What poses the biggest threat to the security of your intellectual property – Competitor A, Competitor B or Jack in marketing? Recent results suggest it is Jack.
Sales leads and customer contact lists are the most common form of IP to walk out the door whenever a staff member leaves.
The biennial Australian Fraud Survey 2002, conducted by accounting firm KPMG, found that $273 million was lost to fraud between October 1999 and September 2001 by internal management, non-management employees and external parties.
The survey found that of all internal employees, management were responsible for 67% of loss of value, even though they only accounted for 28% of all fraud related incidents.
The types of fraud committed by internal management range widely from the theft of inventory to computer fraud. However, the most significant losses from internal management were from the theft of information with each incident costing the company an average of $2.5 million.
These findings suggest that employees - especially those in senior positions with more access to confidential information - have the potential to be a direct threat to the company in relation to the protection of its intellectual property. This threat becomes even more ominous if no agreement has been signed restricting the use of company intelligence by those who are privy to it during their employment with the company.
A simple solution to this problem is to create a legally binding non-compete agreement with the employee. According to last month’s Rewards survey, these agreements are becoming the norm in Australian workplaces with more than 91% of members reporting that their organisation uses confidentiality and non-disclosure agreements regularly for employees, contractors, licensees and joint ventures.
Non-compete agreements take the form of four slightly different legal documents that are effective in limiting the damage employees can inflict on the company.
These documents include:
Firstly, a non-competition agreement is an agreement preventing the employee from competing with the employer or working for key competitors after they have left the company. This is very similar to the second non-compete agreement, the non-solicitation agreement, which stops the employee from conducting business with their previous employer’s existing customers and also prevents the employee from taking customers with them when they leave the company.
The third agreement, the non-disclosure agreement, is used to protect the confidentiality of the company’s IP and to prevent the employee from discussing or developing any of the company’s ideas and innovations for their own personal gain. Such an agreement is also useful when discussing unpatented IP with third parties. It works to prevent these people (such as potential financers) from discussing the company’s ideas or developing them with anyone else.
Finally, the last non-compete agreement is the confidentiality agreement, which in essence is a non-disclosure agreement that also has a proviso for the employer. This means that for the agreement to hold up in court the employer must also keep the information confidential that they are requesting the employee to keep confidential.
Non-compete agreements are an important part of company security and can help to create an internal atmosphere of confidentiality by making employees aware of the seriousness (legal nature) of company IP and to help the company recoup losses if an employee does decide to disclose confidential information or use it for personal gain.
In today’s innovative high tech marketplace trade secrets and innovations provide the company with a competitive advantage and all businesses need to take the threat of employee confidentiality seriously.