Secret’s Out: Job-Hopping Workers May Take Priceless Data With Them

In the annals of industrial espionage on American soil, few spy missions have been as obvious and stupid as the one involving a partially completed DuPont methanol factory and a team of freelance agents conspicuously snapping aerial photos of the plant in broad daylight.

The culprits, two local photographers who circled the Beaumont, Texas, factory in a small, noisy plane, were photographing the contents of the roofless structure. With these images, a competitor could deduce DuPont’s secret process for making methanol, the company alleged.

The photographers, who were traced through the plane’s identification numbers, were sued by DuPont, which accused the men of trade-secret theft. The pair readily admitted to taking the photos for a third party, but they claimed their subject was not a trade secret because it was clearly visible, albeit only from the air.

A U.S. appeals court disagreed. “This is a case of industrial espionage in which an airplane is the cloak and a camera the dagger,” the court wrote in its finding for DuPont. “Reasonable precautions against predatory eyes we may require, but an impenetrable fortress is an unreasonable requirement.”

Intellectual property experts say that while this landmark 1970 finding makes it clear that companies are not required to build impenetrable fortresses to protect their proprietary information, it still makes sense for companies to take preventive measures to keep their trade secrets secret.

The FBI and the U.S. Chamber of Commerce in a report this year said that American companies lose about $25 billion annually to corporate espionage, both domestically and overseas.

As defined by U.S. courts, a trade secret must pass a three-part test, said Gary Weiss, a Silicon Valley-based attorney who specializes in intellectual-property law. “It’s got to be secret information that people outside--namely competitors--don’t know; it’s got to be commercially valuable because it’s secret; and the company has to have exercised reasonable efforts to keep it secret,” said Weiss, a managing partner of the San Francisco law firm of Orrick, Herrington & Sutcliffe.

Evidence that a company made real efforts to protect a trade secret is critical in a legal case, said David Cook, a former FBI special agent who is now a private investigator. “If law enforcement finds that you’ve been lax with it, or that everybody has a copy of it or it isn’t stamped ‘confidential,’ then the person who took it will have the defense that this is not a trade secret,” said Cook, managing partner of Noesis, an investigative firm with offices in San Francisco and Los Angeles.

The biggest risk of losing trade secrets comes from “employees who are leaving and taking new jobs,” Weiss said. “Some are disclosing trade secrets because they don’t realize what they’re doing, or they haven’t been told the law. A few are just dishonest.”

In the nine states--including California--that prohibit non-compete pacts by former employees, there is one dichotomy: Workers are free to quit and work for archrivals, but they aren’t allowed to use any information that meets the test of a trade secret. But some companies have successfully argued that use of proprietary information by ex-workers would be inevitable--and thus have been able to delay workers from assuming similar positions at competing firms.

Indeed, in 1996, Sunnyvale, Calif.-based semiconductor maker Advanced Micro Devices went to court to stop five departing employees from doing similar work at Hyundai Electronics America, a subsidiary of the Korean conglomerate.

AMD sued Hyundai, contending the competitor raided AMD of key members of its flash-memory chip division to get a rival chip product to market by inducing the workers to change jobs and divulge AMD’s trade secrets, rather than develop the product on its own.

By arguing that the employees would inevitably disclose trade secrets gleaned from their work at AMD, the company was granted a preliminary injunction that prevented the hirelings from working on Hyundai’s flash-memory chip technology for more than six months. By the time the injunction expired, the technology had changed and AMD had been able to protect its competitive advantage during the interim.

Similar arguments prevented a former PepsiCo executive in 1995 from assuming a similar job at rival Gatorade. And PaineWebber filed a suit last month seeking a court order to prohibit a former employee who now works at rival Salomon Smith Barney from soliciting business from PaineWebber’s clients.

“Every time an employee at AMD walks out the door, he probably walks out with millions of dollars of trade secrets in his head,” said Jill Scoby, chief litigation counsel for AMD. “It is incumbent upon AMD to ensure that those trade secrets stay in his head and don’t get used or disclosed.”

So AMD and other companies have implemented compliance programs that inform new arrivals, and remind departing workers, of the importance of obeying trade-secret laws. “Every engineering employee of the company that leaves . . . gets a legal debriefing on trade secrets,” Scoby said of AMD’s program. “Every single employee that comes in from a competitor gets a trade secrets debriefing before they start their job. Briefing a new employee is to make sure they understand the nature of their obligation to their former employer and understand that the way we do business is to not steal trade secrets.”

Weiss also suggests conducting an exit interview with the departing employee. “One of the things you ask is please turn over all your documents. If he left and took a whole bunch of stuff, or printed out or downloaded or erased material, then you’ve got evidence of untrustworthiness.”

Evidence of untrustworthiness is one factor that a judge requires before issuing a preliminary injunction that bars a person from assuming a similar position at a rival company.

“It’s getting tougher to make a buck,” Scoby said. So there is an increasing “need to focus on any way you can retain your edge.”

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