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Maintaining Trade Secrets Amid the COVID-19
Pandemic
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Caloiaro,
Steven A. Green,
Caleb

April
2020

Industry Alerts

Over the last few months, the
widespread transmission of the coronavirus disease of 2019 (COVID-19 or the
“coronavirus”) has prompted immediate action from employers and businesses
throughout the United States. As of publication, 42 states have issued statewide
stay-at-home orders, limiting several business operations. While many companies
have ceased public- facing operations, many remain operational to provide
essential and public health services and are making abrupt changes to their work
environment, resulting in an unprecedented increase in employees working
remotely for the first time. Additionally, several organizations are scrambling
to make employment and corporate adjustments, in response to the changing
landscape and effects of the coronavirus crisis.

As a result, companies are
also facing novel challenges for safeguarding their trade secrets and
confidential business information as many employees are forced to work remotely
from home. Meanwhile, many of these same businesses are shifting away from their
normal business operations and are creating new products to address public needs
in the face of the COVID-19 pandemic, including manufacturing hand sanitizer and
personal protective equipment (“PPE”).  Finally, some unfortunate companies
are facing the complicated reality that layoffs and personnel changes might be
necessary to save their businesses.

Crises like COVID-19 can make or break a
company’s intellectual property assets. Accordingly, as businesses scramble to
navigate the changing legal landscape and adopt alternative methods of
operation, they should remain vigilant and take the proper precautions necessary
to maintain valuable trade secrets and confidential information. While
addressing business disruptions due to COVID-19, businesses should take
reasonable steps now to ensure the preservation of intellectual property rights
once this pandemic is over.

WHAT
IS A TRADE SECRET

A
trade secret can be any information that derives financial value from being
secret, provided the owner takes reasonable steps to protect the information.
Trade secrets have no expiration date so long as they remain secret, and
therefore they tend to create perpetual monopolies. Courts have protected
various forms of information under this broad definition, such as financial,
business, scientific, technical, economic, or engineering information.
Coca-Cola’s secret formula, the secret recipe for Kentucky Fried Chicken, the
Google search algorithm, Tinder’s dating software, and even client lists are all
examples of court recognized trade secrets.

Trade
secret protection is a counterpart to patent protection. While patents require
the inventor to provide detailed disclosures about the invention in exchange for
the right to exclude others from practicing the invention for a limited period,
trade secrets require complete secrecy. Furthermore, trade secret protection
vests instantly once information derives financial value from its
confidentiality, whereas patent protection requires a rigorous application and
vetting process.

Throughout
the ongoing pandemic, companies may experience urgent and unexpected demand as
they scramble to adjust and respond to the effects of COVID-19. In fact, some
companies may find new opportunities to introduce  products or pivot their
business operations to take advantage of these new business opportunities,
address public health issues, or supplement growing demand. However, during this
time of transition, company confidential information and trade secrets may be at
an increased risk of exposure. As such, company leadership should implement
proper measures to ensure protection of its intellectual property during and
post-pandemic.

Creating
and protecting trade secrets throughout the current pandemic and
post-coronavirus requires a continuous process of constant vigilance to ensure
the secrecy of your new process, method, or formula.  A key step to
establishing trade secret rights is limiting the knowledge to key employees, and
then having key employees, who have access or have knowledge of key trade
secrets, sign a confidentiality agreement or non-disclosure agreement (“NDA”).
Additionally, companies should consider having employees sign non-compete
agreements to ensure their competitors do not steal their new trade secret
assets and projects amid employee turnover during the COVID-19
crisis.

Each
state has adopted its own trade secret protection laws, which provide a
different degree of protection. Accordingly, business leaders should consult
with an attorney to determine their trade secret rights and ensure they are
taking the proper steps to preserve their rights therein.

DESTRUCTION
OF TRADE SECRETS

As
mentioned above, trade secrets can be created instantaneously. However, as
quickly trade secret protection can be established, it can be destroyed if
proper measures are not taken. Trade secrets, unlike other forms of intellectual
property, can be destroyed by inadvertently failing the keep them secret. As
such, during these unprecedented times, companies should exercise prudence and
take the necessary precautions to protect proprietary information from third
parties and competitors.

Risks
Associated with Remote Working

Several
employers are providing employees with remote access options, in response to the
effect of COVID-19, enabling them to work outside of the traditional corporate
environment. While providing a work-from-home option for employees is a
convenient and necessary measure to reduce transmission of the coronavirus,
business leaders must be aware of the risks that remote systems pose to trade
secrets. Remote access relies on the exchange and transfer of information and
data, typically over the Internet. While teleworking, employees are often
transmitting, accessing, and handling sensitive information, including company
trade secrets, customer personal information, or confidential financial data.
With more employees relying on technology to work remotely and access
proprietary information, hackers are increasing their attempts to exploit
sensitive data through company information systems.

For
example, in 2018, over 10 years of confidential car manufacturing trade secrets
were exposed after hackers infiltrated a robotics engineering firm storing
sensitive information. Among the car manufactures were clients of the
engineering firm, including Volkswagen, Chrysler, Toyota, General Motors, Tesla,
and ThyssenKrupp. The 157 gigabytes of compromised trade secrets were made
available online and included over a decade of assembly line schematics, factory
floor plans, robotic configurations and documentation, employees ID badge
request forms, contracts, and non-disclosure agreements.

