Keeping your company’s secret information secret is a matter of increased focus on protecting company intellectual property

In the last three decades, international trade has increased by a factor of seven — but unfortunately, this advance has also ratcheted up the rate of trade secret theft, an impediment that costs corporations hundreds of billions of dollars a year.

That rate of growth has catapulted multinational commerce to such prominence that it now accounts for a third of all economic activity worldwide.

principal, Zavitsanos, Anaipakos, Alavi & Mensing

principal, Zavitsanos, Anaipakos, Alavi & Mensing

“The world is getting to be a smaller place at a remarkably fast pace,” says Joseph Ahmad, a principal in the Houston law firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing. “When we were kids, there might have been a handful of companies that did a particular thing and probably most or all of those companies were in America.

“Nowadays, we’re seeing competition come from everywhere,” says Ahmad, who primarily represents business executives in trade secret cases and employment-related litigation. “The barriers to entry are rapidly declining, so now a lot of companies are facing competition from all over the world.”

Other factors driving the increased incidence of trade secret theft include large pockets of economic stagnation around the globe and the widespread conversion of analog business information to digital formats, which lends itself more readily to leaks and cyber attacks.

Pamela Passman, president and CEO, Center for Responsible Enterprise & Trade

Pamela Passman, president and CEO, Center for Responsible Enterprise & Trade

“In the last few years, there are a couple of key reasons why trade secret theft has grown,” says Pamela Passman, president and CEO of the Center for Responsible Enterprise & Trade, a nonprofit group whose mission is helping companies reduce counterfeiting, piracy and trade secret theft.

“One reason is the economic times we’re going through. People feel constrained, and they’re working under great financial pressure, so many people are cutting corners. Also, a great deal of companies’ information is becoming digitized and, therefore, more easily transferable.

“So instead of walking out of a place with stacks and stacks of papers, a person can walk out with a USB drive that has a huge amount of information on it.”

Increased cyber leaks and cyber attacks are also contributing to the problem, Passman says.

“There are some fairly aggressive third parties that have stepped up their activity in that area,” she says.

Ahmad agrees but points out that the lion’s share of trade secret misappropriation he encounters is a consequence of actions taken by a company’s employees or ex-employees.

“Of course, we do hear from time to time about individuals or organizations — especially overseas — who hack in to companies’ systems,” Ahmad says. “But, in my experience, that’s not a common occurrence. Most of the trade secret theft I see occurs via a current or former employee.”

That is why, Passman says, it’s essential to be straightforward with employees about your company’s policies regarding confidentiality, particularly as it pertains to trade secrets and other types of intellectual property.

“You have to be very clear with your own employees about your policies and about how serious you are about protecting your intellectual property,” Passman says. “Because that’s definitely where your greatest risk lies. And this is a critical issue both while those employees are at the company and after they leave the company.”

The labor market factor

Unemployment and sluggish job markets are also key factors contributing to the increased risk surrounding trade secret theft.

“Unfortunately, in this type of market, job seekers sometimes resort to extreme measures to gain the kind of edge they feel they need to get a job,” Ahmad says. “I’ve seen many new hires — whether consciously or subconsciously — come into a job with the belief that their value is increased if they can, as some of them would put it, ‘hit the ground running’ when they get on the job.

“In other words, they feel that with the help of their previous employer’s trade secret information, they can do a better job for their new employer. Sometimes this happens with the complicity of the new employer, but sometimes employees do it on their own, because they feel it makes them more marketable.”

What, then, are some practical strategies CEOs and their teams can employ to insulate their companies against the risk of having their trade secrets stolen? One of the important early steps executives can take is to enlist the help of a broad cross section of people in their organization to tackle the issue.

“First off, what I suggest is establishing a cross-group team of people to focus on protecting the company’s intellectual property,” Passman says. “This team should include somebody senior in the legal department, somebody senior in R&D, somebody from business development, somebody on the operations side, for example if they have a manufacturing division, and somebody responsible for procurement and the supply chain. It’s important to bring all these disciplines together and instruct them to establish some policies in this area, including trade secret policy.”

Another step that should be taken by companies that have significant intellectual property to protect is requiring employees to read and sign confidentiality agreements.

“The confidentiality agreement is first and foremost,” Ahmad says. “You have to make sure that every employee understands the significance of holding your company’s information confidential. All employees must be required to agree in writing they will do so.”

There are a number of items and types of information that companies can put into their employee confidentiality agreements to help protect their intellectual property.

