Page 6 - Intellectual Property

S6 | MONDAY, APRIL 4, 2016 | Intellectual Property | NYLJ.COM

By Bradley A. Hoppe

And Heath J. Szymczak

Head in the Cloud: The Insider Threat

To a Company’s Trade Secrets

After months of searching, a client inal- employees recently surveyed have admit-

ly hires its “dream candidate.” The ted to taking information from their former
client welcomes the new employee employer and approximately 40 percent of
with open arms and wants to provide all those same employees acknowledged that
the resources needed for the employee they intended to use that information on
to succeed, entrusting the employee with behalf of their new employer.3
access to its conidential information. Unbe- Despite these statistics and the signii-
knownst to the client, however, the new cant threat posed by employee insiders,
employee merely views the position as a companies continue to grant employees
stepping stone to something bigger. From nearly unfettered access to their trade

day one on the job, he continues his job secret information without any—let alone
search, secretly reaching out to some of adequate—safeguards in place, often with
your client’s biggest competitors (who also disastrous and irreparable consequences to
view him as a “dream candidate” partly their business. This article will provide not
because of his position with your client). only a general overview of the law of trade
A few months later, the honeymoon comes secrets, but also practical steps clients can
to an abrupt end when the employee puts take to better protect their information
in his notice that he is leaving for a new from the insider threat, as well as illustra-
position with a competitor. The real shock tive case examples of the consequences

is yet to come: when your client learns of failing to act.
that its trusted employee has uploaded
some of its most highly conidential com- What Is a Trade Secret?
petitive information (e.g., customer lists,
pricing information, customer require- Unlike most other states, New York has
ments, diagrams, specifications, manu- not adopted any form of the Uniform Trade
facturing processes and formulae) to a Secret Act, but instead relies on the follow-
thumb drive, personal email or, even worse, ing common law standard, as set forth in

the cloud.
the Restatement of Torts §757, comment b:
This nightmare hypothetical is all too A trade secret is any formula, pattern,
common across all industries, yet many device or compilation of information
companies remain woefully unprepared. which is used in one’s business, and
Perhaps as the result of the exposure by the which gives him an opportunity to
media to the cybersecurity threats posed by obtain an advantage over competitors
outsiders, companies often overlook (and, who do not know or use it. In decid-
in many cases, completely ignore) the more ing a trade secret claim several factors
immediate and substantial threats posed
should be considered: (1) the extent to
by insiders, namely their own employees. which the information is known outside
Recent surveys of companies and their of the business; (2) the extent to which
employees and analyses of trade secret it is known by employees and others
cases in federal and state courts reveal involved in the business; (3) the extent
the following startling facts: (1) trade secret of measures taken by the business
thefts are on the rise, with the number of to guard the secrecy of the information;
cases involving trade secret theft doubling (4) the value of the information to the
between the years 1988 and 1995, doubling
again between the years 1995 to 2004, and, business and its competitors; (5) the
amount of effort or money expended
at the current rate, likely doubling again by by the business in developing the
the year 2017;1 (2) more than 85 percent information; (6) the ease or dificulty
of all trade secret thefts are believed to with which the information could be
be perpetrated by an employee or busi- properly acquired or duplicated by
ness partner;2 and (3) more than half of
others.4

Simply put, a trade secret can be any-
thing which gives a company a competi-
BRADLEY A. HOPPE and HEATH J. SZYMCZAK are
members of Bond, Schoeneck & King’s litigation tive advantage and, most importantly, is
practice group. The authors helped develop the kept secret and conidential. Trade secret
Bond Trade Secret Protection Audit, which system- information can take many forms and, so
atically reviews a company’s agreements, policies long as it meets the above standard, can
and protocols, as well as their physical and electronic include product designs, formulae, manufac-
security measures.
turing processes, inancial data, customer