Published on ACCDocket. By Walt Norfleet, Smiths Group plc and Eugene Y. Mar, Farella Braun + Martel LLP

Picture this: Your company is in a highly competitive industry with several leading players heavily supported by major corporate investors and/or venture capital funds. The market is expected to generate potentially hundreds of millions of dollars in revenue in a few short years, with the expectation that the first company that can successfully implement an operational version of the technology would secure the dominant market share.

Your business team lead presents a case to the C-suite executives and the board that recruiting this one well-known expert in the field, along with her team, would propel your company to the front of the pack and potentially save many months of development time. This expert and her team currently work for a competitor.

The board and C-level executives have approved the hiring of this expert and her team, and the recruits have agreed to join your company. Everyone wants to move quickly. Despite the pressure to rapidly onboard this talent into your company, taking several practical precautions will help mitigate the risk of any trade secret tainting that could arise in such a fast-moving situation.

Employment contracts

As a starting point, every employment contract at a technology company should specify and require prospective employees to certify that they did not bring prior employers’ confidential information or trade secrets into your organization. Although such clauses are standard, they are important. 

For example, should a dispute arise down the road and a case heads to trial, such clauses can be used to explain to a jury to show your company’s good faith and intent when trying to onboard recruits “cleanly.” For a key expert and team members joining you from a competitor, you may want to take the extra step of retaining a third-party forensics company to first audit and scan the recruits’ electronic devices prior to their start at the company.

Forensic reviews

You can mandate that the incoming employees agree to these third-party forensic reviews as a condition of employment. The third-party forensics company can then inform your company whether the incoming recruits’ devices are “clean,” or if there is data that appears to be proprietary to another company. This allows you to take proper action with the incoming employee before the recruit ever arrives.

The arrangement between your company and the third-party forensics company should specify that none of the contents of the recruits’ electronic devices are shared with your company and that the forensics company will retain the chain of custody on any saved electronic data. This important step helps prevent any claims that a prior employer’s confidential information or trade secrets have already tainted your company’s servers and files when the key incoming employees arrived and shared their electronic data.

It is also a good practice to exclude your lead engineer, who are often the subject of non-compete obligations, from any active recruitment or background checks that are conducted on a prospective employee. Your lead engineer should be involved in vetting technical qualifications, for instance, but have a non-engineer review any background and forensics reviews, make the final hiring decision, sign the offer letter, check on pre-existing contractual obligations, and extend the offer letter.

Previous obligations

During recruitment and onboarding, you should inquire if candidates have obligations from prior companies that continue forward, such as non-solicitation, noncompete, and patent assignment, and/or patent notification clauses. You may also want to ask for a copy of their prior employment agreement to confirm this information.

Do what you can to help the candidate abide by any obligations he has, such as prompting the employee to inform his prior employer when he submits invention disclosures within your company while still in his prior employers’ patent notification period. Sticking your head in the sand won’t help later if you find yourself in litigation, as that will lead to claims of willful ignorance.

Termination certificate

A company should also take steps to protect itself from confidential information or trade secret misappropriation when high-value employees depart. Consider including a termination certificate as an exhibit in the employment agreement and specify in the employment agreement that the employee must execute the termination certificate upon exit.

The termination certificate should state, among other things, that the departing employee certifies that she or he is not taking any confidential information or trade secrets from the company and that all company electronic devices have been returned. Furthermore, it should also re-state any contractual obligations that carry forward, such as noncompetes, non-solicits, patent notice requirements, or patent assignment requirements.

In addition, the termination certificate should state that the departing employee is required to provide a copy of this termination certificate to his new employer, so that the new employer is made aware of his ongoing contractual obligations.

Conclusion

With a few practical steps — all of which can be implemented in advance as part of a company procedure in onboarding or offboarding employees — you can substantially mitigate the risk of trade secret misappropriation that can arise in an age of rapid employee movement.

About the Authors

Walton Norfleet is IP counsel at Smiths Group plc. He handles a wide variety of IP-related matters and has broad experience in the industrial, energy, medical, and software fields. [email protected]

Eugene Y. Mar leads the technology industry group at Farella Braun + Martel. He specializes in trade secrets, patent, and IP licensing litigation and advises both Fortune 100 and emerging companies on best practices for trade secret protection. [email protected]