the company, and validates court claims of value and confidentiality.
• Use Employee Manuals. These books outline the general rules of the workplace for all employees. They provide the perfect means for clarifying and emphasizing strict processes and obligations of employees for maintaining the security of company information. They can also reinforce the need (but not substitute for agreements) to maintain materials as confidential, and evidence a “corporate commitment” to confidentiality.
• Reject Stolen Property. Often new employees will bring pilfered IP from their last job. Just as someone would reject a gift of clearly stolen merchandise, so should businesses reject improperly obtained software, customer lists or materials (marketing materials, manuals, etc.) from a new employee. Businesses with “unclean hands” should hardly expect judicial sympathy.
• Monitor Guests; Limit Access. Businesses should keep a strict log of any guests. This could be as simple as a sign-in sheet, or the provision of temporary electronic badges that guests can use to check in or out of company premises. Such procedures are compelling evidence of a business’s sincerity in protecting its secrets and other IP items, while also demonstrating the value of its confidential information.
• Embrace Shredding. Rather than toss confidential information in the garbage, use shredders liberally. It will prevent others from rifling through your garbage to steal valuable information, and again, it reinforces your claim before a court that certain information is both valuable and proprietary. If litigation is afoot, however, or even threatened, as to any particular business secrets or other IP items, make sure to check with your counsel before continuing routine shredding practices.
The Bottom Line
By following these tips, not only will a distributor be more likely to prevail in court (if need be), but unscrupulous individuals will be less inclined — and less able — to untangle the protections to steal business secrets. Like car alarms, these protections cannot prevent every theft, but they might make it difficult enough for a trade secrets thief to target your business.