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Minding the Store: Addressing IP Theft in the Workplace, Contributed by Tim St.Clair, Turner Padget Graham & Laney, P.A.

Tuesday, August 2, 2011

By Tim St.Clair, Turner Padget Graham & Laney, P.A.


"Thieves respect property. They merely wish the property to become their property that they may more perfectly respect it." – G. K. Chesterton

Locking the CEO's office door and chaining the front gate at night may once have been effective to protect business assets. Those days are gone.

Only a few decades ago, the majority of business assets were tangible property — buildings, equipment, tools, etc. Mechanical security was enough to insure that they remained the assets of the business. Within the span of our own careers, however, that accounting has flipped. Today, most corporate assets are intangible, the products of creative minds — information, designs, brands, know-how, and the like. Mechanical safeguarding of such assets is ineffective.

And in this age of digital information, the difficulties in protecting business assets is higher: employees from the lowest rungs to the highest officers all have computers linked to the business's computer network. A business's tools no longer leave the premises in a lunchbox or briefcase, they leave on a tiny thumb drive. And the costs are staggering: regardless of the reference, all authorities agree that the yearly burden to businesses from stolen intellectual property is measured in at least tens of billions of dollars.

Two cases illustrate the struggle, but scores more are reported. In Bro-Tech Corp. v. Termax, Inc.1, the plaintiff was described as having

guarded information on its manufacturing processes and product formulations, as well as certain customer and sales information. [Plaintiff] employed various security measures with respect to its physical facilities and its computerized data, and maintained internal policies and procedures around confidential information. Among other measures, . . . the company's computerized data was stored on a main server, and employee access to such data was limited in accordance with job purview.2


Nevertheless, former employees allegedly took formula and process information from those computer records and delivered them by e-mail to their new employer, who promptly became plaintiff's competitor.

Similarly, in University Sports Publications Co. v. Playmakers Media Co.3, the plaintiff's former employees allegedly swiped information from the plaintiff's corporate computer database, a database that took hundreds of man-hours to compile. That information was described as:

[A] valuable snapshot of the advertising purchasing habits of potential corporate clients by cataloguing such information as the date, location, cost, and size of a corporation's prior purchases and the names of the corporate employees who authorized the purchases.4


As might be expected, the information was put to use by a competitor against the plaintiff.

This article will address the challenges of protecting business intellectual property, of minding the modern-day store.

The Basics — Identifying Intellectual Property

The law's protection of intellectual property ("IP") starts with recognition. The legal interests that the law considers to be IP reside in four areas: patents, trademarks, copyrights, and trade secrets.


  • A patent may be secured for a new, non-obvious, and useful apparatus, composition of matter, or process. United States patent applications must be filed in the names of the inventors, but may be assigned.

  • A trademark is a source-identifier. Use of a particular mark communicates to the consumer a particular provider as the source of a particular product or service. Naturally, trademark rights are held by the source that is using the mark.

  • Copyright arises from an original work of authorship fixed in a tangible medium. Copyright is owned by the author or, in the case of a work for hire, by the employer.

  • A trade secret is information that derives independent economic value from its secrecy. A trade secret is owned by whoever controls the information and maintains its secrecy.


Self-Insured?

In some regards, intellectual property rights are "self-insured." A pirate might steal an invention and file for patent protection, but he would not, in truth, be the inventor. Accordingly, any patent issued to the pirate ought not withstand challenge in litigation. Trademarks can be infringed and their value thereby damaged but, by their nature as source-identifiers, their functionality is difficult to steal outright. Considering the uniqueness of works of authorship, fraudulent claims of original authorship do not often succeed in copyright. In short, IP is not completely fungible.

The law gives many tools for recovery of pilfered intellectual property. Perhaps reflecting the seriousness of such piracy, a review of the cases reveals multiple different causes of action that have been aimed at such situations: infringement, conversion, misappropriation, unfair competition, breach of covenant not to compete, breach of confidentiality agreement, civil conspiracy, breach of duty of loyalty, unjust enrichment, tortuous interference with existing and/or prospective business relationship, the federal Racketeer Influenced and Corrupt Organizations Act, and the federal Computer Fraud and Abuse Act.

But use of that law is not without challenges for the business. To qualify information as a trade secret, for example, a business must prove the reasonable efforts taken to preserve itssecrecy, a fact often vigorously challenged by the accused pirate. With others of these causes of action, specific damage resulting from the IP theft must be shown, which is often a difficult hurdle. Similarly, sometimes the employer must show that an employee who misappropriated corporate computer information did not have authority to access the stolen information; if access had been authorized, it is not enough to show that the information had been accessed for purposes inconsistent with the business's interests.

More practically, litigation is very expensive. Surveys suggest that copyright litigation costs over $100,000 to pursue, trademark litigation is more expensive still, and patent litigation can cost over $1 million.

