Protecting Trade Secrets during Employee Migration: What You Don't Know Can Hurt You

By Kovach, Kenneth A.; Pruett, Mark et al. | Labor Law Journal, Summer 2004 | Go to article overview

Protecting Trade Secrets during Employee Migration: What You Don't Know Can Hurt You


Kovach, Kenneth A., Pruett, Mark, Samuels, Linda B., Duvall, Christopher F., Labor Law Journal


On the night of Monday, January 24, 2000, Lt. Gen. Michael Hayden, director of the U.S. National security Agency-the world's most technologically advanced spy agency, with 30,000 employees-learned that the entire computer network at his agency's headquarters had broken down. Data was still arriving in enormous quantities, but it could not be used or analyzed. The agency was, as the Washington Post later reported, "brain-dead". Hayden informed his superiors and, by Thursday, with the system still non-functional, delivered a presentation via closed-circuit television to his employees: "We are the keeper of the nation's secrets. If word of this gets out, we significantly increase the likelihood that Americans will get hurt. Those who would intend our nation and our citizens harm will be emboldened. So this is not the back half of a sentence tonight that begins, 'Honey, you won't believe what happened to me at work.' This is secret. It does not leave the building." By Saturday afternoon, however, a television network had learned about the disaster and was asking for the story pabout the still only partially functional network. Hayden discovered that the leak had come from the Pentagon, not from the NSA. As he later told his employees, "You held the line. You kept it secret while it had to be secret."1

TRADE SECRECY-WHAT'S THE PROBLEM!

The problem is that employees move from firm to firm, carrying with them trade secrets and other intellectual property. Not all former employees can keep a secret. What can a firm do to avoid giving competitors its specialized knowledge? Recent studies indicate that roughly two-thirds of the more than thirty significant cases of trade secret violation brought to U.S. courts under the provisions of the 1996 Economic Espionage Act were due to wrongdoing by insiders, not direct theft by outsiders. We suggest that the useful course of action lies in Lord Acton's famous quote, "Everything secret degenerates.. .nothing is safe that does not show how it can bear discussion and publicity."

Firms participating in a knowledge-based economy are sensitive to the issue of trade secrecy. The issue is particularly prominent in the area of so-called "high" technology, which encompasses a range of knowledge-focused activities, including telecommunications and information technology hardware, software, and services; biotechnology; advanced manufacturing technology; and advanced product technologies. Knowing how to secure the economic benefits of those innovations is a central concern for commercialization.2

The NSA network failure, though governmental, suggests two issues central to corporate concerns about sensitive information. First, intellectual property is a crucial element of competitive success. second, although there are important technological and organizational mechanisms to protect information, the foundation of protection for an organization's intellectual assets rests on the twin cornerstones of two organizational values-the vigilance and loyalty of employees. This article focuses on the impact of employee migration to new employers on the former employer's intellectual property and on ways firms can improve its protection. We argue that the more open a firm is about its trade secret policies and what is expected from employees regarding those trade secrets, the greater the chances are that both current and former employees will act in the firm's best interest.

We examine the trade secret violation problems associated with the desire of migrating employees to use their knowledge in their new position and suggest options available to firms to solve these conflicts. Taking the perspective of the general manager, we begin by discussing the importance of the secrecy issue and the competitive significance of knowledge, and provide brief examples of recent trade secret disputes in the high-technology arena. The second section provides a legal perspective on applicable law, definitions of trade secrets, and the typical types of violations found. …

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