Protecting Your Trade Secrets: Trust but Verify
September 15, 2021
Most companies rely heavily on contractual obligations to protect their trade secrets. Employee and vendor agreements typically include non-disclosure provisions. Depending on the state and the nature of an employee’s position, an employee agreement may also include a non-compete clause.1 Not surprisingly, agreements in a vacuum are less effective than when they are paired with data security systems and audits.
A real world example is seen in the Bayer v. Zeng case. Shortly after Bayer acquired Monsanto, its data-security system alerted it to the fact that a Monsanto employee had sent an internal email message that appeared to violate company policies. Upon reviewing the employee’s use of the company’s computer systems, it learned that the employee had sent hundreds of confidential files to personal email and Dropbox accounts. Within months, Bayer was able to retain a forensic investigation firm and legal counsel, and stop any misappropriation. Mr. Zeng stipulated to a final judgement under which he is obligated to return any of Bayer’s trade secrets in his possession, as well as identify anyone else who received them.2
By contrast, other companies have lost valuable data over periods of several years. Nationwide Children’s Hospital, for example, lost valuable data over a period of five years. Two of its researchers were able to transmit and use trade secrets related to exosomes —and their use in diagnostics and as therapeutics— to establish three different companies and file multiple foreign patent applications.3 And Genentech found itself adverse to former employees and a start-up company that had leveraged Genentech’s trade secrets to develop competing biosimilars.4 Genentech only began its investigation three years after the misappropriation started, on the basis of an anonymous tip. Query whether robust data security systems, as well as routine audits of global patent filings, may have helped these trade secret owners avoid their losses. A recent happy ending to the Genentech story though. Just last month, in a companion criminal case, the former employees pleaded guilty to conspiracy to commit trade secret theft and wire fraud.5
1 See e.g. Del Rossi, L.J., Top 3 Employee Mobility and Restrictive Covenant Issues to Watch For in 2021, National Law Review XI(84) (March 25, 2021) (https://www.natlawreview.com/article/top-3-employee-mobility-and-restrictive-covenant-issues-to-watch-2021)
2 Bayer v. Zeng, No. 4:20-cv-00431, (E.D. Missouri July 31, 2020), Dkt. No. 14, Order denying Motion to Dismiss at 2-3; and see Dkt. No. 28 (March 18, 2021) (Stipulated Final Judgement).
3 U.S. v. Zhou, No. 19-cr-00163 (S.D. Ohio July 24, 2019), Dkt. No. 6, Indictment. Each researcher was sentenced to at least 30 months imprisonment. Dkt. Nos. 148, 174.
4 See e.g. Genentech, Inc. v. JHL Biotech, Inc., 2019 WL 1045911, No. 18-06582 (N.D. Cal. March 5, 2019).
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