Welcome everyone to another edition of the blog. I’ve worked in-house at a tech company and had many tech clients over the year, and believe me, there is a wide variation on how well companies protect their IP. In particular, I’m talking about a type that’s not even sometimes thought of as IP. Trade secrets.
Most companies I work with are generally wise enough to make necessary registrations on trademarks and patents. But what about the IP that can’t be registered?
On the surface, yes most companies are generally good about having standard confidentiality clauses in their commercial agreements, or having a partner sign a NDA once technical information is shared, but perhaps before signing a comprehensive agreement.
But basic documentation like NDAs can only protect trade secrets so much.
Remember, in no particular order, to:
(1) Keep employees well paid, happy, properly incentivized. Same goes for partners. An employee or partner which feels underpaid is more inclined to think the IP they (in part) created at the company is theirs, not the company’s.
(2) Have internal policies on protection of trade secrets. On an individual level, it helps keep it front of mind with employees. Also, remember from a legal perspective a trade secret is only a trade secret so long as you can show you are doing your best to in fact, you know, keep it a secret! If you don’t have any policies, that’s not helping you convince a court later on that valuable information which left the company was never supposed to leave the company, and the recipient of that information must cease and desist. If you don't have robust policies and security measures in place, query just how valuable were those trade secrets? A court will be skeptical.
(3) Similarly, make sure employees sign a confidentiality and inventions assignment agreement in addition to their employment contract. In particular, make sure consultants (independent contractors) clearly assign over rights to IP they create. Confidentiality agreements need to be especially robust not just on non-disclosure but non-use of information after departure. Companies often suspect at the last minute a valuable departing employee is off to work for a competitor even if they say they are going to spend more time with their family. In those situations there is no way to prevent that person from doing so unless (in China) the non-compete was already negotiated at the time of the original employment contract and a pre-agreed post-termination non-compete monthly payment is going to be made (typically 30% of final monthly salary). In these situations, I often advise clients that, absent a non-compete, they still can look to the confidentiality provisions in the employees contract(s) with the company as a hook to keep them from doing too much harm after departing.
(4) Towards that end, remind the new employer that the old employee has obligations to you. I’ve often found that Legal to Legal discussions go a long way, for example the General Counsel of one company developing a relationship with the General Counsel of a competitor to be able to pick up the phone and call them to personally tell them of the concern on use of confidential information.
(5) Immediately terminate all access to employees especially when an employee is leaving in a distressed situation.
(6) Have an exit interview with departing employees reminding them of their ongoing post-departure obligations to keep company trade secrets confidential.
(7) Have confidentiality agreements where you are allowed to mark things as confidential after the fact (for example summarized in an email within 30 days of disclosure). Remember, most NDAs only work if you actually “mark” information specifically as confidential when you send it across. Unless you are prepared to argue something is confidential by its nature (and your NDA lets you do that), why force yourself to have to make that argument when the time comes?
(8) Yes trade secrets are slippery and hard to enforce (especially when we’re talking about residual knowledge in your employees’ head). But if you don’t have a contract, you don’t even get your day in court. And long before you get to court, both sides understand the moral value of having the process down in writing as to sharing valuable business information. Its the starting point in discussions everywhere, including China.
(9) Divide up IP access split among employees. Follow a strict need to know basis, divide up and silo access across offices as much as possible without overly compromising collaboration. So that no one employee knows the entire universe of code, designs, etc.
(10) The same logic applies to (manufacturing) partners - source from different partners that you find and vet, not ones recommended by your existing partners.
(11) And finally, of course, keep some core IP outside of China if possible.