It's Never Too Early to Start Protecting Trade Secrets and IP
Who owns a companys best ideas? When employees and companies part ways, complicated ownership disputes can arise over rights with respect to IP, trade secrets, and other confidential company information. Its a topic that came up as a discussion on the LinkedIn page of In The Housea web-based professional networking community for in-house counselso we asked a few ITH lawyers with in-house experience how companies can ensure that when employees leave, they dont take valuable information or intellectual property with them.
All of the lawyers who posted to the discussion thread agreed that the best time to formally define trade secret and intellectual property parameters is when the employee first walks through the door, not when theyre headed for the exit.
William Wilson, former in-house counsel at Motorola Inc. and Siemens Corporation, says that the beginning of employment is the one golden opportunity you have to make the relationship clear. This can be especially important under certain state employment statutessome states make it more difficult to keep trade secrets and other confidential information under wraps if agreements arent solidified during the hiring process.
The Uniform Trade Secrets Act provides a federal framework for protection of trade secrets. A handful of statesincluding New Yorkhave not adopted the UTSA, but those states do have their own version of the federal law. All of which means there can be some confusion about what needs to be done at the time of hiring. If there are any ambiguities in terms of whats going to constitute a trade secret, says Wilson, clarify in the employment agreement.
Depending on whether the company is located in a state that allows them, Wilson says the employer might also consider the value of adding a non-compete agreement to the employment contract in order to protect confidential information from traveling into a competitors office with an ex-employee.
When it comes to IP, not all states have codified invention statutes. Wilson urges employers to make it very clear in the initial employment agreement that ownership of anything worked on in the line of business is assigned to the companyand not to the individual.
Deirdre OCallaghan, most recently general counsel of Gas Turbine Energy, says she has required individuals to sign non-disclosure agreements during pre-employment negotiations. Sometimes you have to divulge confidential information at a time theyre not yet an employee, she notes.
OCallaghan says there are different risk levels to consider, depending on how IP-centered the company is and how exposed to confidential information the employee will be. Even companies with little intellectual property have trade secrets, OCallaghan points out. An employer can cover its bases with respect to non-disclosure through a company-wide policy contained in its employee handbook. Even if the company doesnt use employment agreements, it should have an employee handbook, she says: For a lot of companies, thats all you really need.
But for those employers with higher levels of IP at the core of their business, OCallaghan recommends having employees sign an IP terms and conditions agreement, which establishes company ownership of anything the employee develops while working for the company.
She stresses the importance of having not just product developers sign these agreements, but also paralegals, finance officers, and anyone else who might come in contact with sensitive information.
Wilson agrees, adding that even outsiders can be exposed to sensitive material. Some companies do a good job of papering employee agreements, he notes, but they arent as careful with vendors and other outside partners.
For employees working in development, OCallaghan says its crucial to establish whats the companys and whats the employees. Often employees bring base patents with them to a new job. If the patent has been filed with the U.S. Patent and Trademark Association, she says its easy to define what the employee owns. But if its just an idea, its much harder.
Cathy Duclos specializes in employment law as an associate general counsel at Technicolor USA Inc. She says that standard confidentiality and assignment of inventions agreements allow employees to list prior inventions. They have the chance to say, I own this and Im not giving it to you, says Duclos. But she has seen disputes arise because managers made the mistake of not carefully reading the list.
Although its much tougher to influence employees once theyve decided to move on to greener pastures, some precautions can still be taken when employees leave the company.
Always have an exit interview, says OCallaghan. If they wont come in, at least get it in writing, she says. If a former employee has joined a competitor, it may be a good idea to convey your expectations of protection to the new companyin writing.
Wilson says companies can take precautions by restricting a soon-to-be-departing employees ability to make wholesale copies. Email can also be monitored to detect certain keywords or addresses. In an exit interview, Wilson advises companies to give the employee a copy of the employment agreement they signed on day one.
Remind them that their obligations dont end the day they walk out the door, he says.