The law recognizes both wrongful taking and wrongful use as actionable. These wrongs and their subjects overlap the legal disciplines of intellectual property, employment and unfair competition.
“The best approach to trade secrets is to think about them early, identify the subject, and figure out how to protect them with security and legal measures,” says David Brezina, a partner at Barnes & Thornburg LLP. “When a problem occurs, don’t pigeon-hole it but explore all alternatives.”
Smart Business spoke to Brezina about how to protect your company’s valuable trade secrets.
How are trade secrets pigeon-holed?
By pigeon-holing I mean identifying a particular area of the law that you think covers everything about your trade secrets.
When employees take trade secrets as they leave, you might initially react by categorizing the problem in a particular area of law. But general knowledge and skill may well be transportable to a new job, absent other limitations. You might call an intellectual property lawyer, an employment lawyer or a commercial litigator. Seeing all three points of view will help.
What can be protected?
With intellectual property, the general rule is that you can’t protect an idea, just the embodiment of an idea. You can’t protect an idea for a cop show about a street-smart veteran cop and his wisetalking rookie partner, because all cop shows have that. But if you write a specific script and someone takes too much, that’s copyright infringement.
It’s the same with trade secrets. They’re not a piece of protectable property unless they rise to certain standards. General skills, such as setting up a lathe, programming a computer or selling, are probably things that can’t be protected.
On the other hand, specific business secrets that are not generally known and give a company a competitive advantage may be protectable.
A mechanism needs to exist to enforce those rights. In most states, the theft of trade secrets gives you the right to go to court. But the same situation may be covered by other legal theories. If material has been copied, for example, it may be a copyright infringement. And there may be contractual rights, other intellectual property rights or other theories involved.
What about loyalty between employer and employee?
It may be that the employee ethically owes it not to take trade secrets and stab the employer in the back. Perhaps the employee had to sign an employment or non-compete agreement at the time of hire. Or he’s at least taken a paycheck and legally must follow a policy manual that forbids removing confidential information. Employment lawyers are very familiar with employee loyalty disputes.
A company also needs to make sure it maximizes protection of intellectual property from the beginning: trade secrets that are protectable are protected. If it’s not treated as a secret, then it’s hard to say someone took a secret. But by protecting it, you are acknowledging that it’s a secret.
You can protect other forms of intellectual property by registering copyrights and trademarks, and applying for patents.
Is protection a legal or security issue?
Legal protection depends on the nature of the subject. If your secrets are all on a computer, are passwords changed regularly? Does someone monitor the passwords? Is there a limitation on the number of copies that someone can make? All of these are security issues.
A thumb-drive security device or physical locks can prohibit unauthorized people from getting into the network. Thorough personnel and IT policies can provide pretty high security and be evidence that you’re treating the information as secret.
At the opposite end of the spectrum, sloppy employee practices can make it harder to prove secrecy. For instance, if an employee types in a password while someone is looking over his shoulder, and then the entire database is illegally downloaded, that’s not an employee issue but it’s definitely a trade secret issue.
How can intellectual property be protected?
If information is in a tangible medium such as a database, list, blueprint, drawing, plan, spreadsheet or text, you can copyright it.
Here’s a good example of illegal infringement. An office sub lessee steals some blueprints from the lessee, our client. The sub lessee later declares bankruptcy and claims ownership of the blueprints. We present our copyright certificate and reclaim the blueprints.
If you send your property to the Library of Congress to be copyrighted, you may give up secrecy unless you follow the right procedures. But you can withhold 49 percent of the material and still get copyright registration and preserve your secrecy if you follow proper procedures.
DAVID BREZINA is a partner at Barnes & Thornburg LLP. Reach him at (312) 214-4802 or firstname.lastname@example.org.
The surveys were conducted by Robert Half Management Resources, the world’s largest project consulting firm providing senior-level accounting and financial talent.
Smart Business spoke with Mike Shapow, Chicago vice president of Robert Half Management Resources, about how professionals can become successful consultants and how companies can make effective use of consultants and temporary workers.
What is your advice for someone who is considering becoming a consultant?