One approach is to list or enumerate the company trade secrets and other types of information that are required to be held confidential. Another tactic is to include language stipulating that inventions and similar types of newly created information automatically become the confidential property of the employer.

“This helps the company in several ways,” Ahmad says. “First, you get to define what your trade secrets are and what information is expected to be held confidential and you get to formally notify the employee about it. This also enables you to make sure that whatever new intellectual property your employees develop will be the property of the company, and they will agree to hold that information confidential.”

Vetting third parties

Another area where companies seeking to protect their intellectual property need to be vigilant is conducting due diligence on third parties, such as suppliers and customers, as well as companies they may be seeking to acquire or merge with.

“For any key third parties that you’re going to be sharing your intellectual property with, it’s essential to conduct due diligence on them,” Passman says.

Due diligence encompasses activities such as research, interviews and online searches. A key part of the process is being alert to “red flags” — potential problem areas signaling that the third party may not be effective at helping co-protect the company’s sensitive information.

“Basically, you want to see if [the third party] has any red flags you need to be aware of,” Passman says. “For example, if they’ve been involved in different kinds of litigation, especially litigation involving intellectual property or trade secrets. And you’d want to explore and make sure you understand how they go about managing and protecting the intellectual property of the third parties that they in turn do business with as well.”

Regarding the employee confidentiality agreement, Ahmad says it’s unwise and potentially dangerous for a company to regard this process as a one-and-done deal. In other words, it’s insufficient to simply have employees read and sign the agreement and then file it away. Companies need to remind employees periodically about their confidentiality agreements and about the importance of keeping the company’s sensitive information private.

“Companies sometimes leave themselves vulnerable to trade secret theft loss if they approach these confidentiality agreements like a checklist,” Ahmad says. “By that I mean they can’t just have the employee read and sign the agreement, and then they knock it off their checklist and forget about it. The problem with doing this is you can be sure the employee will forget about it too.

“Many times, an employee will enter into a confidentiality agreement, and then they’ll work for the company for 10 or 20 years, and they’ll forget they even have the agreement. As a result, they don’t really respect the company’s trade secrets the way they should.”

Thus, it’s important to periodically remind employees about their confidentiality agreement — and even more important to underline that agreement’s significance when the person’s employment with the company ends.

“That’s probably the most critical aspect — how the matter is handled at the end of the employment relationship,” Ahmad says. “I’m often shocked at how many employees I see who have signed confidentiality agreements, and at the end of their employment, whether they resign or are terminated, they’re not even reminded that they have these agreements. Many of them don’t even know they have them.”

Business executives would be wise to take advantage of the employee exit interview because it represents their company’s last chance to underscore the imperative of keeping its trade secrets just that: secret.

“At the exit interview, employees must be required to sign and confirm that they understand their responsibilities in regard to keeping the company’s information confidential,” Ahmad says. “By doing that, you’re drilling in to the employee as they’re leaving the company — and presumably going to work for someone else, who just may be one of your competitors — that, ‘Hey, listen, this is serious. We take this matter very seriously.’”

How to reach: Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing, www.azalaw.com; The Center for Responsible Enterprise & Trade, www.create.org

How Carol Wior works hard to stay positive even during the toughest of times

Carol Wior, Founder and CEO, Carol Wior Inc.

Carol Wior has a lot of experience at overcoming challenges. She started her business in a garage with three sewing machines and $77, built it into a $75 million clothing design company and then watched as it fell apart and she had to start all over again.

Add to that a couple of tough recessions and you realize Wior has spent much of the past 20 years in recovery mode at Carol Wior Inc. Fortunately for her, she can still laugh about all the ups and downs.

“You can survive anything if you want to,” says Wior, the 200-employee company’s founder and CEO. “Believe me, there are times when I’d like to bury my head in the sand. Every person goes through that, especially when you start a business on a shoestring like I did. But here’s what you can do about it. There’s a solution to every problem.”

The most recent recession hasn’t completely squelched that optimism, but Wior is still very concerned about the future of her industry.

“A lot of people are using up their reserves and their savings to get them through this rough time hoping that eventually, things are going to turn around,” Wior says.

One of the most common challenges during a recession is that with everyone struggling, you begin to have customers who have trouble paying their bills. You’ve got to find a way to connect with them and work with them to find a solution.

