Besieged: Confronting Intellectual Property Threats

By Reed, Richard | Risk Management, July 2003 | Go to article overview
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Besieged: Confronting Intellectual Property Threats

Reed, Richard, Risk Management

Intellectual property is an organization's most important asset. It includes its knowledge, its ideas and its identity. Companies that conduct business in today's brand- and image-intensive marketplace must protect their own intellectual property and avoid infringing on the intellectual property assets of others. And with a greater reliance on technology, these exposures intensify. While it is crucial that risk managers take steps to assess and protect their organization against all intellectual property risks, three areas have emerged as hot spots: trade secrets, trademarks and privacy.

Trade Secrets

A trade secret is information of economic value that is not generally known or easily ascertainable. In an ultracompetitive environment with heightened Internet-related security and industrial espiopage risks, companies must catalog trade secrets, train key employees to identify them and protect them from accidental disclosure or theft.

For example, when employees with valuable proprietary information who leave to start their own companies or to work for competitors they take that information with them. Employment contracts can help companies protect their trade secrets in these situations, but employment laws vary by state; fairly restrictive employment contracts may be acceptable in one state and unenforceable in another. Risk managers who understand their state's position can take advantage of all contractual protections available under the law in drafting nondisclosure and noncompete agreements.

Even if the state will not accept aggressive employment contracts, companies can use wage and benefit continuation as tools to protect trade secrets. A manager, at the start of his or her employment, could be asked to sign an agreement that promises a wage continuation package in exchange for protection of the company's trade secrets for a set period of time after he or she leaves.

Companies should also have effective information security policies to protect trade secrets, whether they are on paper, individual computers or a network. With inadequate protection, organizations are vulnerable to attacks that could expose strategic business plans, vendor or customer lists, or pricing information, diluting their value as business assets.

To avoid potential legal liabilities, risk managers must be equally mindful of protecting trade secrets entrusted to them by third parties. Companies that hire employees from competitors should have policies that ensure they are not placed in a position to breach previously signed confidentiality agreements or other trade secret protections.


Trademark law protects an owner's use of a symbol to identify its goods and distinguish them from competing products. A key element in a trademark infringement lawsuit is the claim that the violation will create confusion in the mind of the consumer. Damages also depend on the degree of bad faith.

Litigating a trademark lawsuit can be extremely expensive, but more important, if a company does not prevail, the goodwill associated with that brand may be lost. At the same time, trademark litigation by a large company can potentially crush a small competitor, whether or not the case has merit.

In the United States, trademark protection can derive from federal and state statutes as well as common law. The most secure protection is a mark registered with the U.S. Patent and Trademark Office. Whenever possible, companies should use a professional, commercial searching firm to establish whether other companies--particularly competitors--have already claimed rights to the same or a similar trademark.

Even with strong U.S. protections, the global nature of trademark registration presents companies with significant challenges. Companies that do business on the Internet cannot ignore this issue, even if they do not start out with global aspirations. Having established a brand name in one country does not give a company the right to automatically use that name in another.

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Besieged: Confronting Intellectual Property Threats


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