Keeping Trade Secrets Under Wraps In a Knowledge Economy, Companies Combat Theft of Intellectual Property By Amy Joyce Washington Post Staff Writer Sunday, June 27, 2004; Page F06
A woman in Georgia was about to move from her job at one travel agency to a competitor. While still at the first company, she e-mailed clients to tell them that if they would follow her to the new agency, she would get them better deals.
A man in the Miami office of a telecommunications company left for a competitor and took the client list from the first company with him. When he started at the new job, he told those clients he could help them get out of their old contract and could get them a better price.
These employees are accused of doing things on a much smaller scale than what a 24-year-old software engineer at America Online Inc. was charged with last week -- selling 92 million members' e-mail addresses from the AOL database. Nonetheless, they are now being sued by their former employers for stealing.
"Employees don't realize that taking intellectual property is like putting their hand in the cash drawer and taking money," said Mark R. Cheskin, head of the labor- and employment-law practice of Hogan & Hartson LLP's Miami office. "Employers have to educate employees that stealing is stealing."
As the economy picks up and employees prepare to move to new jobs, there's the potential for competitive information worth millions of dollars to walk out the door, straight to a competitor. Today's work world is much more of a knowledge economy, in which technology and information are the main products. In a knowledge economy, location is not a necessity. Technology allows us to be in many places to do the same work. Therefore, the knowledge, ideas and information on which a company is based can be shared easily.
So the notion of assets walking out the door each night with a company's employees becomes much more pertinent.
Not only do employment attorneys and the Society for Human Resource Management perceive an uptick in the number of suits regarding trade secrets -- a category that includes client lists as well as proprietary systems and patented information -- but employers are starting to be more stringent with nondisclosure rules that they ask employees to sign agreements both with an acceptance letter and upon departure. These nondisclosure agreements tell employees they cannot share client lists, software or other intellectual property.
Software company SAS Institute Inc. has included nondisclosure agreements in acceptance letters "forever," said Jeff Chambers, vice president of human resources. "Look at what our business is: It's all intellectual property."
When new employees are hired at SAS, they sign nondisclosure notices that remind them that inventing may be part of their job. What they invent at SAS belongs to SAS because that is what they are paid to do. "Anything they do in the scope of employment, we own all the intellectual property rights for that," he said.
Employees at SAS are then reminded in an acknowledgment letter before they leave the company that they are legally held to the nondisclosure agreement.
Employees at AmSouth Bank, a regional bank in the Southeast, are also reminded on their way out the door that they signed an agreement when they came on board, and what that means exactly. "We have to send them a reminder they [are] to leave customer lists here and [are] not supposed to solicit other employees" once they leave, said Janet Parker, senior vice president of employee relations. "It's a big concern. We take precautions to make sure we have the right procedures in place."
Slightly more than half of all companies have new and current employees sign nondisclosure agreements, according to a March poll by the Society for Human Resource Management. And 35 percent of companies remind departing employees of their "trade secret obligation."
On the flip side, however, only 7 percent of companies have new employees sign agreements that prevent them from bringing trade secrets from previous employers.
Some employers are afraid that those who had stagnant careers during the economic downturn will offer up trade secrets -- such as client lists -- to sell themselves in an interview.
"I think a lot of people have been kind of just hunkered down waiting for that next big opportunity," Chambers said. "They don't want to be part of the next flameout. So what are they going to offer? They will come to new companies saying, 'Here's what I can add.' " And then they potentially hand off proprietary information, clients or processes, such as how their current company was able to win various clients.
As much as technology has made it easier for employees to take and disseminate trade secrets, it also has made it easier for employers to locate the leak.
One employee at a software company recently left for a competitor with his first company's proprietary software. The thing was, he had to type in an identification sign-on to download the software. It was traced right back to him and the company is suing him, according to Cheskin.
Granted, Cheskin said, some employees do not realize that what they are doing is illegal, which is why he encourages employers to educate their workers. Or to reinvent their nondisclosure agreements. "They really need to think through who has information and try to narrow training and agreements toward that," he said. "Companies make it too broad, so it doesn't seem real. Think about what you're trying to protect."
But Susan Meisinger, president of the Society for Human Resource Management, said companies are learning how to be "more vocal" about the agreements, often marking client lists "confidential." That is an important practice these days, she said.
"There's an increase in litigation in this arena that shows it has become more important," she said. "But it also shows [employees] aren't as knowledgeable." http://www.washingtonpost.com/wp-dyn/articles/A5970-2004Jun25.html