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April 28, 2014 Experts Corner

Protecting business trade secrets when working abroad

Jason T. Murata
John M. Tanski

The theft of U.S. trade secrets by foreign entities is a growing problem in an increasingly mobile and digitized world. Well-known victims include DuPont, Dow AgroSciences, General Motors and Valspar Paint, each of which lost trade secrets worth tens of millions of dollars or more to former U.S. employees looking to cash in abroad.

Protecting trade secrets when working outside the U.S. is even more of a challenge. Many developing nations have few, if any, protections for trade secrets. Even where protection is available in theory, U.S. companies face numerous obstacles, ranging from difficulty detecting and investigating misappropriation of the trade secrets to navigating foreign legal systems to enforce rights.

Last year, the Obama administration announced its Strategy on Mitigating the Theft of U.S. Trade Secrets, which includes efforts to protect critical business assets through a variety of measures including diplomacy, trade agreements, law enforcement, cooperation and education.

Although the administration's attention to this problem is encouraging, its plan is no substitute for a company adopting its own measures to protect its trade secrets.

Here are five tips for safeguarding your trade secrets when doing business abroad:

Have a strong IP protection policy. The most important step you can take is to have a plan and follow it. This means identifying your assets, documenting that you developed and own them, and establishing protocols governing how they are protected and who has access to them. A comprehensive IP protection policy will address physical files and facilities as well as electronic records and mobile devices. It will also include an appropriate training program for employees and periodic refresher courses.

Once your company's IP protection policy is in place, enforce it.

Know your risks and your rights. To have an appropriate IP protection policy, you need to understand the risks you face. Are your colleagues logging into your network remotely from countries known as havens for hackers? Do your vendors or key employees have strong ties to countries known for knocking off U.S. innovations? And what legal protections exist in the jurisdictions where you face the greatest risk of trade secret theft?

Answering these types of questions will require an investment of time and resources. Navigating the hodge-podge of federal, state and local laws that have developed over the years to curb trade secret theft is daunting for even the most experienced legal practitioners. But knowing your rights and remedies will help you identify where you are vulnerable and take the rights steps to reduce those risks.

Negotiate strong contracts. The protections of U.S. law do not have to stop at our borders. With smart negotiating and drafting, you can create a contract that will be enforced by a U.S. court applying U.S. trade secret, contract and competition laws. The contract should contain a clear definition of confidential information and an agreement that your preferred jurisdiction's law applies to the relationship. All parties should also agree to submit to the jurisdiction of a U.S. court.

Isolate and segregate. Avoid working exclusively with one person or foreign company. Dividing your trade secret asset into discrete parts can make it much harder for a misappropriator to obtain all of the necessary parts to capture the full value of your trade secret. If your trade secret is a customer list, for example, split the list among several sales agents so no one agent can take all of your customers.

Think outside the court. A civil lawsuit for trade secret misappropriation is not the only way to fight back against misappropriation. One option is to file a claim with the United States International Trade Commission. The ITC can't award money damages, but it can stop a company from importing goods that were made using stolen trade secrets or other unfair methods of competition.

Another option, if the theft is sufficiently severe, is to call the FBI. Federal law enforcement agencies have arrested misappropriators trying to leave the U.S. with stolen trade secrets, and the criminal penalties for high-value trade secret thefts are significant — including both jail time and criminal fines that can total millions of dollars.

As with most business risks, the problem of protecting IP assets across borders affects each business differently depending on its individual needs, goals, assets and strategies. There is no one-size-fits-all solution. But taking steps now to mitigate the risk of trade secret theft will put your business in the best possible position to protect its assets while working abroad.n

Jason T. Murata is counsel and John M. Tanski is an associate with Axinn, Veltrop & Harkrider's intellectual property group in Hartford.

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