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Companies battle theft of knowledge and client lists

By Amy Joyce
The Washington Post

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A man in the Miami office of a telecommunications company left for a competitor, taking the client list with him. At the new job, he told those clients he could help them get out of their old contract and could get them a better price.

These employees are accused of doing things on a much smaller scale than what a software engineer at America Online was charged with last month — selling 92 million members' e-mail addresses from the AOL database. Nonetheless, they are being sued by their former employers for stealing.

"Employees don't realize that taking intellectual property is like putting their hand in the cash drawer and taking money," said Mark Cheskin, head of the labor- and employment-law practice of Hogan & Hartson's Miami office. "Employers have to educate employees that stealing is stealing."

As the economy picks up and employees prepare to move to new jobs, there's the potential for competitive information worth millions of dollars to walk out the door, straight to a competitor. Today's work world is much more of a knowledge economy in which technology and information are the main products. So the notion of assets leaving the building each night with a company's employees becomes much more pertinent.

Employment attorneys and the Society for Human Resource Management perceive an uptick in the number of suits regarding trade secrets, a category that includes client lists as well as proprietary systems and patented information. And employers are becoming more stringent with nondisclosure rules signed by employees, telling them they cannot share their companies' client lists, software or other intellectual property.

Software company SAS Institute has included nondisclosure agreements in acceptance letters "forever," said Jeff Chambers, vice president of human resources. "Look at what our business is: It's all intellectual property."

New SAS employees sign nondisclosure notices that remind them that inventing may be part of their job, and that whatever they invent there belongs to SAS because that's what they are paid to do.

"Anything they do in the scope of employment, we own all the intellectual property rights for that," Chambers said. Before they leave the company, employees are reminded in an acknowledgment letter that they are legally held to the nondisclosure agreement.

Slightly more than half of all companies have new and current employees sign nondisclosure agreements, according to a March poll by the Society for Human Resource Management. And 35 percent of companies remind departing employees of their "trade secret obligation."

But only 7 percent of companies have new employees sign agreements that prevent them from bringing trade secrets from previous employers.
 
Some employers are afraid that those who had stagnant careers during the economic downturn will offer up trade secrets — such as client lists — to sell themselves in an interview.

"I think a lot of people have been kind of just hunkered down waiting for that next big opportunity," Chambers said. "They don't want to be part of the next flameout. So what are they going to offer? They will come to new companies saying, 'Here's what I can add.' " Then they potentially hand off proprietary information, clients or processes, such as how their current company was able to win various clients.

Technology has made it easier for employees to disseminate trade secrets, but it's also made it easier for employers to locate the leak.

One software-company employee recently left for a competitor with his first company's proprietary software. But to download the software, he had to type in an identification sign-on. It was traced right back to him, and the company is suing him, according to Cheskin.

Granted, some employees don't realize what they're doing is illegal, Cheskin said, which is why he encourages employers to educate their workers or reinvent their nondisclosure agreements.

"They really need to think through who has information and try to narrow training and agreements toward that," he said. "Companies make it too broad, so it doesn't seem real. Think about what you're trying to protect."

Susan Meisinger, president of the Society for Human Resource Management, said companies are learning how to be "more vocal" about the agreements, often marking client lists "confidential."

"There's an increase in litigation in this arena that shows it has become more important," she said. "But it also shows (employees) aren't as knowledgeable."