Legal Weapons to Fight Information Theft

Posted 02-08-2013

Legal Weapons to Fight Information Theft

By Mark V.B. Partridge

It’s a common problem. A company learns that a former employee copied confidential computer files--proprietary source code, marketing plans, customer lists and pricing information--before leaving and has used the information to start a competing business or has shared it with a competitor. 

The first instinct is to challenge the conduct as a misappropriation of trade secrets. After all, the company marked the files as confidential information and had a company policy requiring employees to keep such information secret. Unfortunately, this may not be enough to prevail on a trade secret claim.

Effective action to combat this threat includes the use of a full array of legal weapons. Copyright protection, however, is often overlooked in the battle to defend corporate secrets. This oversight is a mistake, given the advantages under copyright law for challenging information theft.

Proving the existence of a trade secret involves more than merely showing that work was designated as confidential. A party claiming a trade secret must show that the claimed work has value because it is a secret and that the claimant has taken reasonable efforts to maintain the work as a secret. Confidentiality designations alone are not necessarily sufficient. 

An example of the difficulty of proving trade secret rights is presented in the Illinois case of Liebert v. Mazur, in which the plaintiff was unable to protect its customer list. The dispute involved a former salesman for a heating and cooling equipment distributor who copied customer files from the company’s computer system before leaving to work for a competitor. The court concluded that the list was sufficiently secret and had economic value to satisfy part of the test for being a trade secret. But the plaintiff failed to show that it took reasonable steps to maintain the work as a secret. Instead, it appeared that employees and others had copies of the list without specific restrictions on its distribution.

The owner of a trade secret must take affirmative action to protect a trade secret’s confidentiality. It is important that employees who have access to a trade secret take steps to prevent its unauthorized disclosure, whether on the Internet, by word of mouth or otherwise. All proprietary materials should be marked as such, denoting that they should be kept confidential and are considered proprietary. Access to the trade secret should be limited to those individuals with a need-to-know. Procedures for maintaining confidentiality should be implemented and enforced. If disclosure to employees and third-parties is necessary, those who are granted access to trade secrets should sign nondisclosure and confidentiality agreements.

These issues relating to a trade secret are fact intensive and can be difficult and expensive to prove at trial.     

A copyright claim, in contrast, is much easier to establish as it is based on objective facts. To prevail on the copyright claim, a company would merely need to show that it owns a valid copyright, that there was access to the original and that the allegedly infringing work is identical or substantially similar to protectable elements in the original. In our experience, the test for creating a work protected by copyright--original, tangible expression--is easily met by confidential business records. Similarly, the test for infringement is easily met when an employee directly copies files protected by copyright. If you are required to go to court to prove your claim, it will generally be much quicker and cheaper to prove a copyright case against a file-stealing employee than it would be to prove a trade secret claim.

Legal Weapons to Fight Information Theft

It is a common misconception to believe that copyright protection requires the use of copyright notice and copyright registration. Under current U.S. law, neither is required. 

The use of a copyright notice is not required to create copyright protection, but it is useful to put potential infringers on notice that they should not copy the work. Registration is also not required to create copyright protection, although it is necessary to obtain a copyright registration before filing a lawsuit for copyright infringement. Early registration also provides several benefits. If the work is registered before the infringement, it will be possible to recover up to $150,000 in statutory damages for each infringed work and to recover attorney’s fees. The mere threat of these specific monetary awards can be a strong incentive to stop a potential infringer.

There have been many instances where disgruntled employees have tried to harm former employers by publishing confidential documents online. Here, too, copyright can be an effective weapon to attack the problem. Copyright laws now include a section called with Digital Millennium Copyright Act, or DMCA, which provides the hosts of websites with a safe harbor against infringement claims if they provide a take-down procedure to protect copyrighted works. Using a DMCA take-down demand, it is possible to quickly and cheaply get the website host to remove your copyrighted business information from its site without going to court. The same effort based on trade secret law would likely require a court order.

The optics of challenging the infringer of a copyright can also be more compelling to the infringer. Trade secrets are not registered with any governmental body, so there is no “official stamp of approval” for a trade secret claim. In contrast, it is relatively easy to obtain a federal copyright registration and back your demand letter with an official governmental document. 

Here are 10 best practices to consider and implement to maximize your ability to protect confidential business information using trade secret and copyright law:

1.     Mark documents as confidential

2.     Use a copyright notice

3.     Restrict access to confidential information and limit distribution

4.     Require nondisclosure agreements before disclosing confidential information to third parties

5.     Obtain copyright registration where appropriate

6.     Inform employees that business information is confidential and protected by copyright laws

7.     Include confidentially provisions in employment manuals and agreements

8.     Conduct training sessions to instruct employees on the importance of maintaining confidentiality for business information

9.     Include compliance questions regarding confidential information in exit interviews with departing employees

10.  Create an effective enforcement policy utilizing trade secret, copyright and DMCA claims.

Copyright may not be the right choice for all of the information you seek to protect, but it should be one of the weapons you consider for protecting your company’s business information. By combining copyright protection with trade secret protection, you can improve your ability to secure and protect your company’s confidential business information from misuse and theft.

About the Author

Mark Partridge is the founder of Partridge IP Law, a Chicago-based law and IP strategy firm (http://www.partridgeiplaw.com).He has worked in intellectual property law for more than 30 years and was named one of the top trademark lawyers in the 2012 edition of The International Who’s Who of Trademark Lawyers.