Trade Secrets – Risk Management Processes To Protect Your Most Valuable Asset

Entrance Gate of Sejong University, Seoul, Korea
Entrance Gate of Sejong University, Seoul, Korea

A company should take a number of steps to protect its trade secrets and confidential information.  Failure to do so will result in loss of trade secrets as well as theft of confidential information. Several of the steps are set forth below.  Companies need to realize that unless risk management processes and procedures to protect trade secrets are established and implemented, it is only a matter of time before trade secrets are stolen or leaked.  By then, it maybe hard to put the genie back into the bottle.  Several processes of a legal risk management program include:

A.             Physical Security Precautions

Failure to maintain appropriate physical security may doom a trade secrets claim. Companies should restrict access to its premises generally, and in particular, where trade secrets are located.  Security services should enable the company to show that a disloyal employee entered or left a facility during unusual times.  Smaller scale physical security within departments is equally as important.  Employees should be required to place confidential information in secured areas such as a desk drawer or  locked file cabinets.

B.              Communicating Confidentiality

A company or organization should communicate with employee’s regarding its policies on confidentiality.  Confidentiality policies should be included in employee handbooks and employees should receive periodic reminders regarding the confidentiality policy and any contractual obligations regarding confidentiality.

Document control is another essential means to communicate confidentiality.  Document controls can be put in place that are simple and routine.  Confidential documents may be marked “Confidential” or “Property of XXX.”  Automated headers and footers will increase the likelihood that the employees will follow the procedure.

Upon termination of employment, exit interviews should  be conducted to remind the employee of their obligations regarding confidentiality. An effective exit interview also requires preparation.  For example, the employee may be reluctant to provide information regarding his new position of employment.  By checking with co-workers and doing some investigation beforehand, the employer may be able to gather important information for the exit interview.

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During the exit interview,  the company should remind the employee of his or her obligations regarding confidentiality of information. The interview should include a discussion regarding:

the types of confidential information that the employee previously had access to during his/her employment;

any agreements with the employee regarding confidentiality or competition

the employee’s obligation to return any confidential information (make sure you remind employees to return all electronic information stored in all locations, including personal laptops or home computers);  and

the employee’s responsibility not to use or disclose confidential information

C.               Contractual Protection

A properly drafted agreement which contains a restrictive covenant can be an    effective tool for preventing trade secret disclosure by former employees.  But what is meant by the   term “restrictive covenant?”  It can cover a wide array of devices including:

A restriction upon use or disclosure of trade secret or other confidential information (a confidentiality agreement);

Assignment of property rights (an invention assignment agreement)

A restriction upon participation in competitive activities for a specified period of time (a non-compete agreement); and

A restriction upon soliciting the customers of the employer (a non-solicitation   agreement).

All of these types of restrictive covenants have a potential role to play in an ongoing effort to protect trade secrets.  For instance, a non-disclosure agreement can clarify  that certain information is intended to be kept secret and if violated, may create a  potential cause of action for breach of contract, supplementing statutory claims or  claims for unfair competition, breach of the duty of loyalty and breach of fiduciary duty.

The company should request that the employee sign an acknowledgement that he or she has been provided the above information.  Such an acknowledgment can be persuasive evidence that the information treated was confidential and that the employee was aware of his or her obligations.

D.  Marketing Materials

Many times, marketing materials may contain information that a company deems to be confidential.  Once published to the outside world, any  shred of confidentiality is gone.  Companies need to aggressively review all publications, sales materials and marketing materials to confirm such information is not inadvertently disseminated to the public.  Someone should be in charge of reviewing all materials published by company employees.

Remember: As part of the Legal Risk Management Audit- conduct a trade secret audit to confirm whether all processes to protect trade secrets are in fact working and that all agreements containing restrictive covenants are properly drafted and implemented.