Three Reasons Why Employees Might Pose the Biggest Threat to a Company’s Trade Secrets

Venable LLP - Thomas E. Wallerstein

For many people, “trade secret theft” evokes an image of a technological superspy, a James Bond meets Edward Snowden. But the more common, less dramatic and yet more dangerous threat to a company’s proprietary information comes from within. Current and departing employees likely are more threatening to a company’s trade secrets than are foreign espionage agents.

First, unlike outside cyber-attackers, often a company’s employees are freely granted access to the company’s trade secrets. They don’t need to hack into the company’s system – they just log in with their user ID and password, or stroll down the hall and open a file cabinet.

Second, employees are much more likely to be able to utilize trade secrets to the company’s detriment. A departing employee is well positioned by training and experience to work for a company’s competitor. Insiders will best understand the competitive value of a company’s confidential information, and know which competitors can most easily exploit stolen information. In other words, unlike a foreign hacker, an employee better understands the market for the confidential information and needs to waste little time trying to capitalize on the information.

Third, employees may falsely but genuinely believe that they own the information and aren’t doing anything wrong by taking it to a new employer. An employee who has committed his time and energy to developing information may feel that he owns it, even though he implicitly or explicitly assigned the work product to his employer. Many departing employees who would never consider themselves thieves have no qualms about copying “their own” personal work files to take with them to the next employer.

As important as cyber- and data-security are to protecting a company’s trade secrets, it is equally or more important to assess whether departing employees are walking out the door with the company’s crown jewels. While you are guarding against a secret attack from a foreign agent in the middle of the night, your trade secrets may be carried calmly out the front door on the thumb drive of a once-trusted executive.

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