Tuesday, July 21, 2015

Protecting Company Intellectual Property: Simple Moves against In-house Theft of Trade Secrets and IP

Intellectual property (“IP”) is the elephant in the valuation of a company at sale or financing, but can be undervalued on the balance sheet.  Major enterprises have compliance officers, legal departments and major law firms and tech consultants to help secure their intellectual property?  What about small to mid-sized enterprises or small multinationals?  

Leadership.   First, appoint a person responsible for managing intellectual property.  This usually requires someone with a broad overview of the company’s business strategies, methodologies and competitive positioning.   In a smaller company, this could be the CEO or a deputy. 

Training and Managing Your Employees and Value Chain.   Every person in the company’s “value chain” should be trained in the basics of intellectual property.   These include (1) the differences between a trade secret and a patent, (2) the limited but potentially valuable scope of protection of copyrights, (3) the value of trademarks and related goodwill and how such value can be protected or lost, and (4) the rules defining who owns intellectual property in the absence of a contract.  The “value chain” includes the company’s employees and contractors, and employees of corporate contractors.  

Adopting and Highlighting Policies to Your Employees and Value Chain. 
   Written policies and procedures on IP protection can serve as references for education, swords against wrongdoers and shields against competitors and other adversaries.   Such policies can be included in employment contracts, employee handbooks, sales manuals (to guide sales personnel), template contracts, joint venture agreements, licenses, IP assignment agreements, website “Terms of Use” and other handy everyday documents.    Without good policies and procedures, the company’s shareholder value risks dilution.

Data Security.   The Healthcare industry lives under federal regulations governing logical, administrative, legal and technological barriers to unauthorized data access.   Your business should apply the wisdom of such practical protections.

Transition Management.
    Change management refers to adaptive behaviors.   Transition management relates to a company’s procedures for transitioning relationships (onboarding or termination) with individual employees, contractors, suppliers and others in the value chain.   Checklists, coordination among IT and HR departments and Sales can help avoid or mitigate litigation costs.  Make sure your trade secrets and other IP do not leave the company when the individuals “in the know” leave the company.

IP Risk Prioritization.   Sure, every person in a business has some knowledge of trade secrets that could help a competitor.  But, as in George Orwell’s Animal Farm, certain people are more equal than others, by reason of having broader scope and deeper knowledge of trade secrets.  The Board needs to ensure surveillance and even forensic analysis in relation to high-risk positions such as heads of R&D, scientists, product developers and new business developers. 

Business Modeling in Outsourcing, Licensing and Joint Ventures. 
In the early days of outsourcing, companies gladly gave up their employees to the external service provider without charging a headhunter fee or a training fee, and without getting the right to re-hire them, or to get some knowledge management tool to capture the company’s implicit knowledge so it can be restored upon termination of the outsourcing.   The same applied to joint ventures.   This was pretty astounding.   Over time, business models have evolved to incorporate knowledge management.   When outsourcing a process, think about how to keep some residual knowledge for effective management of service providers and integration of the supply chain.   See www.outsourcing-law.com for more.

Spoliation of Evidence.
   If business owners and managers have learned anything in the last 10 years, it’s “e-discovery” and “spoliation of evidence.”   Policies and procedures should be adopted to ensure against insider theft of trade secrets and spoliation of evidence of theft.   There are software tools and IT procedures for network administration that can help manage this increasingly costly risk to IP owned by or licensed to the company.  When a high-profile IP person leaves, the company should conduct a quick forensic review.  Evidence lost when hard drives are overwritten can be irreplaceable.

Legal Audit.   When you suspect a loss of IP, call the lawyers.  An internal investigation supervised by lawyers is entitled to confidentiality protections in court under the attorney-client privilege and the attorney work-product doctrine.  Put the lawyer in charge as Maestro, and let the IT, HR, security, forensic analysts and other joint the orchestra.   Even if you don’t suspect any problems, attorneys with Maestro batons can elicit better-protected music for your IP.   And consider legal audits on a regular basis, not just before the time you sign up for an intellectual property rights insurance policy.

Are we feeling innovative yet?

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