For many people, the term “trade secret theft” brings images of hackers and foreign espionage agents to mind. However, a recent report published by Stout Experts and made available here highlights three less glamorous but equally important trade secrets threats in the United States (US):
1) Cases involving former employees - Increasing employee mobility due to the Great Recession has led to an increased number of these types of trade secret cases:
“Additionally, certain types of trade secret cases appear to have increased due in part to the notable employee turnover that occurred as a result of the Great Recession. Coupled with an increasingly service-based economy, strategic recruiting by competitors, and the ease of which information can be obtained and copied in an electronic environment – many cases pertaining to the theft of trade secrets emanate from the employee workplace.” [See, “Employee Mobility” on p. 9 of the Stout Report]
2) Cases involving consultants or contractors:
“[A] broader trend affecting multiple industries is the continued increase in matters related to the hiring of outside consultants. These are instances wherein a consultant advises a company on a specific proprietary project, then uses the information and trade secrets garnered from that project to consult with a completely unrelated company, often a direct competitor.” [See “Use of Outside Consultants” on p. 31 of the Stout Report]
3) Cases involving franchisors and franchisees - Two possible situations may arise:
a. The franchisee leaves the franchised system and then sets up a competitor business to the franchisor.
b. Alternatively, the franchisor terminates the franchisee, and the franchisee steals trade secrets. According to the Stout Report:
“Likewise, trade secret litigation has also increased in certain industries such as franchisor/franchisee disputes.” [See “Conclusions” p. 48 of the Stout Report]
“Recently a number of franchisors have aggressively pursued former franchisees relative to these issues, to protect their legitimate business interests. Frequently this has occurred in instances where the franchisee has opened or is pursuing opening a competing platform.” [See, “Trends in Trade Secret Claims” p. 28 of the Stout Report]
To address these problems, the following steps are suggested:
- Create a database/register of trade secrets. This should also include a list of people who have access to the trade secrets. Furthermore, there should be steps in the IP policy explaining the steps necessary to share trade secrets with external parties such as franchisees, contractors and consultants. Existence of the trade secret will need to be proven in case of litigation. A service such as the International Knowledge Registry (IKR) provided by the International IP Commercialization Council (IIPCC) is useful for this purpose.
- Clearly inform employees in their employment contracts and during onboarding sessions of the importance of trade secrets and their obligations to keep trade secrets confidential. Similarly, inform them of the approval and impending enforcement of the new Section 391 of the Canada Criminal Code, or the Defend Trade Secrets Act.
- Clearly set out the obligations of franchisees, consultants and contractors in franchising and engagement agreements. To the extent possible, identify any trade secrets which will be shared with the franchisees, contractors and consultants.