Audit, Compliance and Risk Blog

Trade Secret Protection in a Digital World

Posted by STP Editorial Team on Tue, Feb 28, 2017

Laptop.jpgWhile the Internet creates great opportunities for commerce and for sharing information around the world, these blessings can be curses to the holders of trade secrets. The Internet poses a challenge for trade secret holders because it is an open network and it provides for immediate and widespread dissemination of information.

Because the Internet is an open network, information that moves through it is not secure. It is relatively easy for a third party to monitor computers and intercept the data they send and receive—information that could be meant to be confidential. In addition, once information theft has occurred, the general lack of data security on the Internet makes it easy to transmit trade secrets or other stolen data quickly and without detection. The following example illustrates this scenario.

Jones works for APEX, a software development company in New Mexico that has recently opened a new office in Florida with Smith as the manager. In order to begin APEX’s operations in Florida, Smith needs a copy of the company’s software development methodology, which APEX has kept confidential and considers a trade secret. One of APEX’s strongest competitors, Omega Software, knows about the company’s recent opening of its new office in Florida.

Smith sends email to Jones asking Jones to send him a compressed copy of the development methodology so that the Florida employees can start working. Jones then emails the methodology to Smith as requested. Unknown to either Smith or Jones, an employee of Omega has developed a computer system to simulate the APEX’s email server in Florida. This system allows Omega to intercept Jones’s email to Smith, copy it, and route it back to Smith without detection. Smith receives the email and does not know that anyone else has received it. Meanwhile, the Omega employee decompresses the methodology and incorporates its most valuable features into Omega’s own procedures. Someone has just stolen trade secrets via the Internet and only the thief is aware of the theft.

In addition, the speed and ease with which information can be distributed on the Internet is a severe danger to trade secret holders. Consider that most websites, even sites that are “hidden,” are accessible by anyone with a connection to the Internet. Within a few seconds, a trade secret posted on a website becomes available to billions of people all over the earth.

While the Internet poses a number of challenges to protecting trade secrets, it is still possible to do so through internal policies and procedures, confidentiality and nondisclosure agreements, noncompetition agreements, and technical methods.

Internal policies and procedures that can be involved in ensuring that trade secrets remain secret might include:

  • Hiring procedures.

  • Limiting access to trade secret information.

  • Training employees on the importance of keeping trade secrets confidential and on how to keep them safe.

  • Termination procedures.

Confidentiality and nondisclosure agreements can be another effective way to help protect trade secrets. In addition, if a company follows a consistent practice of asking all appropriate people to sign these agreements, in the event of litigation, that practice and the existence of many executed confidentiality agreements can serve as evidence that the business has taken reasonable steps to protect its trade secrets.

Some employers attempt to use noncompetition agreements to prevent employees or former employees from working for a competitor; however, because the law has traditionally looked at noncompetition contracts as restraints of trade, such agreements are often unenforceable. Before drafting a noncompetition agreement, a company should check the laws of its state, as the requirements and legality of noncompetition agreements vary by state.

A business can also use technical means, such as encryption and passwords, to protect its trade secrets. Technical methods are fairly simple to use and have the advantage of avoiding potential legal disputes. If one cannot access trade secrets, one cannot disclose them to third parties, competitors, or the general public.

In the high-technology environment of online commerce, theft of trade secrets is a serious problem, so every business should take steps to identify its trade secrets and vigorously protect them.

Specialty Technical Publishers (STP) has just published an entirely new chapter on U.S. Social Media Law in its publication Internet Law: The Complete Guide and provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. These include:

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photo credit: Long Road Photography (formerly Aff) Computer - 068/365 - 9th March 2014 via photopin (license)

Tags: Business & Legal, Internet