Start by doing a hard self assessment to figure out what you’re good at. This may involve further developing the skills and training you already have. Successful consultants tend to be specialists, not generalists, so avoid the temptation to say ‘I can do that’ for every opportunity.
Once you’ve identified your focus, you need to get the word out. Getting involved with professional associations is an outstanding way to become visible. In our business, we are always looking for talent, so we attend a lot of association events.
What are realistic expectations for someone entering the field?
It can be challenging for a consultant to line up a new engagement while working on a project. A lot of people underestimate how difficult that is. Most people are skilled at being able to sell themselves, or have a strong and specific professional skill set. Very few people have both. That’s why working with a professional staffing firm is an excellent step. They will serve as your talent agent to place you in situations where your skills can be most effective.
How should businesses select consultants?
A lot of people are conditioned to respond to the rsum, and that is a mistake. So many times there are really good candidates who don’t write good rsums, and vice versa. Some people look great on paper but don’t deliver. Companies should interview the prospective consultant with someone who understands the skill set, so they can have a more substantive discussion and get a better feel for the candidate. If you’re working through a staffing company, you can arrange a two- or three-day ‘working interview’ where the consultant is actually on the job. In the unlikely event that the consultant is not a good fit, some companies will pay the consultant but not bill the client, which provides a good opportunity to assess without risk.
How can companies effectively manage consultants?
Consultants should be managed just like regular employees. That means make sure they understand expectations, know the limits of their project, and have someone available to turn to.
When companies are unhappy with their consultants, it’s usually because they hire them and never talk to them again. They don’t give them the tools and resources to be successful. A common example is to exclude consultants from day-to-day communications, such as meetings and e-mails. That’s a mistake. It might be easy to leave consultants out because they’re is working on a special project, but they miss out on a lot of valuable informal communication.
Describe some situations where consultants can add a lot of value.
Consultants are great for companies in transition. That might mean a company that is relocating, downsizing, in the middle of a merger or acquisition, or in bankruptcy. It is hard to hire permanent people when you can’t tell them what the future will look like. Consultants understand this and can work under those circumstances.
Special projects are another good opportunity to handle with consultants. If companies need to create new financial reports, tax research, special financial analysis, or help integrating a new ERP system, consultants are a good option.
Consultants are also very valuable when there is sudden change, such as someone taking maternity leave, an unexpected resignation, or when there is greater-than-expected response to an early retirement offer. Having a consultant in place, even if he or she is only an 85 percent fit for the position, takes the pressure off the company to hire the first person they see.
MICHAEL SHAPOW is Chicago vice president of Robert Half Management Resources, based in the firm’s Oakbrook Terrace, Ill., office. Reach the author of “How to Market an Information Systems Consulting Niche” at (630) 368-0307 or email@example.com.
As CDHPs gain in popularity, so do the many options, like HSAs, that are available alongside those plans. Recent statistics show that enrollment in consumer-directed health plans has grown to about 4.9 million, according to findings recently published by Inside Consumer Directed Care.
“HSAs can offer many advantages to both employers and employees,” says Bill Berenson, vice president of sales and service for Aetna’s North Central region. “For employers, HSAs, in concert with high-deductible health plans, promote employee engagement and accountability for health care spending, which has the potential to help lower health care costs. Employees earn tax-free interest on account dollars, and they can roll over unused dollars for future health-related expenses.”
Smart Business spoke with Berenson, who answered some general questions about HSAs and how enrolling in an HSA offers employees an opportunity to save on health care costs or build a tax-free savings account for future expenses.
What is a health savings account (HSA)?
An HSA plan is a tax-advantaged account created to pay for qualified medical expenses in conjunction with high-deductible health plans. An HSA can be used to pay health plan deductibles or qualified expenses; help pay for future medical, COBRA or certain retiree or long-term care insurance premiums; or, if allowed to grow over time, earn tax-free interest.
Is there an annual cap or maximum amount that may be contributed to an individual’s HSA?
