Trade Secrets Case Provides Important Lesson to Employers and Employees on the Significance of Employment Agreements

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The case making headlines today regarding an ex-Intel Corporation employee accused of stealing trade secrets and giving them to his new employer, rival Advanced Micro Devices, provides some important lessons to employers and employees on the significance of employment agreements.

The Mercury News reported on the case against former engineer Biswamohan Pani as follows:

Federal prosecutors in Massachusetts alleged this week in a five-count indictment that Biswamohan Pani, 33, illegally downloaded more than a dozen confidential documents from Intel's computer system during a four-day stretch in June. He had already resigned from Intel, but remained on the payroll and still had access to the company's computers while he burned unused vacation days.

What Pani's supervisors didn't know then is that instead of taking the time to investigate a hedge fund job Pani claimed he was considering, he had actually started working for AMD and for a brief period was on both companies' payrolls.

Prosecutors say AMD had no knowledge of Pani's actions and did not benefit. But they say the information Pani downloaded was worth more than $1 billion in research and development costs, and included details about methods for designing microprocessors.

While it is unclear at this point as to whether or not the allegations could be proven in a court of law, the case highlights the important role that employment agreements and trade secret education can have on both employers and employers during an employee's employment as well as in his/her subsequent career. As a technology transactions attorney, I cannot help but wonder what agreements this employee signed with Intel and what kind of education on trade secret issues he received while working at Intel. I also wonder what kinds of agreements, if any, he had signed with his new employer when he accepted his new position.

Unfortunately, it has been my experience that these types of agreements often do not receive the kind of attention they deserve, and that the education provided employees is frequently inadequate. While legal recourse certainly is available to employers after an issue arises, it is generally better for all involved if the problems never develop in the first place.

What can employers and employees do to protect themselves in advance from potential trade secret cases?

Well, during the period of employment, employers should obtain employment agreements with their employees, which in easy-to-read language set forth very clearly the employee's obligations with respect to the employer's intellectual property, including trade secrets and confidential information. Employers should provide such agreements to employees for review as soon as possible after the offer is accepted, so that the employee has the time to review and consider the agreements outside of the office, in order to ask questions as necessary, speak with an attorney about the agreements, and determine whether any of the language requires negotiation. After such employment agreement is agreed to, the employer should then devote resources to educate the employee on issues like trade secret and confidential information protection, as well as intellectual property protection, so that the employee fully understands what is expected of him or her. Then, when the employee leaves his or her employment, the employer should reiterate the terms of the previously signed agreements which survive his or her employment, and again remind the employee of what his/her obligations are to the soon-to-be former employer. Of course, one additional action an employer can take is to simply limit the employee's access during the scope of employment to only that information that the employee "needs to know." Based on the article, it seems likely that there would be no case now if Intel had only cut off the employee's access to the trade secret information at an earlier date, so that the employee could not--whether well-intentioned or otherwise--download any files off the company's system.

Similarly, the employee should maintain a file of all agreements signed at any point in time with an employer and retain a lawyer to review all documents before signing them. When he or she leaves a job for any reason, the employee needs to refresh his or her memory on what the terms and conditions are of any agreement which was signed with the employer prior to signing any new documents with any new employer. In addition, the employee needs to educate himself or herself regarding the basics of intellectual property and trade secret law, so that he or she has a good general understanding of his or her legal obligations and the issues that can arise in these areas of law. Finally, if the employee is asked to sign any termination or severance agreements, the employee should retain a lawyer to review the exact nature of the language in those agreements, in order to ensure that he or she is agreeing to language that he/she can actually agree to.

The bottom line is that both employers and employees alike should take employment agreements and education more seriously, in order to protect themselves against the threat of trade secret litigation. Although taking such steps will not prevent legal issues from arising in all cases, the odds of a problem arising is significantly lessened when both sides have taken steps to protect themselves in advance. This is particularly important in a down economy when companies are hurting, layoffs are increasing, and employees are just feeling less secure in their positions. For employers, exerting a little extra care in this area can reduce bad publicity, reduce the risk of losing protection on trade secrets, and prevent the diversion of resources away from growing and investing in the business toward investigations of personnel who are no longer working at the company. For employees, extra care in this area can provide peace of mind and the ability to pursue new career opportunities without having to worry about the threat of potential lawsuits from past employers.

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  1. […] we wrote in a November, 2008 posting, agreements with employees and education are key to ensuring that such misunderstandings do not […]

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