How You Can Avoid the Nightmare of a Rogue Employee Stealing Your IP and Trade Secrets

It’s the stuff of corporate nightmares: a rogue employee, someone once trusted with the “keys to the corporation,” quits and goes off the rails, stealing your company’s intellectual property and trade secrets, while also denying those left behind access to the company’s business and inventory systems, including company email.

In this real-life scenario, despite written agreements clearly outlining the employer and employee’s respective intellectual property and inventor rights, including a confidentiality agreement, this worst-case-scenario is currently playing out for one US-based company. Unable to access their systems, company operations have ground to a halt, investors are spooked, and prospects for this once up-and-coming startup are suddenly uncertain.

“The company did everything right, from a legal standpoint,” explains IP and business litigation attorney Eric Ludwig, whose law firm, Ludwig APC, represents the company in this matter. “They had the appropriate agreements in place, their respective rights and responsibilities were well-documented, and yet the company still finds itself in an untenable situation. It’s clear the employee violated various agreements, even the law, but what can the company do . . . and at what cost?”

Upon quitting, the employee . . .

• Retained access to all of the company’s systems, downloading documents, files, and various trade secrets;
• Changed access credentials to the system for the rest of the company, effectively blocking others from accessing company files, documents, etc.;
• Tried to erase traces of having accessed the system after quitting;
• Disabled company email accounts; and
• Sent disparaging emails to key company personnel and investors, defaming the company CEO.

“At a minimum, these actions represent a breach of contract,” says Ludwig. “The employee owns none of the company’s IP, yet the employee took it anyway. It’s also clearly a form of theft, infringement of trade secret laws, and a violation of computer access laws.”

But Is It Criminal?

Whether a situation like this rises to the level of criminality can be difficult to determine.  “Even in egregious cases, a prosecutorial agency, like a local district attorney’s office or a federal U.S. Attorney’s Office, may conclude that the matter is too ‘messy’ or that the pre-existing employment and business relationships between the two sides renders it a civil matter, rather than criminal.” Thus, an arrest may be unlikely.  Nevertheless, if a business believes a crime occurred, contact law enforcement and report it.

Protect Your Company

Proper preparation can save companies major legal costs and avert undue stress on the company and individuals involved should the unthinkable happen. To protect against this kind of rogue, damaging behavior, companies can begin protecting themselves by implementing strong policies and procedures, such as . . .

1. Not allowing any one person to have complete autonomy to access company systems, such as finance, email, inventory, etc. Companies should have multiple layers of access and redundancy in place in the event of termination or employee incapacitation. Giving one person 100% control over who can access what, is simply asking for trouble.
2. Just as companies maintain comprehensive inventories of physical assets, they should be keeping track of all digital assets as well, namely all the files, folders, documents, and other materials that comprise their IP and trade secrets.
3. All digital assets and materials need to be backed up securely in the case of fire, technological failure, or theft.
4. When employees resign or are fired, no matter how well-liked or trusted, their access to company email and computer systems should be terminated immediately.

Seek Qualified Counsel

“No amount of documentation, contract language, or threat of civil or criminal penalties can stop ‘stupid’ or prevent bad behavior,” says Ludwig. “The kind of situation described here could take months or years to resolve, with the length and intensity of any fight directionally proportional to the resources a defendant has to bear.”

While prevention is always the best cure, this case underscores the importance of retaining a law firm that is well-versed in business litigation and IP issues.

Protect Your Product. Your Business. Your Dreams.

Contact Eric Ludwig today for a one-hour consultation to discuss your unique copyright, patent, trademark, business litigation, or other intellectual property issue.
(619) 929-0873 | [email protected]