“I have people that owe me money that won’t take my phone call,” Wior says. “That is the most infuriating thing. So I leave messages like, ‘Listen, if you don’t have the money to pay me, I totally understand. If you can give me something, give me 10 percent of what you owe me. Just a little something. I’m not going to pressure you right now. I understand it’s tough. But I need a call back. I need you to talk to me.’

“When people are silent, you don’t know what’s going on and that’s your unknown and that’s when you start to get very worried and upset. Unfortunately, people tend to do that.”

Wior feels strongly that collaboration is vital when it comes to surviving economic slowdowns. That goes both for collecting money from customers and vendors and seeking money from lenders and creditors.

“Sit down with people who won’t give you credit and say, ‘Look, you’re not giving me credit, but I want to show you why you should. Here’s what I can do,” Wior says. “Explain what you have and why you think it’s great.”

Of course, you need to do more than just tell people that what you’re doing is awesome. You need data that backs it up and shows you’ve built something worth investing in.

“If you don’t know what your figures are, your financial statements or your working capital, that will completely turn them off,” Wior says. “You need to know your financial statement upside down and sideways. You have to know the answers to all the questions they are going to ask you.”

Don’t be afraid to bring your accountant along to help with those details and also back up your proposals.

“It’s much easier for your accountant to sell you than for you to sell yourself,” Wior says. “The accountant knows the answers. They speak the same language. As a businessperson, I get very excited. I see the marketing potential and I see the design ideas. I’m all excited about that. The bottom line, the accountants can address that. If you’re going to answer financing questions, bring your accountant with you.”

The key whether you’re trying to collect on bills or add investors is to keep the lines of communication open.

“Face it straight on and attack the problem,” Wior says.

How to reach: Carol Wior Inc., (562) 927-0052 or www.carolwior.com

Have a solution in mind

You may think you’re doing your employees a favor when you offer an overly rosy view of your company’s current financial state. But Carol Wior says you’re just asking for trouble down the road.

“If people understand situations, they can handle them,” says Wior, the 100-employee clothing design company’s founder and CEO. “It’s the unknown that freaks people out.”

When your employees hear a lot of bad news outside the company, and then hear you talk about positives without anything to back it up, you’re going to leave them very confused. And that’s not good.

So don’t be afraid to talk about problems, but do so with a real solution in mind for how to solve it.

“I usually have solutions before I present my problem,” Wior says. “Have some solutions before you express the problem. Here it is. We have a big cancellation and that’s going to mess up shipping for the month. Or so and so isn’t paying us, and they filed for bankruptcy, and that’s really going to hurt our cash flow next month. But here’s what we can do about it. You get the solutions together and then your team sees you working with solutions. They don’t just see you as, ‘Oh my God, we’ve got this problem.’”

Rafi Holtzman shows employees the love at Luidia

Rafi Holtzman, CEO, Luidia Inc.

A few years ago, when one of Rafi Holtzman’s employees called him from Europe and said she forgot her bright pink suit pants she needed for a trade show she was attending, he went to her house and, not wanting them to get crumpled in his suitcase, carried them by hand on the plane. He got odd looks, but it was just one way the CEO of Luidia Inc., a creator of interactive whiteboard technologies, showed his employee that he cared about her.

Holtzman also drinks his coffee with employees so he can talk to them, and he bought employees expensive ergonomic chairs so they would be comfortable. And when any of his nearly 100 employees have family emergencies, he says he’ll see them when it’s over instead of expecting them to work during the crisis.

“Even if you’re a cold-hearted capitalist, you still want to act like this because it buys you the thing that money can’t buy — it’s the personal responsibility, it’s the self-motivation — salaries will not do that for you,” he says. “Salaries are short-term sugar highs. If people understand you’re there for the long-run … it goes a long way.”

Smart Business spoke with Holtzman about how values affect a company.

What role do values play in an organization?

There are two kinds of motivation in human life — and it’s basically falling into two buckets. One of them is fear and the other one is love. Fear is a great motivator for a short-term burst — if you’re running away from a wild animal or doing a very fast project that you need to do right now and kill yourself to finish it. But if you really want to sustain growth, creativity, teamwork for the long run, then you have to be highly motivated to continue this for the long run, and the only way I know how to do that is personal involvement. I’m using the term love, but it’s a lot more than that. It’s a combination of respect and personal responsibility and taking things really personal.
It helps a lot if you believe in that. You can fake it and do pep talks. A lot of companies will say that people are their strongest assets. But from my experience, not a lot really do mean it on the basic level. If you can really believe in that, you’re a large part of the way there.