Magazine article Personnel Journal

HR Takes Steps to Protect Trade Secrets

Magazine article Personnel Journal

HR Takes Steps to Protect Trade Secrets

Article excerpt

When employee Eric Francis quit his job in 1990, MAI Systems paid little attention. Francis was one of several customer-service representatives at the Irvine, California-based computer company, and turnover in the department wasn't unusual. Following an uneventful exit interview with human resources officials, Francis left to start a job with MAI rival, Peak Computer, also in Irvine.

It might have ended there. But when Francis' new employer began taking away MAI's business, management took notice. After some checking, MAI learned that Francis was using inside knowledge of MAI's customer lists to make sales. Company officials also suspected he might be relying on MAI's customer specification and repair manuals. Could he do that? Not according to the company's legal department.

In March 1992, MAI sued Francis for theft of trade secrets. The company alleged that the ex-employee took manuals and other technical information that he knew to be proprietary. Francis claimed that the company routinely had left such information with customers and that he only was using knowledge about the industry. MAI ultimately got a temporary restraining order to stop him from selling to its clients, but only after losing 80 customers and spending thousands of dollars in legal fees. "This was clearly a violation that cost us," says Elliott Stein, associate general counsel for MAI.

The plight of MAI isn't an isolated incident--nor is it one confined to the computer business or other high-tech industries. In today's hyper-competitive, copycat global economy, protecting such trade secrets as formulas, processes, customer lists, ideas developed at work and other intellectual property (see glossary of terms, page 100) has become a major concern for employers.

There are many reasons why. For one, today's work force is mobile. On top of that, U.S. firms face increasingly competitive pressures as the recession lingers and budgets remain tight. At the same time, corporate downsizing and cutbacks of the past three years have unleashed a flock of professionals back into the job market. In many cases, experienced employees have had little choice but to go to work for a competitor or begin consulting in their field. If they haven't been educated about what are protected trade secrets (and sometimes even if they have), it isn't unusual to find them using proprietary knowledge or information from their former jobs. It's hard to put something as intangible as a formula in someone's head under lock and key. "The question is, what do you do with people who don't spend an entire career with your company?" says Toni Simonetti, a communications manager for Detroit-based General Motors Co., a victim in the trade-secrets war. "How much of what they know is proprietary? How much of what's in a person's head belongs to them? I don't think you'll find an easy answer."

Despite the difficulty, a growing number of employers--from hairstyling salons to manufacturing firms, stock brokerages to bakeries--are looking for new ways to protect what gives them an advantage, which is the possession and use of knowledge. Traditionally, this responsibility has fallen to corporate legal departments or outside attorneys. However, a handful of organizations have realized that safeguarding trade secrets goes beyond stopgap legal measures.

"It's starting to be recognized as a classic HR problem," says Mike Garelick, head of the compensation and human resources practice at consulting firm Towers Perrin in Chicago. He believes that HR managers can play a significant role in the protection of intellectual property. Why? The issue of safeguarding trade secrets is, at heart, a personnel issue, he maintains. "Competitive advantage is built around knowledge, and knowledge is generated by people. It's important to manage not only the knowledge, but also the people who are creating it," he says.

In many ways the role HR departments can play in a corporate campaign to eliminate trade-secret theft is similar to HR's involvement with wrongful termination cases. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.