CD: To what extent has the risk to corporate trade secrets increased for companies in recent years? What factors – such as the use of third party vendors, joint ventures and employee mobility – represent the highest risks?

Marks: There has been a substantial uptick in newly-filed trade secret lawsuits over the past few years. One of the main underlying reasons relates to employee mobility. Globalisation has flattened the world, competition has intensified and people are changing jobs more frequently today than ever before. When people switch jobs, information travels with them. Some of that information may be sensitive and proprietary. Many trade secret cases originate when a group of employees, such as a sales team, leaves one company to go to a competitor. The risk to companies’ trade secrets has also increased as companies today regularly enter into collaborative relationships – joint venture, contract manufacturing and outsourcing arrangements – with third parties. There are almost always protections in place for these arrangements – in the form of non-disclosure agreements, firewalls and limited access systems – but there nevertheless have been several notable cases that arise from these circumstances. The ultimate challenge for a company is developing and executing on protocols to protect commercially valuable information in all business contexts.

CD: What impact is technological change – including mobile communications and data networks – having on the vulnerability of corporate trade secrets? Are these vulnerabilities contributing to a rise in trade secrets disputes?

Marks: The most significant risks to company trade secrets arise from the ease of access to and the transferability of electronic data. A company’s trade secrets are no longer kept in a hard copy binder locked away in a safe. Confidential and proprietary information is routinely discussed, routed and stored within a company’s electronic network, and every company relies on a host of computer systems, electronic storage technologies and a variety of terminals and devices, including smart phones owned and controlled by individual employees. Information is being compromised by hard copy theft, emailing of company information to personal accounts, CD burning and the transfer of data to thumb drives and FTP sites. Companies must focus on responding to the latest threats, such as the unauthorised, or at least unregulated, storage of volumes of information in the cloud with third party file sharing sites. The complexity of electronic technology is far greater today than it was even just a few years ago, and this trend will only continue.

Jul-Sep 2014 issue

Kasowitz, Benson, Torres & Friedman LLP