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?

The Hot “New” Value of Copyrights for SaaS and other Software Apps

What’s the most cost-effective, practical way to protect intellectual property for your cool mobile app or your SaaS e-business?   The answer just changed as of March 16, 2013.   

Since this date, getting patent protection became harder.  Now, the first inventor to file a patent application will be recognized as the inventor of this U.S. patent, and the “first to invent” priority rule will no longer apply under the America Invents Act, enacted September 16, 2011.  A number of other changes became effective as well:  “prior art” now includes foreign publications.  In short, getting a U.S. patent will require more vigilance and investment in the patenting process.  And enforcing/defending a patent could still cost over $1.0 million or more. 

So is now the right time for a resurgence of copyright applications for software to protect intellectual property rights?   Yes, perhaps.  While copyrights cannot replace patents as a legal monopoly, for the smaller business or entrepreneur with limited funding and wanting a quick certification of ownership, copyright offers a simple, cost-effective solution. 

Unlike patents (which protect innovative ideas), copyrights only protect the particular expression of an idea, such as a story, or a software application.  There is some room for additional copyright protection against plagiarized “derivative” works, but not much, since the author of the “derivative” work need only show a minimal level of originality to defeat a claim of plagiarism. 

But, copyrights still have a lot of value.  A copyright owner can prevent others from copying and marketing clone software or even a clone product catalog.  You don’t need to register to own the copyright, but registration helps with enforcement.  The owner of a registered U.S. copyright can sue for damages and collect attorney’s fees.  (Owners of trade secrets can only sue for damages and normally cannot collect attorneys’ fees).  And you can register the copyright with U.S. customs authorities to prevent the importation of infringing products.  All this is a powerful incentive for preventing knock-offs.  The U.S. online copyright filing fee is only $35 per basic claim of authorship.

But, done wrong, registering a copyright can risk losing trade secret and/or patent rights.  If you deposit a copy of your source code for the app with the U.S. Copyright Office, it risks making public your confidential secret sauce, which would normally defeat trade secrecy and could endanger an unfiled patent application.  Done right, however, your copyright registration can avoid that risk by careful planning and limited disclosure of the secret sauce. 

Your copyright registration program should fit within a more holistic overall program to protect intellectual property including trade secrets.  The copyright deposit materials could be machine-readable object code, so that it becomes indecipherable without an operating system and a computer language.  Or the deposit materials could be fractions of a printout of the code.  All you need to do is prove that it compiles, and do it in a manner that prevents anyone from decoding.   Special rules apply, though, for apps that are derivative works or include some open-source components.

For low-cost and high legal value, copyright registration may become the method of choice for entrepreneurs and small app developers.   Patents should still be pursued as a defensive measure, but copyrights can be an important part of the plan.