1. Preserving Competitive Edge Workplace Tools for Preserving and Protecting Trade Secrets February 9, 2015
By Andre castaybert
Castaybert pllc
Co-CHAIR Of trade secrets Subcommittee NYSBA ip section

2. What is the economic impact of trade secret theft to U.S. companies?
The loss of trade secret information impacts a large percentage of businesses, and causes significant monetary damage.
Estimate of Total Losses3
Average Damage – Manufacturing Sector2
% of Companies Reporting Lost Trade Secrets1
Avg. Cost Incurred When a Business Partner Exploits Its Access to Data4
63%
$50 Million
(per incident)
$53-59 Billion
$362,269
(incurred by companies per incident)
1-ASIS/PwC “Trends in Proprietary Information Loss Survey,” 2007
2-ASIS/PwC “Trends in Proprietary Information Loss Survey,” 1999
3-ASIS/PwC “Trends in Proprietary Information Loss Survey,” 2002
4-Center for Responsible Enterprise and Trade “Trade Secret Theft – Managing the Growing Threat in Supply Chains,” 2012
1, 2, 3: Surveys polled CEOs of Fortune 1000 companies and US Chamber of Commerce members

3. What is the economic impact of trade secret theft to U.S. companies?
Trade secrets provide a competitive advantage
For many companies, intangible assets, including trade secrets, are the most valuable assets they hold.
And some sources say the ratio has shifted from 80/20 tangible to intangible in 1975 to 20/80 in 2013

4. What is the economic impact of trade secret theft to U.S. companies?
Estimates of trade secret theft range from 1-3% of the GDP of the United States and other advanced industrial economies*
U.S. Senators Coons and Hatch: Estimate $160 to $480 billion lost to trade secrets theft in U.S. each year
*CREATe and PWC: “Economic Impact of Trade Secret Theft: A framework for companies to safegaurss trade secrets and mitigate potential threats

5. What is a Trade Secret? The UTSA Definition of Trade Secret
The Uniform Trade Secret Act enacted by all states and DC, except New York and Massachusetts, defines a trade secret as:
information, including a formula, pattern, compilation, program, device, method, technique, or process
that derives independent economic value, actual or potential, from not being generally known to, or readily ascertainable through appropriate means, by other persons who might obtain economic value from its disclosure or use; and
is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

6. Examples of Trade Secret Information
R&D
Lab tests
Prototypes
Project research
Recipe development
Strategy
Manufacturing
Processes
Equipment
Recipes
Marketing
Advertising plans
Consumer surveys
Product Pipeline
Sales
Incentive plans
Customer contact lists
Sales promotions
Financial
Finance plans
Financial projections
Quarterly results
Negative know-how
Formulations solutions that did not work HR
Org. charts
Compensation plans
Severance plans

7. How Are Trade Secret Rights Lost?
Most losses do not occur by theft. In fact, most losses occur through simple carelessness. The most common mistakes that contribute to loss of trade secrets include:
Failure to incorporate or emphasize trade secret protection in the hiring process
Failure to limit distribution of sensitive information on a “need to know” basis
Failure to follow existing policies and procedures
Lack of communication with employees regarding the importance of trade secret protection
Failure to perform exit interviews and remind departing Employees of their confidentiality obligations

8. Framework for Companies to Safeguard Trade Secrets and Mitigate Potential Threats
Identify
Document
Educate
Assess
Secure

9. Identify Trade Secrets
Identify, locate, and inventory those trade secrets whose theft would cause the most harm
Build a cross-functional team of key stakeholders to define the company’s trade secrets
Compliance and legal counsel
Chief information security officer/ IT
Business unit leaders and corporate function leaders
Human Resources
Categories of trade secrets
Product information: new hardware designs; updates of existing products
Research & Development: basic or applied research
Critical and unique business processes: inventory/distribution; manufacturing processes; business models
Sensitive business information: M&A plans; market research; customer lists; info on key suppliers; corporate strategy
IT systems and applications: system architecture designs; source code; algorithms

10. Questions to Ask What is the company’s competitive advantage?
What is unique about the product or process?
What confidential information would competitors want to know?
What would you consider the most important trade secrets?

11. Identify and Assess Threats and Vulnerabilities
To determine which trade secrets merit the highest protection, and to implement more effective protective measures, you need to identify and assess the potential threats.

