What litigation tells us about the dangers of IP theft

Former British Prime Minister Neville Chamberlain famously said "In war, there are no winners. Only losers." The same can be said of intellectual property (IP) lawsuits involving departing employees, since – outside of lawyers and third-party forensic companies who thrive on a robust caseload – these disputes waste too much energy and money accomplishing what reasonably diligent measures could have prevented in the first place.

This vendor-written tech primer has been edited by Network World to eliminate product promotion, but readers should note it will likely favor the submitter’s approach.

Former British Prime Minister Neville Chamberlain famously said “In war, there are no winners. Only losers.” The same can be said of intellectual property (IP) lawsuits involving departing employees, since – outside of lawyers and third-party forensic companies who thrive on a robust caseload – these disputes waste too much energy and money accomplishing what reasonably diligent measures could have prevented in the first place. 

While many companies are now stepping up security measures to better identify and protect their IP, still too many companies and employees fail to grasp the seriousness of protecting IP (and the repercussions that often flow from failing to do so).

[ALSO: The fierce battle over intellectual property]

According to a recent study commissioned by Symantec (see “What’s Yours is Mine: How Employees Are Putting Your Intellectual Property At Risk”, half of all departing employees retain confidential company files following their termination. Having access to confidential files obviously increases the odds that, when that employee finds a new job, they will access, disclose, or use such information.

Here are some recent trends in litigation involving mobile employees and some suggestions for both employers and employees to help minimize the cost and distraction that stem from IP theft by the departing employee.

Times have changed, but common practices have not

Before the adoption of PCs and e-mail, IP was easier to track and contain. Early trade secret lawsuits often involved the theft of hand-written customer lists, secret recipes, or old-school engineering notebooks. Nowadays, of course, most companies store digital versions of their sensitive business information, yet few companies have adopted internal security measures that effectively monitor and control their employee’s access to such information, and even fewer implement restrictions on an employee’s ability to copy or otherwise move confidential information offline. 

Nowadays, employees regularly create confidential business information on their home computers or other personal devices, and store such information in every manner imaginable (personal email accounts, smartphones, tablets, online storage/cloud accounts, USB flash drives or external hard drives, memory cards, DVDs, etc.). According to the Symantec survey, more than half of employees feel it’s acceptable to move corporate data to personal devices, email accounts and cloud services without prior company approval. While having constant and seamless access to confidential work files no doubt increases productivity, the increased commingling of company and personal information on these devices only further increases the odds that a departing employee will fail to return all company information upon separation. 

With the seemingly never-ending invention of new methods to store/transfer files, and more and more employees working from home, companies are losing track of their valuable trade secrets. The departing employee – often equipped with a 3TB external HD or even sneakier 64GB flash drive – poses a significant risk for those companies who have lost control of their own IP. And companies who conduct a high-level exit interview during which they collect laptops and keycards before reiterating that departing employees are required to return company property and are prohibited from using/disclosing confidential information IP are essentially sanctioning the theft of their most valuable company assets.

Common scenarios

Recent IP lawsuits highlight typical behavior of employees who leave to work for a competitor:

* The Back-Up Plan. A management-level employee with a heavy-travel schedule has a company-issued laptop. She stores all of her company confidential information on this device along with a significant amount of her valuable personal files (photos, iTunes, etc.). She also doesn’t trust the company’s back-up procedures, having once lost a significant amount of her own work product due to a virus, and so has been routinely (and secretly) backing up her entire hard drive every three months. While she returns her laptop to the company during her exit interview, she makes no mention of the recent back-up she stores at home.

* The Proud Artist. A software architect pours his heart and soul into code he’s been writing and de-bugging for the past year. Like an artist commissioned to paint a private portrait, this employee is proud of his work, which enabled his employer to launch its product months ahead of schedule. Although he signed, and claims to understand, the Inventions Assignment Agreement that was part of his offer package, he honestly believes this source code belongs to him because he wrote it. For this reason, as he cleans up his workstation the day before announcing his resignation, he accesses the server and copies the code he will one day proudly share with his children.

* The Shifty Sales Guy. A senior account executive for a major bank has been shaking hands and building a massive network of high net worth individuals since getting his MBA 20 years ago. What started as a binder of business cards has evolved into an Outlook contacts file (.pst) with more than 4,000 entries. Without a second thought, the newly hired senior account executive loads his entire file onto the company’s network the first week on the job. Over the course of the next five years, he constantly adds to this database including contact information for prospects and leads sourced by the company’s lower-level sales team. Often, in addition to name, address, and contact information, he adds key client information, including net worth, investment preferences, and the type of whiskey the client prefers during the holidays. Like he did when he left his prior job – and without permission and without notifying the company – the senior account executive copies his entire .pst file before tendering his resignation because, in his mind, these contacts belong to him. If pressed, he’ll explain that all of his relatives’ birthdays are stored in this .pst file and that’s why deserves to take it with him.

