Companies sometimes discover warning signs or clear activity of trade secret theft but do not know how to deal with the issue right away.  Whether it is a current employee who remotely accesses company trade secret information while on vacation, or a departing employee who conveniently failed to return a company laptop, that company may be heading toward eventual trade secret litigation. But the immediate path forward seems unclear and presents so many options of what to do. Because the hours and days after discovery of a potential trade secret theft are extremely important, we suggest a simple set of best practices for responding to that potential trade secret theft: 1) understand the issue, 2) contain the issue, 3) exhaust the issue, and 4) consider bringing the issue to court.

1.) Understand the Issue

The first thing to do after identifying a potential trade secret issue is to understand the issue as best as possible as quickly as possible. To deal with the competing interests of speed and completeness of information, first analyze readily available information. The time to acquire information that is not readily available in many cases outweighs the benefit of that information.  In other words, if the information is not readily available, consider the cost-benefit of tracking it down.

Conduct an initial review of the issue and think of the “who, what, when, where, why, how” kinds of inquiries:

  • Identify potential actors.
  • Identify the type of trade secret information at issue.
  • Identify how valuable the trade secret information is to the company.
  • Identify where that trade secret information was located.
  • Identify who recently accessed the trade secret information.
  • Identify how the trade secret information was accessed.
  • Consider why someone would want to access the trade secret information, including for legitimate purposes.  Think of reasonable explanations for the access.

2.) Contain the Issue

After gaining a reasonably sufficient understanding of the scope of the issue, the next step is to contain the issue.  This largely involves locking down potential evidence:

  • Issue a document hold to avoid auto-delete of potentially relevant documents and e-mails.
  • Forensically image relevant company devices. This includes laptops, flash drives, cell phones, cloud storage, and other storage devices. Anything that could conceivably house information is a potential source, including social media.
  • Collect signed agreements between relevant employees and the company to make sure they are in order and completed.
  • Collect company policies.
  • Collect any relevant employee’s acknowledgement of company policies.

Collecting metadata is almost as important as collecting the documents themselves. Metadata is king in trade secret theft cases. It provides valuable information such as when certain files were last accessed, by whom the files were last accessed, for what purpose the files were accessed, whether the files were copied, whether the files were transferred outside of the company, and other related information.

It is best to have a protocol already in place before a trade secret theft issue arises. It is much easier to execute a predefined protocol than to attempt to collect information on the fly, especially if that information is not well organized.

3.) Exhaust the Issue

Now it is time to dig into the issue and understand the scope of the potential trade secret theft. Initial review of the issue in Step 1 should have identified certain individuals to interview. Employee interviews should include traditional fact-finding questions, such as the following:

  • What did the employee work on and know about the trade secret information?
  • Did the employee have legitimate access to the trade secret information?
  • Does the employee thinks there is a problem or is the employee is confident that there is not a problem?

Additionally, for departing employees, it is important to ask why the employee is leaving, what company the employee is going to and the job responsibilities of the employee at the new company, and what the employee is taking to the new company.

Employee interviews present an interesting legal issue regarding counsel’s scope of representation of the employee and company. Therefore, consider whether to give employees a so-called Upjohn warning, where counsel explains to the employee that she or he represents the company and not the employee.

There are pros and cons of giving an Upjohn warning. Giving a warning will avoid later issues regarding disqualification of counsel if the employee believes she or he is represented by company counsel and creates an attorney client relationship. A warning will also avoid the potential of violation of an employee’s expectation of privacy in the interview. But an Upjohn warning may also have a chilling effect on the interview.

Whether or not to give an Upjohn warning is largely dependent on the unique facts of each case and therefore is best left to the good judgment of counsel.

4.) Consider Bringing the Issue to Court

After exhausting the issue, the next step is to decide whether or not the trade secret theft warrants legal action.  Always consider how litigation will affect the company’s business. A trade secret theft lawsuit like any lawsuit can take on a life of its own within the company. Some employees will be taken away from their day-to-day work to assist with the litigation, sometimes for substantial periods. Customer relationships can be strained and in some cases customers can be pulled into the case in discovery. Litigation can also be a time and money drag on the business itself.

Another consideration is the necessity of immediate relief.  A court can grant immediate relief through a temporary restraining order (TRO) or preliminary injunction if the company has, among other things:

  • A likelihood of success on the merits of the trade secret theft claim.
  • Irreparable harm without the immediate relief of a TRO or preliminary injunction.

A final consideration is whether to seek government assistance in a criminal action. Whether a trade secret theft case is right for a criminal case depends on several factors, including:

  • The magnitude of the theft and how sensitive is the information in question.
  • The means by which the trade secrets were stolen.
  • Whether the defendant is a foreign government.
  • Whether there are national interests in the theft or the stolen trade secrets.

While there are upsides to criminal action, including that the government has more avenues of discovery, the downsides to criminal action involve loss of control of the proceedings.

In sum, there a number of different things to do after a warning sign or clear activity of trade secret theft. But the basic steps are to understand the issue, contain the issue, exhaust the issue, and consider bringing the issue to court. Developing a protocol commensurate with these four steps will help ensure success in stopping or remedying any trade secret theft in the future.

[A portion of the notes contained in the post arose from the IPO’s March 9 webinar, “First Response to Trade Secret Theft: Best Practices for Answering an Alarm.”]