The secret is out – trade secret theft is big business. Recent estimates suggest the value of trade secret theft in the US to be between 1-3% of the country’s GDP, or between USD 200 billion to USD 550 billion per year. It is thus not surprising that 61% of executives polled in a recent Baker McKenzie and Euromoney survey stated that trade secrets and intellectual property are a board-level issue, reflecting the rising value of trade secrets in our digital age. According to 32% of the respondents, theft by former employees was identified as the greatest threat to their trade secrets or confidential information. However, only a third of the respondents have procedures in place to respond to a threat of or actual theft of their trade secrets, leaving the organisations at the mercy of unscrupulous employees.
Businesses can take various practical steps to protect their trade secrets. These include:
- identify trade secrets
- create and maintain an inventory
- implement protective contractual, physical and technical organisational measures
- have a misappropriation action plan.
Legislation aimed at protecting trade secrets have also had a dramatic impact on protection of trade secrets and enforcement of rights. The US Defence Trade Secrets Act and EU Trade Secrets Directive define trade secrets, outline reasonable measures that companies must take to ensure their protection, and provide legal remedies in respect of trade secret theft. Only 13% and 14% of executives polled stated that they completely understood the implications of the EU Directive and USDSA respectively. Companies doing business in those jurisdictions should familiarise themselves of their obligations under these laws passed during the past year.
Of survey respondents, 20% have suffered trade secret theft. One in three respondents in the healthcare industry reported that they were victims of trade secret theft. With enforcement of trade secret protection labelled as a concern (61% of respondents stated it should be strengthened) businesses should ensure that their internal processes will provide them with adequate protection. China, India and the United States were listed as the top three export markets listed by executives polled as in need of strengthening their trade secret protection and enforcement the most.
From an employment law perspective, employers could layer the protection the law affords businesses by creating additional contractual rights. In some common law jurisdictions – South Africa included – employers enjoy automatic protection against breaches of confidentiality by current and even erstwhile employees. Employers could bolster this (or create such a right where it does not exist in their jurisdiction) by inserting confidentiality undertakings into employment contracts at the outset of the employment relationship.
Employers could also create stand alone confidentiality or non-disclosure agreements where they wish to create this contractual right at any stage during or even at the end of the employment relationship. Whilst employees may be reluctant to agree to additional obligations in relation to the use of trade secrets, an employer could obtain the employee’s consent to such obligations when it is in a decent bargaining position. The employer could, for instance, make appointment to a higher role (that will allow the employee access to trade secrets) subject to the successful candidate signing a non-disclosure or confidentiality agreement.
Businesses should also ensure that their corporate values and workplace rules include reference to how the organisation expects employees to behave in relation to the company’s trade secrets. Staff should harbour no illusions that their employer values its trade secrets and that it will take the necessary steps to protect these from wrongful use. Our courts and employment tribunal have not been sympathetic to employees who steal their employer’s trade secrets or use confidential information for their own gain or to compete with their employer. Judges and arbitrators typically come to the assistance of employers where employees fail to act in the best interest of their employer when entrusted with trade secrets.
Employers can strengthen their position by
- ensuring that employees have a clear understanding of what constitutes trade secrets.
- Clarifying circumstances under which such information may be shared with other employees or third parties.
- Taking immediate action when employees or ex-employees act in breach of their confidentiality obligations.
While keeping mum over trade secrets should be a given, employers should be shouting from the rooftops to ensure all their employees understand the importance of not sharing the business’ confidential information.