April 8, 2022 – Trade secrets are becoming increasingly valuable and critical to maintaining business success, but companies are often unaware of the legal, administrative, and technical tools they can use to protect this information. This knowledge gap is particularly pronounced in the context of employee departures and transfers to competitors. Although a common occurrence in most industries, the departure of an employee can jeopardize a former employer’s trade secrets – and their competitive advantage.
A recent lawsuit in the U.S. District Court for the Southern District of California highlights this danger, as well as the tools companies can use to give themselves notice. In Pfizer v. Li, No. 21-cv-1980, Complaint Filed (SD Cal. Nov. 23, 2021), Pharmaceutical Company Pfizer, Inc. sued a future former employee for misappropriation of trade secrets, breach of contract, and breach of personal property ( essentially, intentional interference with the enjoyment of personal property).
Pfizer alleges that its employee, Ms. Li, downloaded more than 12,000 files, several of which contained confidential information relating to analysis of vaccine studies, operational objectives, new drug development and clinical trial techniques. She allegedly transferred and then deleted files she had previously saved to her Google Drive account with a view to taking a job with a competitor.
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Once discovered, Pfizer confronted Li, only to attempt to cover her tracks by providing Pfizer with a decoy laptop. Eventually, Pfizer sued Li and sought a temporary restraining order to prevent further disclosure. Pfizer agreed to drop the lawsuit after the parties reached an agreement allowing Pfizer’s attorney to search Li’s personal emails, Google Drive accounts, and any other personal computer devices or accounts that may contain information. confidential or trade secrets.
This case highlights the need for companies to implement effective legal, administrative and technological measures to protect confidential information and trade secrets.
Here, the Pfizer employment contract obligated Li not to disclose or use confidential information other than in the course of his employment without Pfizer’s written permission, and to return all Pfizer property and materials in his possession within 48 hours following his dismissal.
From an administrative perspective, a comprehensive policy and set of procedures for the protection of trade secrets and confidential information is essential. First, companies should make it a practice to protect their trade secrets by entering into and enforcing effective confidentiality agreements. Subject to state law and the federal Defend Trade Secrets Act, 18 USCA § 1836, employers may create confidentiality obligations through stand-alone agreements or as part of an employment contract.
In these agreements, a company can define what it considers confidential information and trade secrets, detail restrictions on employee use and disclosure, and describe continuing obligations after the employment relationship ends. Likewise, non-competition and non-solicitation agreements can prevent employees from interfering with coworkers, customers, or suppliers who may possess or represent trade secret information.
Although not reflected in Pfizer’s complaint, administrative procedures are ideally in place to educate employees, not only to point out the legal obligations imposed on them, but also to clarify, before any issue, the extent of these bonds.
For example, an employee downloading a spreadsheet or report they created at work may not want the employer’s confidential data in the document, but rather the format of the document, thinking it is generic knowledge. We’ve seen employees claim to ignore the distinction between an employer’s trade secrets and generic knowledge gained on the job.
Training on the scope of confidential employer information and trade secrets can prevent bona fide misunderstandings and, in any event, strengthen an employer’s assertion that its trade secrets are adequately protected — a legal requirement.
Companies must also maintain comprehensive trade secret and confidentiality processes and policies, as may be outlined in employee handbooks. These processes and policies can provide valuable training, identify categories of relevant and protected information, define employee obligations, define appropriate levels of access for particular groups of employees, and generally establish corporate protocols for maintaining confidentiality, including when employees leave.
It is also important that companies communicate to employees at all levels their trade secret responsibilities. While training may be in place for new hires, many existing staff may not be aware of the company’s current privacy and trade secret policies and may need to be trained. They must have policies in place that, where appropriate, physically and technologically restrict employees’ access to trade secret documents while employed.
When departing an employee, employers should consider regular, documented exit interviews where the surrender of all documents and files is requested – a requirement often found in employee agreements – and provide the employee with a copy of his employment contract or other confidentiality obligations.
An effective way to protect trade secrets is to use technological controls to prevent misappropriation before it happens or at least report it quickly so that corrective action can be taken. Pfizer’s complaint outlines some technology measures that employers should consider implementing. Prior to this incident, Pfizer had already disabled USB access on its devices to prevent unauthorized file downloads. The company discovered Li’s file transfer after implementing technology to monitor employee uploads of files from Pfizer devices and directories to cloud-based platforms like Google Drive.
Of course, there are many other technological measures and safeguards that employers should consider. Some examples include: restricting offsite access, using sufficient encryption, software for monitoring employee computer activity, and automatically shutting down employee access upon departure.
In Pfizer’s case, it had several technological tools, without which it might not have discovered Li’s hijacking before it was too late. Its existing USB access rules have made it more difficult to divert trade secret information, while its download monitoring has allowed it to monitor suspicious transfers such as Li’s. A company without such foresight could find itself at risk. to lose its competitive advantage.
While prevention is key, companies should also have a detailed strategy for approaching an employee when they suspect misappropriation. Companies should have a predetermined plan or guidelines for dealing with potential employee misappropriation, including determining when an investigation warrants filing a lawsuit. Having the controls in place to quickly provide evidence of diversion is also beneficial for obtaining a tailored remedy, such as a temporary restraining order or a preliminary injunction.
The plan should include measures to limit the dissemination of confidential information and to contact the entities and individuals to whom the disclosure has been made. Although less common, when a departing employee considers joining a competitor, companies also have the option of contacting the competitor once they are armed with the knowledge gained from their internal controls. However, they must always take care to protect themselves against possible counterclaims.
In short, if it has not already been done, legal departments should seriously consider implementing a comprehensive trade secrets policy or strengthening the existing policy. A comprehensive and complementary set of legal obligations (agreements), processes, policies and technical tools are essential for companies to protect trade secrets and maintain their competitive advantage.
Such measures are especially important with a remote workforce such as during the pandemic. Further, fear of loss of trade secrets should translate into fear of the possible inadvertent receipt of a competitor’s trade secrets. Companies should consider legal, administrative and technological measures similar to those applied to new employees and consultants, especially those who have worked for competitors.
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