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What happens when a former employee steals a trade secret and starts a competing business?

Carolee Dalgetty

When a former employee steals a trade secret and starts a competing business, it can have severe consequences for the affected company. Trade secrets constitute valuable confidential information that provide businesses with a competitive edge. Stealing or sharing this information can be detrimental to the original firm, leading to a loss of competitive advantage, client base, and revenue.

Companies that suspect an ex-employee has taken or leaked trade secrets can take legal actions to protect their interests. For instance, they can file a lawsuit to obtain an injunction that prevents the individual or competing company from using or disclosing the secrets. Further, they can seek compensation for the damages incurred as a result of the theft, including loss of profits or the need to re-develop products, technologies, or services.

The legal recourse available to companies depends on the type of information stolen and how it can be classified. Trade secrets can encompass a wide range of data, such as product designs, client lists, algorithms, customer testimonials, patents, formulas, financial records, and marketing plans. To qualify as a trade secret, the information must have been kept confidential, presented economic value for its owner, and require reasonable steps to maintain its secrecy.

To prevent trade secret misappropriation, companies can adopt various measures, such as non-disclosure agreements (NDAs) for employees, suppliers, and partners to sign. These agreements specify the types of confidential information controlled by the company, their use, duration, and the consequences of malfeasance. Similarly, companies can implement access control measures limiting the number of employees who have access to sensitive information, logging who accesses it, and monitoring employee activities.

Moreover, companies can take advantage of technology to protect their IP rights, both internally and externally. For instance, they can use encryption to secure their files, use two-factor authentication to ensure only authorized personnel access their systems, and install firewalls to protect their network from outside intrusion. In addition, companies can use digital watermarking, tracking tools, and surveillance to monitor for incidents of information misuse or theft.

In conclusion, trade secret theft and misuse can have far-reaching consequences for companies. Though legal recourse is available, it is often cumbersome, costly, and difficult to enforce. Hence, the best defense is a good offense, where companies take proactive measures to safeguard their intellectual property and their competitive edge. Further, companies must have effective regulations and contractual agreements in place to establish clear expectations and consequences for employees who handle confidential information.