These employees each took information their employer considered trade secret. But they are unlikely to inform a new employer of this conduct because doing so would necessarily admit a violation of the employer’s terms and conditions (and may even lead to termination). That’s because smart companies require new hires, as a condition of employment, to not only abide by all continuing obligations to any former employer, but also to refrain from bringing such information to their new job. Nevertheless, Symantec found that 56% of employees feel it isn’t wrong to take and use a competitor’s confidential information.

What steps could the former employer have taken to minimize the risk that employees will take confidential files with them, as the majority of mobile employees feel it is acceptable to do? And because the new employer will likely be liable for any trade secret misuse or disclosure by the new hire, what steps can the new employer take to mitigate the risk of expensive IP litigation? And finally, what steps should the mobile employee take to ensure their potential exposure is minimized?

Tips for the employer (old and new)

Organizations fully intent on deterring insider theft should employ a dedicated team of HR, security and legal professionals who collectively create policies, drive training and monitor employees. Employees within these organizations will come to understand, over time, that stealing trade secret information is not only wrong but has serious consequences. 

Effective policies and procedures must span the entire employment relationship. During recruiting, companies should ensure that they are not targeting competitor’s employees with the hopes of gaining access to competitive IP. Employees conducting interviews should be cognizant not to request trade secret information during the interview, and candidates should be clear that they must refrain from sharing any non-public information from their current employer. 

New hire documentation should not only include a standard NDA, but offers of employment themselves can be made contingent on a former employer’s promise that he has complied with all lawful obligations to a former employer (including the obligation to return all company property and trade secret information, wherever it may reside). 

Given the ease of copying/transferring files enabled by today’s technology, some companies are starting to implement policies that strictly limit the use of personal devices (including personal email, smartphones and external storage devices) to conduct company business. For those companies that permit employees to use personal devices for company business, BYOD (bring your own device) policies are necessary to ensure the protection of company IP that becomes intermingled with personal files/devices. 

To claim IP protection, the law requires that companies implement reasonable measures to ensure the secrecy of their trade secret data. In addition to strict NDAs, implementing password security measures, limiting access to confidential files on a need-to-know basis, and following physical security measures (visitor sign-in sheets, secure room for storing confidential files, etc.) are advisable procedures.

Just as companies routinely train their employees on their discrimination and harassment policies, so should companies continuously train their employees on the importance of protecting intellectual property. Employees often struggle to determine what information is actually confidential vs. information that is considered general knowledge and skills (which they are free to use after they leave). Training, therefore, should aim to help the employees identify the company’s core intellectual property (i.e., a secret manufacturing process, an innovative pricing methodology, a detailed prospect list, etc.).

But organizations need more than policies and training to effectively combat the alarming trends revealed by the Symantec study. Companies should also implement tools, such as data loss prevention (DLP), to detect and help prevent IP theft. Once a company identifies its core IP and implements a DLP solution, it can monitor the use of confidential data on desktops, laptops and mobile devices, and also record unusual data access patterns – particularly when large volumes of data are accessed and/or copied. 

An effective DLP solution can also detect unauthorized backups or transfers of IP to external devices or applications such as cloud services. Control should extend to .pst files, and administrators can enable features to effectively block IP transfers to unauthorized destinations.

Just as companies employ security software to warn employees engaging in dangerous browsing habits (think pop-up that asks, “Are you sure you want to open this infected file?”), employers can use DLP software to warn employees whose behavior runs afoul of company IP policy. Employers can also use monitoring tools to notify managers in the event of unauthorized IP copying, which behavior is more prevalent in employees who’ve already decided to take another job. 

Stricter monitoring of access to and copying of sensitive IP may seem excessive at first, but real-time enforcement is a far more efficient way to prevent IP theft before it occurs and, generally speaking, is a more cost-effective way to protect IP than the usual practice of examining an employee’s computer usage after the employee has already departed. As Frederick Taylor discovered long ago in his organizational studies, employees who know (or at least think) their behavior is being actively monitored are less likely to act contrary to company policy.

[TEST: DLP delivers strong endpoint protection]

A detailed exit interview is also an important tool to deter IP theft. Prior to an exit interview, companies can use the monitoring solution to run a report for HR that reveals any unauthorized actions by the departing employee and identifies any data or devices that should be returned. With this information already in hand, an employee’s credibility (and risk factor) should be easy to gauge during the exit interview. 

The exit interview is yet another opportunity to review continuing obligations with the departing employee, ensuring they have a clear understanding of what the company considers to be its valuable trade secret information. HR should provide clear, specific direction on property that employees must return – not just laptops and smartphones, but also USB drives and other devices that the company has already identified as having been connected to company machines (and which is likely to also contain company IP).

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