What are common scenarios in which theft of trade secrets occurs?

By some estimates, theft of trade secrets costs U.S. businesses between $180 and $540 billion, or 1-3% of GDP annually.  But how does such theft typically occur?  In general, trade secrets are stolen in one of three ways:  (1) unauthorized access to a business’s information; (2) misappropriation of a business’s disclosures to third-parties; or (3) misuse of information by current or former employees, typically employees who leave to start or join a competing business. 

Unauthorized Access:  Every business has information systems, whether maintained digitally or in hard copy.  Unauthorized access to those information systems can result in theft of trade secrets.  While some thefts occur through “hacking” or other data breaches, others result from unexpected use of information a business intentionally makes public.  In one example, a company’s website offered individualized life-insurance quotes to the public.  A competitor, however, used a bot to generate and record forty-three million quotes in four days, thereby discovering a significant part of the business’s proprietary database.  

Misuse of disclosures:  A business’s transmission of information to third parties, even under a non-disclosure agreement, can also result in theft of trade secrets.  Recipients sometimes misuse information in the hope that the misuse will go undetected or that the business will not enforce its rights.  Recipients might also disclose trade secrets to others, either wittingly or unwittingly.  In one case, the employee of a company soliciting bids disclosed one business’s confidential bid to help a rival improve its competing bid. 

Employees:  Current or former employees can also misappropriate trade secrets to which they have access.  Both internal and external pressures can cause such misappropriation.  External rivals sometimes hire away a company’s key employees in the hope of gaining commercial insights.  And internal disputes over strategy or compensation can lead employees to form their own competing ventures.  Either scenario can result in misuse of a business’s trade secrets. 

The phrase “theft of trade secrets” may conjure images of sophisticated corporate espionage, and that can occur.  But the reality is often more mundane.  Businesses that take reasonable measures to protect their information systems and enter non-disclosure agreements with employees and external partners will deter the most common types of trade-secret theft.  And in the event theft does occur, such businesses will be able to effectively vindicate their rights. 

To learn more about trade secrets and related business disputes, go to www.mololamken.com and follow us on LinkedIn.  “Brilliant lawyers with courtroom savvy” — Benchmark Litigation.  Copyright MoloLamken LLP 2022.

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