HSA contributions are limited to a plan’s annual deductible, which is determined by an employer, or $2,700 for an individual and $5,450 for a family, whichever is less. If the employee participates for less than the entire taxable year, the limit is prorated on a monthly basis. These limits will be adjusted for inflation in future years. Individuals age 55 and over may make an additional ‘catch-up’ contribution of $700 per year in 2006. This amount increases $100 per year until 2009 when it will be $1,000.
What expenses are eligible for payment through the HSA?
HSA can be used to pay for most qualified expenses as defined by the IRS Code 213(d). These expenses include, but are not limited to, medical plan deductibles, long-term care insurance premiums, COBRA, diagnostic services covered by the employees’ plan, over-the-counter drugs and LASIK eye surgery. A copy of IRS Publication 502 to review a list of allowable expenses can be obtained by phoning (800) 829-3676 or by visiting the IRS Web site at www.irs.gov. Employers and employees should consult with their tax adviser to determine eligibility requirements and tax advantages for participating in an HSA plan.
Can an HSA be used to pay for nonhealth-related expenses?
Yes. Employees may withdraw money from their HSA for items other than qualified expenses, but it will be subject to income tax (unless they are age 65 or disabled) and an additional 10 percent penalty tax on the amount withdrawn.
How are contributions made to an HSA?
The employer’s benefit plan may allow employees to make periodic contribution to their HSA as part of their annual benefits election. Otherwise, they may contribute to their account through payroll deductions, if applicable; automatic deductions from their bank account; or by check or money order. At any time, a lump sum contribution may be made, in any amount up to the maximum limit. If employees do not fund up to their permitted limit in any year, they have until April 15 of the following year to complete their HSA contribution for that year.
How are contributions to an HSA taxed?
If contributions are made as part of an annual health benefits election and submitted as part of the employee’s payroll deduction, then those contributions may be included in their income. Other contributions made to the HSA can be deducted from their income when they file their annual federal income tax return, even if they do not itemize deductions.
What happens to any remaining money in an HSA at the end of the year?
At the end of the year, any money remaining carries over to the next year.
Does the money in the HSA earn interest?
Yes; an HSA can grow over time. Interest earned on an HSA is not included in the employees’ income for federal tax purposes. There is no minimum balance required to earn interest. In addition, once their HSA balance reaches $2,000, they may have the HSA investment service available to you.
BILL BERENSON is vice president of sales and service for Aetna’s North Central Region. Reach him at (312) 928-3323 or firstname.lastname@example.org.
Create a strategy. HPI had been a company, prior to our arrival, without a strategy. Most of the late ’90s at HPI were characterized by a series of acquisitions and dispositions. There was not a very good job done of integrating those businesses.
Because that was the main thrust of the strategy, a number of things that are absolutely crucial to success and survival in the consumer products industry new product development, brand development, people development had been secondary concerns. We found ourselves in possession of a company that had really been trying to sell itself for most of the time since 2000 and had been sustaining itself by not investing in the business.
Execute the strategy. We put together a management team that is really pretty good at operating a business. By operating a business, I mean focusing on what is really important customer relationships, managing the manufacturing, managing the supply chain, keeping an accurate track of costs and expenses and working capital, and just good at the basics.
The second thing we did is we strengthened the area as it relates to how we interact with customers. We built multilevel relationships with our customers. It was no longer just the salespeople, but all members of our organization got involved in the selling process, so that we had not just the ability to tell a better story and tell it more clearly, but we were also more accessible and able to listen to what our customers were saying.
We invested in resources to develop new products and enhance existing ones. We took a very long and hard look at the whole image of our company and, in particular, our brand, and embarked on a process to enhance the relevance and attractiveness of our brand.
Build a brand. The image of our company, until the middle part of last year, was one that was anchored very much in the low-end of the markets in which we operated and did not bring much creativity. We were kind of boring.
We brought good service, reliability, our quality was OK. One of the first things we did was we decided in the areas in which we operate, we have to be the subject matter experts.
We have to transform that knowledge into enhancements to the product and enhancements to the presentation that made sense to the retailers so that they looked at us not just as people who deliver boxes of stuff, but who actually could tell them how to sell consumer problems.