12. Potential Threat Actors
Malicious insiders
Current employees
Lack of training
Inadvertence (publication, disposal of assets, oversharing)
Beware social media
Beware disgruntled employees
Former employees
Employee mobility
Home computers
Thumb drives

13. Potential Threat Actors
Competitors
New employees from competitors
Disgruntled employees who go to competitors
Competitive intelligence programs and market research spies

14. Potential Threat Actors
Suppliers, consultants, and customers
Access to your site
Working with competitors
Encouraging your competition
Loose lips

15. Potential Threat Actors
Nation states and places of business
Transnational organized crime
Hacktivists

16. Identify Threat and Vulnerabilities
Which trade secrets are most vulnerable?
Who is a threat?
What is the probability of a theft?
How severe would the impact be if stolen?
What policies, procedures, and controls exist to mitigate theft?

17. Identify and Rank the Threat
How significantly would the company’s reputation be impacted by theft?
How critical is the trade secret to the fundamental operation of the business?
How core is the trade secret the company’s corporate culture?
Is the trade secret especially unique in the industry?
How valuable would the trade secret be to competitors?
How important is the trade secret to current or projected revenue?

18. Document trade secrets and efforts to preserve them
Document the nature of the trade secret
Document the company’s investments in the trade secret
Document the steps taken to preserve the trade secret and to maintain confidentiality
Written company policies and procedures
Employee manuals
Confidentiality and NDA provisions in employee, supplier, consultant, and agreements
Onboarding interviews with confidentiality instructions
Office access and computer access policies and protections
Visitor sign-in, sign-out, badges and identification
Password policies

19. Educate Start from the time you onboard new employees
Distribution trade secret policies and procedures and obtain acknowledgements
Trade secret training
Consistent communication and reminders
Education and reminders for departing employees

20. Protecting Trade Secrets
Limit access to trade secret materials on a need-to-know basis. Locked filing cabinets with limited access
Create secure passwords for computer-stored trade secret information
Consider shredding (rather than throwing away) documents containing trade secrets
Obliterate or wipe clean (rather than merely deleting) any trade secret information contained on computer hard drives

21. Protecting Trade Secrets
Require all employees with access to confidential company information to sign confidentiality agreements
Have clear written policies that leave no doubt that any access and use of company information, for purposes other than company business is strictly prohibited and have employees acknowledge receiving copies
Send out regular reminders of the policies and require acknowledgment of receipt.
Beware: Under many federal and state laws, employees have privacy rights in their personal information, even if it is stored on company computers

22. Protecting Trade Secrets
Companies should safeguard proprietary information by:
conducting entrance and exit interviews with employees;
educating managers and HR sources professionals regarding the company-owned items that employees must return upon departure
communicating the company’s policies regarding the monitoring of employees’ electronic devices and communications to employees
disabling employees’ access to company and computer networks at the time of departure
creating a culture of compliance and confidentiality where employees recognize the value of protecting trade secrets; and
sharing best practices within their industries to protect valuable business data

23. Practical Measures: BYOD Policies
In light of identified risks to trade secrets portfolio, implement BYOD policy or require employees to use company-issued devices?
Different policies for different levels of employees?
If adopt BYOD policy:
Specify which devices are permitted
Provide clear restrictions regarding use and transfer of company data
Explain when company gets access to device and data
Incorporate into exit interview process
Explain investigation, incident remote wiping procedures
Address personal data/privacy concerns consistent with applicable law

24. Practical Measures Exit Interviews
Identify the trade secret and confidential information the employee accessed or used.
Question the departing employee:
Ask employee why he is leaving
Ask employee what his new position will be
Check employee’s computer activities and work activities in advance of the meeting
Ensure that all company property, hardware, and devices have been returned, including and cloud data, and social media accounts

25. Practical Measures Exit Interviews
Ensure that arrangements are made to have all company data removed from any personal devices
Disable access to company computer networks
Make sure to obtain user names and passwords for all company social media accounts
Inform the employee of continuing obligation under agreements with the Company
Consider letter to new employer and employee with reminder of continuing obligations
Consider having departing employee’s s preserved and electronic devices forensically imaged as appropriate
Consider using an exit interview certification

26. Practical Measures Post-Termination Investigation
Interview employee’s co-workers; gauge whether employees are hearing about employee in the marketplace
Examine employee’s activity
Conduct a forensic investigation of employee’s computer activities
Examine and analyze badge records and access logs
Examine phone records
Check employee’s social media accounts as appropriate

27. Prepared by Andre Castaybert Esq.
CASTAYBERT PLLC
830 Third Avenue, 5th floor
New York, N.Y
If you would like a copy of this presentation, please Andre at: