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Increasingly, employers find themselves battling former employees over the companies’ intellectual property (IP). The seriousness of such disputes was emphasized recently in Santa Clara County California where 6 Avant! employees were convicted in a criminal trade secrets case, and Avant! was ordered to pay $195 million in restitution to Cadence Design Systems, Inc. At the heart of the cases was an allegation that former Cadence employees stole copyrighted and trade secret source code for use in a competing computer software program at Avant!.

Cases such as this demonstrate the importance of preparing and regularly updating a company’s policies and procedures for handling IP and for enforcing violations of these policies. Guidance for establishing and maintaining effective IP strategies include:

Employee Handbooks

Handbooks should include policy statements relating to:

(1) Management of IP: The policy should reinforce the company’s ownership in its IP; outline the responsibilities of employees, managers and legal counsel; and define a process by which IP issues are considered by appropriate company personnel in a timely manner; and (2) Avoiding Conflicts: Handbooks should include clear guidelines for dissemination and disclosure (internally and externally) of any company IP and for accepting IP of any third party (including receipt of unsolicited ideas).

Companies should require that all employees and independent contractors sign an agreement that:

(1) Provides an explicit statement of what the company regards as its IP, establishes an affirmative duty to report conception of IP, includes a comprehensive assignment of IP to the company, and obligates the employee to assist the company as it seeks available protection of rights to the IP; (2) includes the employee’s consent to nondisclosure of company’s IP; and (3) the IP Agreement should include an acknowledgement by the employee that he/she will not disclose or use any third party’s IP for the benefit of the company.

Generally speaking, a trade secret is information that derives economic value by not being generally known to other persons and that is the subject of efforts to maintain its secrecy. Information regarding failures as well as successes can be trade secrets. Trade secrets may include for example, a formula, pattern, compilation, program, device, method, technique, process, drawing, cost data or customer list.

Employers must create the proper atmosphere to guard trade secrets, including labeling filing cabinets “confidential”, storing proprietary documents under lock and key, and using logs to monitor dissemination. Employers should periodically alert employees and third parties to the existence of trade secrets and their proprietary nature through newsletters or written and electronic memorandum.

Recruiting employees: Determine whether the applicant’s prior employer is likely to impose post-employment restrictions. Often, the very knowledge you are attempting to acquire is what a former employer seeks to keep confidential.

Newly hired employees: Discuss IP policies and procedures with all new employees, including their responsibilities within the procedures. Have the new employees sign an IP Agreement the day they start employment.

Current employees: IP policies and procedures should be periodically reviewed with every employee. As employees advance through the company, exposure to sensitive information about the company’s competitive advantage may increase. If current employees have not signed an IP Agreement, have them sign one.

Exiting employees: Remind employees of the continuing duty of non-disclosure, ensure all company IP has been returned and, if possible, determine the new employer and description of the new job. Send a follow up letter to the ex-employee and their new employer that sets forth the ex-employee’s continuing responsibility to the company. If the exiting employee is entitled to compensation, seek a signature acknowledging the continuing duties as a condition for payment.