Lead the way. I see myself as the person who makes it possible for everybody else to succeed.
That’s my mission. I’m somebody who basically makes sure that we have the human resources and the other resources so that we can all do our jobs well.
If there are issues, I work with other members of the team to address them quickly so that they don’t slow things down or get in the way. I also try to be the spokesman for what it is that we are trying to do and what is it that we believe in and help people understand that and stick with it.
Walk around. I try and maintain one-on-one personal contact wherever I can, which just means walking around. I don’t believe that you learn much or achieve much by sitting in front of a computer screen. I’m often not comfortable with how little time I do spend out there.
I’ve gotten into the habit of sending people e-mails and just letting them know, ‘By the way, this has happened, and this is great,’ and, ‘By the way, this is not happening, and I’m concerned, and this is what we should do about it.’
Be accountable. About twice a year, I get up in front of every one of our employees in all of the different locations and I just make myself accountable to them for how the business is doing and give them the opportunity to ask questions and share with them what our expectations are of them.
It’s just taking opportunities formally and informally to have dialogue. And dialogue in my book is basically listening.
Know what you want to accomplish. Every challenge is different. Every CEO has to know very clearly what it is he or she wants to accomplish and be able to enunciate that clearly so that other people understand. When you have all of the people on your team on the same page, then you have an effective organization.
Watch for results. (The job) was an opportunity that came out of the blue. It’s not an easy one, but it’s a lot of fun. It’s really started to become exciting, because we’ve been here long enough now to know that some of the things I talked about are beginning to show results, beginning to get traction.
The things that we’ve put in place have really laid the groundwork for a future that for most of the 1,000 people who were here before we came wasn’t anywhere near as rosy as it now looks like it could be.
HOW TO REACH: Home Products International Inc., (800) 327-3534 or www.homz.biz
It reverberates in everything Knoll does, from his business to his personal life.
Knoll was a master distributor for Sunoco from 1987 to 1995 when he got the itch to develop a fuel that would make things go faster.
The result was Torco Racing Fuels Inc.
Torco has grown into a complete high-octane fuel blending, storing and resale facility, becoming one of the top private energy reserve movers in the country. Knoll has blended his own fuels and currently has 13 patents and trademarks on race fuel and performance products.
Knoll has learned that being diversified is the name of the game. In addition to his fuels, he has also innovated and trademarked his “Skull” product line. This trademark is on everything from the race cars he owns or sponsors to clothing items, bottled water and, later this year, car care products. He also anticipates expanding his packaged products such as accelerator additives into retail stores, developing a reality TV show and partnering with others to market his Skull brand name on sunglasses, barbecue sauce and marina gear such as surfboards and wet suits.
The company has seen great growth during the last two years and forecasts continued growth for the future. Knoll credits his motivation to seeing other people getting excited, making them laugh and seeing them enjoy life.
How to reach: Torco Racing Fuels Inc., www.torcoracefuels.com
Schmidt Associates has grown into a full-service facility design firm with strong ties to leaders in government and education in the state of Indiana and a growing national presence. What started as a one-man dream has become a 98-person firm.
Schmidt had the vision to invest in revitalizing the Indianapolis downtown area long before it was recognized as a vibrant urban neighborhood. His perseverance and consensus building was instrumental in obtaining money to improve facilities in the Indianapolis public school system.
Schmidt implemented an innovative gate system of quality management at his firm to ensure excellence in service and design. Projects do not advance to the next stage until every item in the previous stage has been checked off. This system, coupled with a structure of continuing internal and external 360-degree feedback, supports the firm’s reputation for really listening.
Servant leadership is implemented as an integral part of how every employee of Schmidt Associates is expected to live out his or her work. It is taught at orientation and supported through the culture of the firm.
Schmidt also provides 100 on-site educational opportunities, quarterly off-site retreats and encourages an intentional approach to growth and development with career paths and advocates to facilitate advancement.
How to reach: Schmidt Associates, (317) 263-6226 or www.schmidt-arch.com
He joined CoolSavings in 1996 as its third employee as vice president of sales, and in 2001, Moog was named president and CEO of the company.
