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Trade Secret Theft: How to Prevent It, How to Respond

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By Casey C. Sullivan, Esq. on May 04, 2015 11:07 AM

Every time employees leave, there's a risk that they take some valuable trade secrets along with them. The case of Sergey Aleynikov serves as a good reminder of this. Aleynikov was a programmer for Goldman Sachs before he left to start up his own trading firm -- using trading algorithms purloined from the Wall Street firm. He was convicted of stealing "secret scientific material" last Friday.

Aleynikov's much publicized case serves as an important reminder that one of the jobs of in-house counsel is to zealously guard the proprietary information of the company. This means acting when theft of trade secrets is expected, as well as taking steps to prevent such theft in the first place.

An Ounce of Prevention

First and foremost, the company, and its legal department, should know exactly what constitutes its trade secrets. Find, document and inventory those assets. Note which are the most essential to your success and what potential losses would occur should their confidentiality be compromised.

Monitor who has what, when. Aleynikov downloaded a copy of Sachs' code to his home computer -- something Sachs caught, leading to his arrest and initial prosecution. Though he beat the first round of charges, Sachs' proactive monitoring helped shut down his competing business before he could take much of a bite out of the firm's business.

Finally, beware employees who moonlight as "consultants." Oftentimes, these consulting positions can be a smokescreen for simply stealing trade secrets. For example, federal prosecutors have gone after consultants in industries such as tech and finance who use the positions to sell their non-public information. A policy requiring employees to disclose outside gigs can help nip any potential conflicts in the bud.

Pay Attention to Conflicts When Someone Moves On

Look for conflicts when employees move on. If someone signed a contract with your company which obligates them to protect confidential information, investigate whether a new position would be incompatible with that duty. Take, for example, Mark Hurd, left HP for a role at the company's rival, Oracle. That move lead to a lawsuit and eventual settlement, which saw Hurd modifying his separation agreement with HP and losing out on up to $13 million in stock options.

Finally, remember that it's not just employees who can walk away with your company's private information. The steps outlined above won't do any good if your company's information isn't secure from outsiders. Always keep an eye on vulnerabilities in your computer systems, which may be subject to hackers seeking out proprietary information.

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