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Employee Turnover And Retention Briefings Abstract: 78

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Trade Secret Protection [MIT Sloan Management Review] Tuesday 05/30/06 4:08 PM

More than $50 billion is lost per year due to trade secret and other intellectual property losses.

Trade secrets are a type of intellectual property that meets the following criteria:
- The trade secret must contain information, such as a formula, pattern, method, technique or process
- The information must be valuable to the organization that owns it and that value must be derived, in whole or in part, from the exclusive possession of the information
- The organization must make reasonable efforts to protect that information.

Trade secrets can be protected in perpetuity as opposed to patents which are protected for 20 years.

The biggest threat to a company's trade secrets comes from current and former employees not from spying competitors. According to the author, there are 8 common mistakes that companies make when trying to deter employee abuse of trade secrets. They are outlined below:

1) Giving Short Shrift to Trade Secret Issues During New Hire Orientations

Legal documents to protect trade secrets are often presented to new employees at the start of their employment. These documents are presented along with a myriad of other documents that the employee must attend to as a new hire. Little attention is given to making sure employees understand the contents and requirements of these documents. Research has shown that most employees only have vague recollections of the details of what they have signed and are unclear on corporate policies regarding handling trade secrets.

2) Not Communicating Regularly Regarding Trade Secret Policies

Educating employees on trade secret policies must be an ongoing endeavor. Consider holding meetings twice per year to review this information. Another approach to keep this information in the back of an employee's mind is to send out periodic emails and/or memos and provide manuals with policy details.

3) Signaling to Employees That They Aren't Trusted

Research shows that when employees feel they are not trusted, they are more likely to break company policies on protecting secrets. Clear "handling procedures" on the other hand, increases an employee's feeling of obligation to protect the company's sensitive information.
Therefore it is wise to limit restrictions and focus more on communicating clear procedures regarding handling secret information.

4) Punishing Instead of Helping

Trade secret protections should be designed to help employees do their job, not punish them for potential wrongdoing. Having quick and easy access to help determine proper information handling is helpful.

5) Not Practicing What is Preached

Be careful that management is as vigilant with protecting trade secrets as they expect staff to be. If a senior executive reveals confidential information publically, employees quickly become cynical. It may be helpful to assign a member of the leadership team to be a point person in charge of making sure information is protected from all ranks of employees.

6) Forgetting to Clarify Ownership Issues

Some step to clarify ownership issues include:
- Require all employees to sign assignment provisions stipulating that the company is the legal owner of ideas generated by employees that they come up with at work
- Make sure employees are aware of handling procedures for new ideas
- Let employees know that generating new ideas is a part of their job and something they are paid to do
- Consider offering financial or other incentives to reward employees for ideas that the company implements
- Relinquish ownership of ideas that the company does not plan to pursue

7) Defining Too Narrow a Scope

Employees are likely to cede ownership of ideas related to the company's main business but hold onto ideas they feel are not related to the companys core business. It's important to make sure employees are aware of the scope of business interests both currently as well as into the future.

8) Failing to Address Departing Employees

Be sure to remind all departing employees of their duty to protect the company's assets. Be careful not to accuse employees but make it part of the company's standard termination procedure. Consider integrating into the exit interview process a review or inventory of the employee's company secret information.

For involuntary terminations, proactive measures may be necessary. One approach for high risk individuals is to send a letter to the employee's new company stating the consequences if the employee divulges company secrets.

Taking precautions with regard to trade secret protection not only prevents the loss of important competitive intelligence, it also aids in a legal defense should that become necessary.

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