CoolSavings was an Internet-based coupon service where people could register and select coupons from a variety of product providers.
Moog was named CEO when the company had reached the end of its original business model, consistent with many of the dot.com startups at that time. Moog’s first task was to significantly reduce employee levels and decide what, if any, the vision of CoolSavings would become.
Under his leadership, the core business was dramatically changed. The name of the company was changed to Q Interactive (QI) in 2006 in order to more accurately reflect the change in core strategy and the company’s ability to offer a variety of services to its customers.
With the company’s change in core strategy to lead generation, QI developed an extraordinarily sophisticated, scaleable and reliable technology and analytical infrastructure that provides for Internet-based marketing that is 100 percent at the permission of the recipient.
This is a huge differentiating factor from the majority of Internet-based marketing approaches and provides businesses the opportunity to obtain qualified leads for product sales.
How to reach: Q Interactive, www.qinteractive.com
He learned early on that the key to strategic growth was to form partnerships with major retailers.
Under his leadership, the company has identified several core strategies:
- Integrate long-term and short-term strategies for development horizons. A project might require waiting for urban growth to come to a particular area before being feasible, while at the same time, smaller properties can be bought and sold to drive cash flow.
- Focus on income while limiting costs. Livesey recognizes the need to respect costs, however, revenues are the key foundation of profitability.
- Focus on being a developer. At one time, Livesey vertically integrated a construction management division, but when it did not produce the desired result, this strategy was re-evaluated and the division was removed.
- Focused strategy while remaining close to the market. Each market has a unique set of facts, and changes at various rates. As a result, an intimate understanding of the area of development is key to success. Many developers expand into other types of development projects rather than stay focused on retail, office or residential developments, with limited success. Livesey remains focused on retail developments, and will only entertain the idea of other types after significant research and consideration.
How to reach: Livesey Co., (608) 833-2929 or www.liveseyco.com
His niche strategy was to focus on providing a wide range of services to businesses, not retail customers. His three main strategies have been:
- Stay locally owned. While most banks were branching their locations and taking decision-making out of the local market, Smith saw a real need for a business bank that was locally owned and made decisions locally. He raised capital from the local community and continues to maintain local ownership and retain local ties.
- Experienced business advisers, not just bankers. Smith developed a concept of a bank with business advisers, believing that businesses and business owners would rather deal with business experts. He has surrounded himself with an experienced management team.
- Unique approach to customer service. When you walk into a First Business bank, you do not feel like you are walking into a bank. There are no teller lines, just a receptionist who will direct you to an account representative. Smith has modeled the business so that all clients have direct access to the knowledgeable decision-makers there are no customer service personnel as the first point of contact. First Business also offers a courier deposit service, something few other banks provide.
Smith has also developed a list of more than 40 items, which he calls his statement of beliefs, expressing the company’s policies on treatment of employees and clients. It is a list of items, some very simple, that he requires all his employees to understand and practice.
How to reach: First Business Financial Services, www.fbfinancial.net
CIK Enterprises is a holding company with two operating divisions: Tri-Auto Enterprises and Trace Communications. Trace Communications wholesales full-color advertising and marketing printing and mailing services, primarily with newspapers and ad agencies.
Tri-Auto specializes in the marketing of direct mail and newspaper inserts to automobile dealerships and automotive event sales teams.
Innovative strategies used by Medley include:
- Competitive pricing. The large print volume generated by the business has afforded economies of scale and favorable printing costs, which can be passed on to the customer.
- Cash is king. Most of the company’s revenue comes from customers on a prepaid basis, while most of their vendors have allowed payment within 45 days, which has resulted in good cash flow for operating purposes.
- Competitive outlook. Medley analyzes the competition, determines their weaknesses and works to avoid those problems with his company.
- Open-book management. CIK employs an open-book management system where employees are considered part of the team and the financial goals and results are open to all who are part of the team. All employees act and think like owners, which motivates them to work toward achieving common goals.
How to reach: CIK Enterprises, www.cikenterprises.com