Protecting Your Supply Chain To Avoid Trade Secret Theft

Over the past few years, several high-profile data breaches have captured news headlines and left consumers scrambling to change their credit cards and passwords. Although cyber attacks command a great deal of media attention, your small business may be leaving itself vulnerable to more traditional forms of theft. Your company is likely sharing confidential information and trade secrets with every member of your supply chain, including both employees and third-party vendors. As your company grows and you begin to outsource production, distribution, or warehouse functions, the risk of exposure increases. But fear not. There are measures your small business can take to secure your supply chain and reduce the risk that your company’s valuable intellectual property will be stolen.
1. Conduct a Strategic Assessment of Trade Secrets
A trade secret is useful commercial information (including formulas, programs, methods, or techniques) which is not generally known to the public and which provides a competitive advantage to its owner. Common examples of trade secrets include consumer profiles, supplier lists, manufacturing methods, or strategic business plans. Unlike patents or copyrights, which last for a fixed duration, trade secret protections last as long as their secrecy is maintained. Accordingly, it is paramount for small businesses to take necessary steps to maintain the confidentiality of trade secrets throughout the supply chain.
A strategic trade secret assessment identifies and inventories the company’s valuable proprietary information, categorizes the information by type, and assesses its value. This assessment then informs company policies regarding confidentiality. For example, your company may consider restricting access to documents, databases, or aggregated confidential information to reduce the risk of disclosure.
2. Train & Educate Your Staff
Most intellectual property losses occur as the result of employee disclosures. Employee cooperation is essential to maintaining confidentiality. It is not enough to hand an employee a non-disclosure agreement and hope for the best. Instead, as part of the hiring process and throughout the employment relationship, companies should provide training about the obligation to maintain confidentiality, reinforce best practices for protecting company intellectual property, and discipline lapses. Companies should train employees to report potential breaches and have rapid reaction contingency plans to mitigate losses.
3. Employ Strong Contractual Protections
As a small business, minimizing legal fees is always a goal. However, engaging counsel to review (and if necessary, renegotiate) the company’s contracts will likely save the company substantial money when and if the company’s trade secrets are misappropriated. To avoid trade secret misappropriation, your counsel should review all employee non-disclosure agreements and policies, vendor contracts, and intellectual property licenses. It is essential that anyone who receives confidential information from your company has a contractual obligation to maintain the secrecy of this information. You can further strengthen your vendor contracts by including audit rights and penalties for confidentiality breaches.
4. Monitor Departures & Enforce Contract Rights After Termination of a Business Relationship
When employees are terminated, they should be reminded of their ongoing contractual obligation to maintain the confidentiality of company trade secrets and proprietary information. Once the business relationship ends with an employee or vendor, the company should also require the return or destruction of any proprietary information obtained from the company, monitor compliance with contract provisions regarding confidentiality, and if necessary, swiftly pursue litigation to protect the company’s intellectual property rights. The failure to aggressively protect the company’s trade secrets may result in lost profits and damage to the company.

Intellectual property rights are often a company’s most valuable assets, and small businesses must remain vigilant to maintain the secrecy of trade secrets to preserve their value.

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