Trade secret and intellectual property lawsuits can be a lengthy and expensive but necessary prospect for any tech company looking to protect its assets. But for tech startups that may not have the budget to sustain litigation if they suspect an ex-employee took company trade secrets, filing those suits likely isn’t an option.
However, there are steps startups can take to protect their trade secrets. Such front-end precautions include adding nondisclosures, monitoring personal devices used for work, and defining ownership rights in work agreements. Taking these pre-emptive actions could help startups avoid a costly courtroom battle.
“You can’t ultimately prevent someone from doing bad things, but you can put yourself in the best position,” said San Francisco-based DLA Piper partner Margaret Keane. She noted that while trade secret theft has always been an issue, today’s technology allows employees to more easily take information from one company to the next.
To combat theft, lawyers suggested tech startups should encourage employees to work on company-owned devices, which enables them to examine and monitor an employee’s activity.
“If you, as a company, own your own network, and can monitor it all, you have a much better chance to see if someone is stealing something and you can request and get back those computers,” said David Axtell, a partner focusing on intellectual property at Stinson Leonard Street.
What’s more, before someone joins the company, they should ideally sign a work agreement that includes whistleblower protection, a requirement under the Defend Trade Secrets Act, said David R. Barnard, a Stinson Leonard partner.
Without that whistleblower provision, Barnard explained, companies lose a federal cause of action granted under the 2016 law.
Additionally, tech companies should be aware that employee intellectual property agreements must notify employees regarding legal limits on the types of intellectual property rights an employer can demand from employees. This is a statutory requirement in Delaware, Illinois, California, Kansas, Minnesota, Nevada, New Jersey, North Carolina, Utah and Washington state, Barnard noted.
Still, how can a company and their counsel know if an ex-employee has taken off with IP assets? With social media, of course. Barnard said he’s seen a trade secret theft dispute start based on a LinkedIn post because it “looked like [the former employees] are doing something that they did at the prior company.”
While such an allegation would need to be substantiated with evidence, “if you suspect this may be happening, keep a close eye on their marketing line,” Barnard said. “If their new hot thing is something your previous employee was working on for you, that may be a good tip.”
However, a selfie taken in the new office won’t substantiate a claim of trade secret theft. Instead, evidence usually found during a forensic investigation will likely be key.
After examining work devices the employee used while at the company, filing a suit isn’t always a necessary next step for startups. Lawyers said a letter sent to the employee’s new company may be enough to stop any possible misuse of data.
“If you don’t have funding for a lawsuit it can be difficult, however, neither does the person that just left so you sometimes can send letters and phone calls to get your point across and make sure your trade secret isn’t used inappropriately,” Axtell said.
Also, a company can seek other legal remedies if they suspect data that wasn’t necessarily trade secrets was taken.
Axtell noted, “Don’t forget that startups may have other rights. … For example, if an employee leaves and takes a software-based code with them that belongs to the company, that can be a copyright infringement or a good old-fashioned theft.”