It’s getting harder to keep trade secrets in corporate America.
Two reasons for the leaking are technology and mobility. Just about everyone is tricked out with more cameras and data storage devices than James Bond, making it easier than ever to capture competitive information. Plus, the working world is a revolving door, and when workers leave, they tend to take data, including trade secrets, with them. Median tenure of workers has dropped to 4.2 years.
Today, we describe what should be every company’s first step in preventing trade secrets from walking out the door: the trade secret audit.
“Trade Secret” Defined
In legal terms, a trade secret is information not generally known to the public that holds value to its owner because of its secrecy. In other words, a trade secret is the “secret sauce” that gives a business its competitive advantage. Trade secrets can come in many forms, such as a formula, process, or design, or even a compilation of information (like a customer list), to name a few.
Typically, a company can’t defend its trade secrets unless it proves it has taken reasonable steps to keep its secrets confidential. A company’s failure to detect and manage its vulnerability to leaks might strip it of its right to protect its secrets in court.
In-House Lawyers Are Worried
Many in-house lawyers appear keenly aware of this risk and its growth. A recent survey of in-house lawyers published in Law360 found that more than 75 percent of in-house lawyers believe the risk of their companies’ losing trade secrets to leaks has increased over the past 10 years.1 Fifty percent of the in-house lawyers surveyed described the risk of leaks as having increased ‘significantly.’ The most common source of leaks, the in-house lawyers identified, were current and former employees, followed by competitors and third-party business partners.
The Law360 survey not only flagged the rising risk of misappropriation by employees, but also suggested a missing piece in many companies’ compliance practices — a trade secret audit – could plug some of the holes and even boost the company’s bottom line.
A Trade Secret Audit Can Protect and Add Value
What’s a trade secret audit? It’s a process that identifies what kinds of information give a company its competitive advantage over others, and inventories what the company is doing to protect that information.
Besides identifying all possible sources of trade secrets, audits can reveal holes in a company’s security that can be fixed and re-set to fend off future leaks. Better yet, as the Law360 writers note, the process may even boost innovation by bringing management’s attention to existing ideas that, until the audit, might have been undervalued, overlooked or simply ignored.
Trade secret audits can be daunting and special care must be taken to prevent the audit process itself from putting trade secrets at risk. Before launching an audit, it’s generally wise to seek guidance from an outside lawyer experienced in trade secret matters.
1 A Survey of In-House Attorney Views On Trade Secrets by David S. Almeling, Darin W. Snyder and Carolyn Appel, Law 360, January 2018
Gary Savine is a Chicago employment lawyer and founder of Savine Employment Law Ltd. In his practice, Gary helps companies manage trade secret issues and also defends companies and executives accused of trade secret misappropriation.