Remote
workers can also jeopardize company trade secret exposure from the comfort and
convenience of their own homes, via voice assistance systems, smart speakers,
and home surveillance systems such as Siri, Google Assistant, Amazon Alexa,
Echo, and Ring. These popular household gadgets have a history of security
vulnerabilities that have led to several instances of eavesdropping and spying.
For example, hackers have focused on the home security company Ring by gaining
unauthorized access to homeowner’s accounts and commandeering cameras and
microphone hardware embedded within the security system. Recently, hackers
successfully accessed Ring security cameras within the home and spied on the
homeowners and their family members.

Given
the increased risk to trade secrets in the work-from-home environment, companies
must adopt measures to protect their proprietary information. It is paramount
that businesses create a culture of compliance by establishing corporate
policies and exercise reasonable efforts to maintain the secrecy of trade
secrets. Namely, companies should work with legal counsel to craft
remote-working policies that address the importance of protecting confidential
company information. For example, companies should limit printing and physical
copies of confidential information, and restrict remote access to any such
printed information within their homes, just as they would in the office.
Companies should also prevent employees from storing proprietary information on
their personal devices or transmitting work-related information over public
networks by equipping employees with work-issued devices and secure network
access (e.g. virtual private network accessibility). Companies should require
that the most confidential documents are password protected when its most
sensitive documents are transferred electronically and that the email or
communication containing the password is sent separately and part from the
document.  Finally, if you are setting up remote virtual desktops, ensure
only key employees have complete access to the trade secret information.

Companies
should also ensure that existing confidentiality practices are transitioned and
enforced in the remote setting. Teleworkers and employees should be consistently
reminded that working remotely does not create any exception to existing
confidentiality and non-disclosure agreements or company policies, manuals, or
practices. For example, if your standard practice is to have third parties sign
an NDA during an in-person meeting, in the work-from-home environment, employees
should be sure to send NDAs to third parties before a phone call or virtual
meeting. Company policies should also prohibit employees from discussing
confidential information in the presence of third parties, including family
members, friends, or smart devices (i.e. speakerphone, Ring, Google Assistant,
Alexa, etc.). Finally, teleworkers should be brought up to speed on increased
cybersecurity threats that seek sensitive information under fraudulent
communications related to the COVID-19 pandemic.

Risks
Associated with Off-boarding Employees

The
most common way trade secrets can be exposed is through disclosures by employees
and workers. When employees who have been trusted with confidential trade secret
information are laid-off, furloughed, or otherwise let go from their positions
in the company, many will transition to other companies and competitors,
carrying trade secrets and proprietary information. Accordingly, a company must
have employees sign non-disclosure agreements and establish a proper
off-boarding process to ensure employees are not taking its valuable
confidential information. Departing employees subject to non-disclosure
agreements should be reminded of their post-employment contractual obligations.
These measures and practices can increase the likelihood of enforceability and
amass rapport and social capital with outgoing employees.

Limitation
to Trade Secret Enforcement

Additional
trade secret protection protocols are especially necessary during the ongoing
pandemic. Successfully obtaining enforcement of trade secret rights from courts
is unlikely at this time as access to the courts is extremely restricted or
completely unavailable. As a result, obtaining temporary restraining orders and
preliminary injunctions are difficult amid the current climate. Even
post-pandemic, when the courts are fully accessible again, the backlog of
pending matters will likely delay any relief or enforcement of intellectual
property rights. Therefore, businesses must take active steps immediately to
protect their confidential and proprietary information.

CONCLUSION
& RECOMMENDATION

In
the face of the COVID-19 pandemic, businesses must adopt measures to prevent
exposure and destruction of its valuable trade secrets. Companies are at an
increased risk of losing valuable intellectual property and proprietary
information. While businesses navigate through these unprecedented times, they
must prioritize the preservation of confidential information throughout the
pandemic. Further, they must keep in mind that because court enforcement is
likely to be extremely limited, the existence of sound protection protocols is
of the utmost importance.

Businesses
must have policies and measures in place to safeguard their trade secrets. Even
if your company already has a trade secret preservation policy in place,
protocols should be analyzed and revised to address COVID-19 specific threats
that may jeopardize your company’s valuable intellectual assets, including
employee turnover and cyber-security threats. For businesses venturing or
considering a transition into new areas of operation to address the COVID-19
emergency (i.e., manufacturing sanitization products, medical products, PPE,
etc.), business leaders should consider protecting emerging intellectual
property rights.

For
new initiatives that will take time and resources to incorporate into the
corporate infrastructure fully, businesses should consider patent protection.
New inventions, products, or methods are patentable until a year after they are
publicly disclosed. However, trade secrets are well suited for new processes,
products, inventions that will be rushed or introduced into the market more
swiftly.

As
employers and businesses consider new measures to protect confidential
information, corporate leadership should seek legal counsel. Intellectual
property attorneys can assist companies in identifying proprietary information,
recommending best practices, and constructing proper policies and safeguards to
insulate your trade secrets from exposure. Susan Benedict’s attorneys have
considerable experience in assisting companies and individuals in protecting
their intellectual property. The firm remains committed to helping our
clients navigate this unprecedented time and remains fully available to provide
any assistance that may be required.

Related Services

COVID-19
Developments

Intellectual
Property

Contacts

Steven
Caloiaro

Member
Reno

Las Vegas

T:775-343-7506

E:[email-masked]

Caleb
Green

Associate
Las Vegas

T:702-550-4417

E:[email-masked]

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