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Trade secrets give tech companies a competitive edge in a rapidly evolving landscape, where success depends on the ability to innovate. The unauthorized acquisition, use, or disclosure of trade secrets can result in significant loss and disruption, making it essential for organizations to have robust safeguards in place to protect their trade secrets. We explore clear steps organizations can take to manage and mitigate risks with a focus on trade secret identification and the role of employees in trade secret protection.
Mission Critical: Protecting Tech Trade Secrets
Fast-paced developments
The technology sector continues to experience huge transformation with emerging technologies and advancements in AI. Companies are investing heavily in developing capabilities, and new services and products. Rapid innovation and desire to be first to market, has caused trade secrets to become an increasingly preferred method of protection over other types of intellectual property regimes, such as applying for a patent, which can be costly and raise complex timing considerations. Trade secrets can protect algorithms, processes, datasets, customer lists, and more. The trade secrets of companies at the forefront of AI and other tech innovation are highly valuable.
Expanding threat landscape
Threat actors are leveraging tech advancements to steal vast amounts of company information through more sophisticated and efficient attacks. Heightened internet usage increases hacking risks from competitors, foreign governments and hacktivist groups.
AI developments currently require high computational power, concentrating progress in large tech companies. However, the competitor landscape is changing, with many start-ups and established companies building applications within the AI technology stack, alongside new players entering the AI frontier race. The demand for tech talent with the skills to drive innovation is at all-time high, making trade secret protection critical.
In the past few years, tech companies have also been especially susceptible to the public disclosure of confidential internal documents by employee activists motivated by non-monetary factors.
Legal remedies
Legal frameworks for protecting trade secrets have become more robust and varied across jurisdictions. Injunctive relief (to prevent use of trade secrets and reclaim them) is an essential tool in trade secret breach cases. Victims may also pursue financial remedies, such as damages.
Organizations should lay the groundwork to maximize their options in the event of breach. Penalties for trade secret theft include fines and imprisonment for criminal offences, and even economic sanctions. These penalties broaden the options available to victims, provide an avenue that avoids some of the practicalities of enforcement from a business point of view, and serve as a powerful deterrent.
One factor making effective action against employee trade secret theft more difficult is that employees increasingly use personal devices or personal messaging apps to capture or transmit work-related information; companies’ ability to access employees’ personal devices and communications through personal messaging apps is limited.
Jonathan Isaacs, Head of China Employment Practice, Hong Kong
As tech firms compete to attract and retain tech talent while adjusting their workforces for future business growth, employee movement has increased, making the protection of trade secrets from competitors more crucial than ever. Baker McKenzie's international depth in handling these complex competitor trade secret disputes around the globe allow us to better advise our clients and allow them to leverage our worldwide industry experience in this field.Back to top of page
Bradford Newman, Chair of North America Trade Secrets Practice, Palo Alto
Safeguard Your Tech Trade Secrets
Protecting tech trade secrets is crucial as technology advances and threats increase. Proactive measures are essential to safeguard trade secrets and mitigate the impact of trade secret compromise, helping tech companies to both protect trade secrets and maintain a competitive edge.
Define and inventory your trade secrets
Ensure your trade secret policies define what constitutes a trade secret, as well as procedures for protecting them. It's important to distinguish between information that’s publicly available and that which is proprietary and conduct periodic reviews of trade secrets inventory. This helps in identifying any potential vulnerabilities and taking corrective actions. However, ensure the inventory does not unduly enhance risks by containing confidential information not required for the inventory’s purposes.
Develop and communicate robust protection policies
A recent report claimed 55% of employees were using AI tools without receiving training regarding its risks, whilst 38% admitted to sharing sensitive work information with AI without their employer knowing about it.1
Procedures for protecting trade secrets should be clearly articulated and communicated within the organization; these should include marking confidential information, limiting access, and regularly reviewing which employees need to know the trade secret information.
Controls that support the commercial value derived from keeping the information a secret and taking reasonable measures to keep the information a secret are fundamental. Organizations should ensure protection policies meet the specific legal requirements in the jurisdictions where the trade secrets will be maintained and disclosed.
Put contractual and organizational safeguards in place
Clear contractual measures are essential to supplement remedies available under trade secret laws. Require employees, contractors, and business partners to sign Non-Disclosure Agreements (NDAs) to legally bind them to confidence and provide regular training on confidentiality obligations. Treat employees as gatekeepers. Fit-for-purpose training and employment contracts, including confidentiality and non-compete agreements, should clearly outline the obligations of employees and the rights of the company regarding confidential information and intellectual property.
Increased antitrust scrutiny on non-competes has made it more challenging to protect trade secrets. Organizations should ensure frameworks to protect confidential information are comprehensive and non-competes should be regularly reviewed to ensure they are compliant with current laws. Ensure that contracts with relevant third parties have favourable dispute resolution/governing law and jurisdiction clauses, in the event action needed to be taken.
Utilize robust physical and digital security measures
Digital security is key — restrict access to trade secrets and use secure communication channels and access controls, authentication mechanisms, and data loss prevention tools to monitor for, prevent, and track unauthorized access. Regularly update security protocols to prevent unauthorized access.
Bear in mind the importance of using properly vetted AI systems and ensuring governance/oversight over the tools that employees are using. As AI tools capture and store data and use it to train their models, developers may also assert IP ownership over outputs, while third parties may also try to use AI tools to uncover trade secrets.
Manage employee turnover
Both the welcome and the departure of employees can present risk in terms of being exposed to another company’s trade secrets or making your own trade secrets vulnerable. Implementing robust exit procedures and monitoring mechanisms can help mitigate the risk of valuable information walking out the door.
Ensure that monitoring and tracking tools are compliant with privacy laws so that they can be relied upon. Meanwhile, confirm that departing employees have returned devices and any employer materials and understand their ongoing obligations regarding trade secrets, signing confirmatory NDAs if appropriate.
Be prepared and take swift action in the event of breach
Have a clear action plan in place for responding to an actual, or suspected, theft of trade secrets. This includes identifying the breach, containing the damage, and taking legal action if necessary. Plans should be jurisdiction specific.
Acting quickly to secure evidence and enforce your rights can mitigate the impact and prevent further misuse of your trade secrets. Trade secret breaches might also trigger legal and contractual obligations around cybersecurity, data, etc, depending on the information concerned and circumstances. Early engagement of experienced advisers is essential to ensuring a rapid response and comprehensive strategy.
Companies facing modern employee activists, where tactics such as the theft and dissemination of confidential corporate material are used to gain credibility, should employ a new data-protection approach.2
The same actions a business should take to mitigate the exposure of trade secrets in the first place will also help if they need to enforce their trade secret rights (though careful planning is needed to align both preventative and reactive measures).
Robin Samuel, Head of US Labor & Employment practice, Los Angeles
Employees are a first line of defence when it comes to protecting trade secrets. As well as implementing robust contractual safeguards, it is essential for organizations to foster a culture of confidentiality and provide regular training to ensure that staff understand the importance of safeguarding sensitive information..
Kim Sartin, UK Employment & Compensation, Tech lead, London
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