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Intellectual Property Theft Lessons From Coca-Cola

August 24, 2006
Related Topics: Miscellaneous Legal Issues, Technology and the Law, Ethics, Featured Article, Technology
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First the bad news: In the age of high tech, employee theft—especially when it comes to trade secrets—is more common than companies would like to admit. Free e-mail accounts from companies such as Google and Yahoo, gadgets like the BlackBerry and an increasingly mobile workforce make company information more vulnerable than ever.

    "Information can fall into the wrong hands. Employees (can) lie or sometimes they unknowingly take things from their job, not realizing the secrecy of the information," says Joseph Re, an intellectual property attorney at Knobbe, Martens, Olson & Bear in Irvine, California. "Employers need to be more vigilant than ever."

    The issue recently was pushed into the spotlight because of events at Coca-Cola Co. Three people, including a Coca-Cola employee, were charged with attempting to steal the company’s formulas, including a new drink, and selling that information to Pepsico for $1.5 million. In this case, Pepsico blew the whistle to authorities, leading to the arrests and subsequent charges. But not every case will have a happy ending.

    For companies, the bottom line is at stake. Employee theft can cost companies anywhere from $200 million to upwards of $1.2 trillion annually, according to the Segal Co. Twenty percent of businesses fail every year because of internal theft and fraud, according to the U.S. Chamber of Commerce.

    Now the good news: Although intellectual property experts say there is no way to completely protect a company from theft, there are innovative ways to prevent damage.

    Profiles International Inc. of Waco, Texas, plans to release several new products by the end of the year to add to an existing suite of employee screening services. A product called Employee Engagement Assessment gauges employees in six categories. The product also dissects the company’s culture and places it in four different categories: relationship-based, innovation-based, process-based and transaction-based.

    There is a link between employee theft and employee attitude, says Jim Sirbasku, CEO of Profiles International. "The less engaged a person is, the more they are apt to see the company as a non-personal thing, and the more apt they are to take something," he says.

    Reference checks and even background checks aren’t enough today, experts say. Companies need to keep close tabs of their employees after the honeymoon period.

    "Usually people engage in theft for financial reasons, or at times in their life when they are facing great stress," says Thomas M. McInerney, an attorney specializing in labor and employment at Thelen Reid & Priest in San Francisco.

    There are businesses that specialize in creating trade-secret protection programs for companies. Consor Intellectual Asset Management in La Jolla, California, creates information protection programs for companies to help them make the most money from their intellectual property. Consor also helps firms that have fallen victim assess the damage done.

    What it comes down to is that companies need to spend the time and money to hire the right people at all levels.

    "It’s not ‘Hey, this person is just an administrative assistant.’ It is what responsibility does this person have," says Jason Morris, COO of Background Information Services Inc.

    Also, companies should be "prepared financially and emotionally to go after someone who steals a trade secret," says Don Kelly, CEO of Intellectual Asset Management Associates, an intellectual property consultancy based in Alexandria, Virginia. Trade-secret-proofing comes with a price tag (anywhere from $25 to $200 for a background check and as much as $50,000 for customized programs for smaller companies), but the investment makes up for the potential losses, Kelly says.

    If nothing else, smart companies show that they have taken the steps to keep the information under wraps.

    "It’s like in the movie ‘Jerry Maguire.’ There’s a line from Tom Cruise that goes, ‘Help me help you.’ The law works that way with trade secrets," says Andrew Sherman, an attorney specializing in business growth with Dickstein Shapiro in Washington, D.C. "The stronger steps you take, the more likely the courts will give you protection."

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