Employees Leave, Trade Secrets Follow

April 29, 2005
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GRAND RAPIDS — The first thing Claudette Lozano did on the morning of her resignation — and the last thing she did as a sales representative for Clear Channel Broadcasting Inc.’s WSNX and WVTI in Grand Rapids — was e-mail her new employer, Citadel Broadcasting Co. Attached to the e-mail was Clear Channel’s marketing proposal for Saturn Corp.

Clear Channel’s lawsuit in Kent County Circuit Court alleges that Lozano wasted no time in wooing her former employer’s clients, using confidential information like marketing strategies, advertising rates and advertisers’ needs, likes, dislikes and upcoming campaigns.

The lawsuit is a local example of the trade-secret thefts that have become a hot topic across all industries in the past year. Stolen trade secrets range from client lists to future product launches and campaigns.

Already a scourge to the manufacturing sector, China has established itself as a global leader in product and design piracy. For several years, the technology sector has been ripe with patent lawsuits, with Apple Computer Inc. making headlines in recent months for a series of lawsuits aimed at plugging leaks of its new product launches.

“If companies were more diligent in protecting trade secret information, they could go a long ways toward keeping the information within the company rather than letting it leave,” said Mark Zietlow, a senior attorney at Butzel Long’s Holland office who specializes in employment law.

“Technology, in particular, is presenting new and unique problems for businesses in trying to keep that information proprietary and confidential to the employer.”

Employees can easily download information and then either e-mail it or carry it out on laptops, Zietlow said. Or a competitor might walk onto the plant floor with a camera phone and start taking pictures.

With the right technology and a working customer base, a former employee might start a new company to compete with the employer.

“The most common problem we’re seeing is employees feeling they can take that technology, duplicate it and do a better job and sell it to the same customer,” Zietlow said. “They have the method of production but also the customer list that it sells to; it can even extend beyond that to suppliers and vendors. Employees can gain the whole method of production.”

According to Zietlow, any company with a customer list is a target for trade-secret theft.

The Michigan Uniform Trade Secret Act requires employers to take reasonable steps to protect their trade secrets. If a company fails to do so, it could forfeit its protection under the law.

Measures taken usually include a confidentiality or non-solicitation agreement. Other avenues are restricted access of trade-secret information, marking information confidential, using passwords and watching the outflow of information on computers, and monitoring what is downloaded on laptops.

With all these measures, the threat still exists that a departing employee will take proprietary information along and give it to a competitor. Non-competition agreements can mitigate such threats.

“There really is no one-size-fits-all solution to protect your trade secrets,” said Richard Gaffin, senior principal of Miller, Canfield, Paddock and Stone PLC and Clear Channel’s attorney in the Lozano suit.

“Non-compete agreements are common for companies with an eye toward protection of intellectual property, but each needs to think about if it’s right for the situation.”

This was the measure Clear Channel used to protect itself, requiring Lozano to sign a 180-day non-competition agreement at the time of her hire in 1998. As such, Clear Channel was legally protected — but stopping the theft was another matter entirely.

Like most trade theft cases, the matter was settled in court. Lozano was barred from calling on the 18 to 20 accounts that she had serviced while employed by Clear Channel. Citadel was not required to pay any damages; Lozano was ordered to pay a modest sum to Clear Channel.

At least it’s not very difficult to spot such a theft, Zietlow said. There are plenty of occasions that raise an alarm.

“Customers will call up wondering why John Doe, who he thought worked for you, is calling and selling some product for someone else,” Zietlow said. “Or your salespeople call on a customer and learn John Doe was just there and sold a product to them and that they no longer need your products.”

Unfortunately, the theft is often discovered only after the salespeople learn the company’s services or products are no longer needed.    

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