In summary, while purloined IP might be easy to trace, the transactional costs of doing so can be quite high.

Of Barn Doors and Horses

While litigation may be necessary in some instances to recover misappropriated IP, precautions ahead of time may often obviate its necessity. Consider the following steps to "mind the store."

— Take Inventory


If you don't know you have it, you can't control it. Identification of a business's intellectual property is the purpose of an IP audit.

IP audits take many forms. In mergers and acquisitions, for example, the IP audit may be quite extensive and laborious. For purposes of preventing IP theft in the workplace, a simpler audit may suffice. The goal of such an IP audit is to identify existing and potential intellectual property and assess the relative importance of the IP to the business. The audit should address all the forms of IP identified in this article and, as to each, it should assess its impact upon the business. What protection to provide to IP depends on individual circumstances, largely dictated by the value of the IP to the business and the susceptibility of the IP to theft — how much it would hurt the business to lose the IP and what would be the cost to replace it.

Potential business IP includes the following:


  • strategic plans

  • research and development efforts

  • inventor notebooks

  • design drawings

  • formulas

  • prototypes

  • vendor information

  • manufacturing information

  • customer lists

  • pricing information

  • computer software


— Lock Up the Inventory


Consider implementing a policy for timely filing for IP protection. A departed employee cannot successfully file for patent protection for a stolen invention if his former employer has beaten him to the U.S. Patent and Trademark Office ("USPTO"). In the United States, inventors enjoy a one-year grace period, from the first commercial disclosure of an invention, to file a patent application. But there is no requirement that the year be spent. If a new product or process is finalized and is recognized to be of value to the business, consider filing for patent protection sooner rather than later. The early filing date, itself, may dissuade a would-be thief.

Common law trademark rights arise upon usage. Federal registration, though, offers distinct additional benefits, such as access to the federal courts. A federal registration application can be filed as soon as use in commerce begins in the United States. Moreover, if a bona fide intent to use exists, an intent-to-use application can be filed with the USPTO even in advance of use in commerce. As with patent applications, an early filing date, while not dispositive of all time issues, goes a long way toward trumping later efforts by a villain.

Copyright itself arises as soon as the original work of authorship is fixed in a tangible medium. Restated, as soon as the engineering drawings are finished or as soon as the computer code is written, copyright arises and is then registrable with the Copyright Office. A deposit of the work is required with the application, but, of all registrable IP, copyright is the simplest and least expensive. There is no requirement that the work be sold or even used in the business; the only requirements are that the work be, at least in part, original, be completed, and be fixed in a tangible medium.5

Trade secrets cannot be registered, but of all IP they especially must be "locked up" — unless they are the subject of efforts to maintain secrecy, the law will not protect them. Begin with the end in mind: if put to the proof in litigation, what evidence could be offered to show that a particular secret was guarded as well as it should be, considering its value? Consider controlling access to areas of the business in which trade secrets can be learned, using employee identification badges, and providing locked storage of sensitive materials. High-risk trade secret targets include research and development information, customer lists, financial data, and strategic plans — all should be the subject of the most stringent protections.

— Create a Perception of Vigilance


Corporate policies and procedures likewise can be effective in creating an internal business climate that protects intellectual property. Depending upon the individual business, the following should be considered:


  • Employee non-competition agreements

  • Employee confidentiality agreements or non-disclosure agreements

  • Employee agreements not to disclose proprietary information from past employment

  • "Blanket" assignments of all copyrights, trademarks, and inventions devised by employees during employment

  • Inventor notebooks for everyone involved in research and development, with protocols for use and second-party control

  • Desktop monitoring software that records everything done on company computers (including websites visited and e-mails sent)

  • USB port anti-data theft software

  • Marking company IP with patent numbers, trademark symbols (® or ™), and copyright symbols (©)

  • Employee "exit interviews" to ensure return of company documents and to remind of obligation not to use confidential information

  • Imaging employee hard drives upon departure of "red flag" employees


Conclusion

Thirty years ago, screw drivers and ink pens found their way from supply rooms to business parking lots and then to employee homes. Today, in much the same way, workplace IP will be pilfered.

Intellectual property is valuable because of the creativity required to develop it. Information provides value from the control of its use. IP theft in the workplace resides at the intersection of those two concepts. As IP's share of the corporate asset portfolio continues to increase, so too must businesses' efforts to protect it.

Tim St.Clair is a shareholder with Turner Padget Graham & Laney, P.A. (Greenville, SC), focusing his practice on intellectual property litigation. He also prosecutes patent applications in a variety of technologies, as well as trademark and copyright registration applications, for both corporations and individuals. He can be reached at tstclair@turnerpadget.com or 864-552-4642.

Disclaimer

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