Client Alert

Unexpected Arrival: What to Do When Your Employee Arrives with Stolen Trade Secrets

January 10, 2018

By

Bradford K Newman

& Jessica E. Mendelson

Picture this:  the General Counsel of World Widget Company (“WWC”), an American widget manufacturing company is sitting at her desk and the head of another department comes in to tell her about a potential theft of a competitor’s trade secrets by a new employee.  The department head would like some legal advice as to how to handle the situation so as to limit WWC’s liability.  What will the General Counsel say?  How she proceeds depends on the factual circumstances of the case as well as whether the new employee has started working for WWC.

If the new employee has yet to begin working for WWC, the company would be wise to ensure that the employee returns the data to his previous employer.  One approach would be to have the employee arrange for a forensic examiner to have the data deleted off his personal computer systems.  WWC can also take this opportunity to remind the employee of his obligation not to reveal or use trade secrets belonging to the prior employer, and to conduct an investigation as to why the employee continued to possess this data after his departure from the former employer.  In certain circumstances, WWC could also utilize disciplinary measures, including, in the most extreme circumstances, termination.

If the potential trade secret theft is only discovered after the employee begins work, a company like WWC should consult experienced outside counsel in order to determine appropriate remedial measures.  In addition to consulting counsel, WWC should also consider whether to (1) conduct an internal investigation to determine where the former employer’s data might reside and to what extent the data was used by the employee and/or (2) engage a third party forensic expert to create a forensic image of the computers and/or devices on which the prior employer’s data is stored.  Following the creation of the forensic image, any third party data that is located should be removed in a manner that ensures it cannot be recovered, and a second forensic image made so as to prove that the data in question no longer exists on the computer.  Additional searches using search terms can be used to ensure all third party data has been removed.  Following the imaging, it may be advisable to have a third party forensic expert store the data in case of a potential litigation in order to show that WWC no longer possesses the data in question.

Lastly, there is the question of reporting the theft: should WWC’s General Counsel let the third party know that their data may have been misappropriated, and/or report it to a governmental agency?  Depending on the factual circumstances of the particular case, criminal liability could potentially result, and if the theft is discovered by the company at a later date, WWC might also face liability.  Such scenarios raise complex considerations with various potential outcomes that can lead to serious consequences.  In cases where the new employee “went rogue,” while the most conservative option may be to terminate the employee and notify the former employer, whether to self-disclose in any respect must be the subject of consultation with experienced counsel.
While this blog post provides general guidelines for dealing with the most extreme situations, these types of cases are extremely fact specific, and we highly recommend consulting with experienced outside counsel in order to achieve the best outcome.