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IP Law Essentials

Best Practices: HR Risk Management to Avoid IP Theft Liability

June 3, 2020

IP Law Essentials

Best Practices: HR Risk Management to Avoid IP Theft Liability

June 3, 2020

 

Introduction

Any experienced lawyer who handles trade secrets litigation has seen what happens when an employer lets its guard down when hiring a new employee who previously worked in the same industry—perhaps even for a direct competitor. Without effective human resources risk management, the new employee may bring along her “toolkit” containing the prior employer’s valuable trade secrets, which are soon unleashed in your workplace. The outcome of these cases is almost never a good one when the new employer is sued for intellectual property theft, and in many cases the consequences are dire: multi-million dollar outlays for settlement or judgment, plus attorneys’ fees and expenses, are not uncommon. At a minimum, disentangling the newly hired employee—or at least their tainted work, customer lists, etc.—from the company can be a royal (and expensive) pain. Careful screening of job applicants is mandatory—there is too much at stake to allow anything less than a thoroughgoing HR risk management process that will help prevent your business from becoming the target of a lawsuit for theft of trade secrets and other IP theft. And if a lawsuit does come, you will benefit greatly from evidence of your good faith and care in the intake process.

Best Practices

  1. Ask About Any Contracts With Prior Employers

During the interview process, you will, of course, inquire about the candidate’s previous employment (both their immediate past job plus their employment history before that). Zero in on any contractual agreements they entered into with prior employers by which they might still be bound:

  • Confidentiality Agreements/NDAs
  • Non-Compete Agreements (these are not enforceable in some jurisdictions, but if the prior employment was in a jurisdiction that does enforce them, the employee will still be required to abide by the agreement; sometimes, the nature of the past employment—e.g., whether they were a “key employee”—will bear on enforceability of a non-competition agreement).
  • Non-Solicitation Agreements—even some jurisdictions (e.g., California) that will not enforce a non-competition agreement may enforce a non-solicitation agreement if necessary to protect a prior employer’s trade secrets. If you do hire the candidate and later receive a job application from one of her prior co-workers, be sure that she didn’t solicit the new candidate to apply for the job and wall her off from the hiring process.

Ask for copies of each such agreement and tell the candidate that providing those copies will be a condition of her being hired. When you receive the agreements, have them reviewed carefully by knowledgeable counsel.

  1. Be Sure You Understand the Candidate’s Previous Job Duties and How They Compare With Those Required in the Position With Your Business

Not every jurisdiction recognizes the so-called “doctrine of inevitable disclosure,” which some courts have applied to bar a subsequent employer (that’s you) from hiring a job candidate when the duties in the new position are so intertwined with the candidate’s duties in her prior job that it seems “inevitable” that she’ll necessarily utilize her previous employer’s trade secret knowledge in performing the same functions in his new job with your company. However, every jurisdiction is apt to impose liability if your new employee actually does use her prior employer’s trade secret methods to perform the same tasks for your business. Thus, if your probing interview leads you to conclude this is a potential risk, you may want to consider hiring the candidate for a different position (or possibly not hiring her at all). And, of course, if the “inevitable disclosure” doctrine is in play, your discretion will be limited here.

  1. Make Sure That Both You and the Candidate Have a Clear Understanding of What They Can (and Cannot) Bring With Them to Your Business That They May Have Used in a Prior Job

First, be sure to question the candidate carefully about what she may still have access to that she acquired or used in her prior employment. You should inquire not only about emails, texts, other messages, and computer files the candidate may have saved (deliberately or automatically) on her personal computer or mobile device, but also what materials may still reside in cloud storage to which the candidate still has access. The candidate may well still have files from her last job residing in her Dropbox, OneDrive or Google Drive accounts, for example.

Leave no stone unturned, even when you’ve been told that the candidate’s previous employer already collected “everything” of a confidential nature she had in her possession upon leaving her last job.

  1. Your New Employee Should Be Required to Sign Your Confidential Information Agreement With a Provision Certifying that They Do Not Possess and Will Not Access Any Proprietary Information Belonging to a Prior Employer

Be sure your company’s Confidentiality Agreement/NDA (or a separate document to be signed by the candidate) contains a provision by which the candidate certifies that they no longer possess and have no access to any prior employer’s confidential information or trade secrets and commits that they will not utilize any such information in their work for your business.

  1. Hiring the New Employee Is Only the First Step: Next Comes Training, Followed by Regular Follow-up Training . . . and Then More Training

Every new employee who will have any direct or indirect exposure to your company’s trade secrets or other confidential/proprietary information must receive professionally developed and well-presented training about the importance of protecting that information and observing all protocols about accessing, using, and storing it.

After the new employee has begun their work, someone should be charged with responsibility with observing and monitoring their compliance with the policies and procedures they’ve been told to follow, and then there should then be follow-up feedback and, if needed, further guidance about the policies and procedures for protecting confidential and trade secret information.

Over time, all employees should receive at least annual training to make certain that they both understand and continue to adhere to the company’s confidentiality policies.

In summary, your company’s hygiene in the intake process is key to minimizing the risk that your new hire will bring more burden than benefit. And, as is so often the case, good preventive measures are far better than any belated cure.

More questions? Contact the authors or visit Fish’s Intellectual Property Law Essentials.


The opinions expressed are those of the authors on the date noted above and do not necessarily reflect the views of Fish & Richardson P.C., any other of its lawyers, its clients, or any of its or their respective affiliates. This post is for general information purposes only and is not intended to be and should not be taken as legal advice. No attorney-client relationship is formed.

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David S. Morris | Of Counsel

David Morris is a trial attorney in Fish & Richardson’s Austin Office. His practice focuses on commercial, trade secret, and

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Tommy Jacks | Of Counsel

Tommy Jacks is Of Counsel to the Austin office of Fish & Richardson. His practice emphasizes general commercial litigation. Mr. Jacks has over 47 years of experience in general litigation on a wide range of complex commercial, trade secrets, qui tam, class action, professional...

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