Preventing Insider Competition in a Down Economy
With reduced barriers to entry, key employees are more capable than ever before of forming split-off start-up companies and competing with their former employers. Furthermore, job mobility is at an all-time high with senior management and even principals moving regularly as a way to take advantage of new opportunities and to advance their careers.
In this contextual setting, it certainly is not difficult for confidential and proprietary information to reach an established competitor through a trusted former employee, partner, vendor, or sub-contractor. Companies simply cannot afford to risk stockpiling valuable ideas and proprietary knowledge in the minds of a mobile, independent, and sometimes disloyal workforce.
It is a well known axiom in business that the employees you trust the most can also steal the most. As such, most businesses have controls in place to monitor and prevent the theft of typical physical assets of the company such as inventory, supplies, cash, machinery, and tools.
In today’s idea-based economy, however, it is increasingly important to secure ownership rights in intellectual property including confidential business information such as customer and supplier lists, marketing ideas, advertising plans and budgets, and customer buying habits. Although businesses are extremely sensitive to risks and lost opportunities resulting from the actions of their known or suspected business rivals, few steps are taken to prevent the competitive use or disclosure of information by those considered to be “insiders” such as partners, employees, vendors, and sub-contractors.
The following checklist can help prevent confusion and conflict over ownership of intellectual property rights.
Trade secrets include any formulas, customer or supplier lists, marketing plans, compositions, manufacturing processes, or other information that provides an advantage over your competitors.
Stamp all documents containing valuable information not generally known to your competitors as CONFIDENTIAL or TRADE SECRET.
Restrict physical access to all confidential information to those having a justifiable need to know.
Require all key employees, vendors, and sub-contractors to execute a non-disclosure agreement. It is usually best to have such an agreement signed immediately upon hiring.
When any key employee leaves, conduct a termination interview in which you require the return of all confidential documents and remind the employee of his confidentiality obligations to the company.
Assuming that the company automatically owns what an employee produces may be reasonable where employees are assembling widgets in a factory, but the rules covering ownership of a new idea are different.
It is important to make sure that the company, and not employees, sub-contractors, or vendors own any new product ideas or innovative business methods developed. To avoid ambiguity, key employees should be required to sign agreements assigning rights to a new idea to the company.
Immediately evaluate a new idea to ascertain whether filing for patent protection is justified.
It may also be prudent to have a search conducted to ensure that you are not infringing a third party’s intellectual property rights.
For trademark protection, you need to look at how your customers identify your products or services. If you use a logo, slogan, business name, domain name, sound, scent, color or product design to identify your product or service, you may have valuable legal rights under trademark law.
Before launching a new business, product, or service in the marketplace, it is important to undertake a comprehensive trademark search and obtain a clearance for your mark. Avoid use of any names that are similar to those used by competitors.
It is not uncommon for inexperienced entrepreneurs to invest a considerable sum of time and money promoting a new product or business only to have their marketing efforts made useless because their mark was already in use by another company.
Be careful that employees assisting in the registering of domain names for the company do not file as the owner. If an employee files for the domain name in their own name, you may have to wage a legal battle to get it back in the event that they leave and take the name with them.
Do you own a website or have sales brochures? How about written product descriptions, advertising, solicitation letters and emails, instruction manuals, architectural and engineering drawings, pictures, photographs, paintings, graphical images, web-site designs, or computer software? If any of these items sound familiar, you have valuable rights protected under copyright law.
What many companies don’t realize, however, is that unless the work qualifies as a “work for hire”, ownership of copyright vests with the author or creator. Whether an employee or contractor’s creations constitute a work for hire depends upon the circumstances of each case and it is advisable to have a properly drafted agreement signed in advance.
Every business owns a considerable inventory of intellectual property assets and competitive business information that, if misappropriated by an employee, partner, or other trusted “insider”, could result in immediate and sometimes irreparable harm. Along with keeping an eye on the physical assets of a company, it is prudent to prevent the theft or improper use of proprietary or sensitive confidential information by trusted insiders.