We recently posted about how trade secrets are not cheap or easy IP protection. That article advocated trade secrets be used only where appropriate and as part of an IP strategy based on diverse types of IP. The current situation in the technology industry with mass terminations reminds us of another issue with depending on trade secrets – what happens to IP when employees leave? Your patent portfolio provides better protection than your trade secrets with employee exits.
Dissonance in the job market
You are correct. There are a lot of mixed signals in today’s job markets.
There is a lot of good news. The Bureau of Labor Statistics (BLS) continues to share strong employment and unemployment numbers. Each Jobs Friday the number of new jobs is up, and the unemployment rate is down. (See the Employment Situation and the separate JOLTS reports at the BLS). The Canadian data is similar. The employment rate is near record highs over the last 20 years and the unemployment rate at 5% is a record low. Visier, a Vancouver-based HR-tech company, publishes a low latency indicator on resignations showing employees remain confident but watch that page if you need a leading indicator.
There is a lot of bad news. The website https://layoffs.fyi/ tracks many of these terminations. In 2022 there were over a thousand rounds of layoffs in tech with 160,000 workers out of a job. In 2023 so far, about 350 tech companies have terminated over 100,000 workers.
Consider the impact
The losses are small at 2% of US tech workers but the impact is massive. Looking at 2023 alone, many companies cut over half their workforce; eighteen lost over 1,000 people. About 125 companies let go over 100 people. Consider what is walking out the door.
Companies should know there is a strong possibility that these employees will take sensitive data with them. Employee data theft is especially likely when an employee is experiencing financial stress. And losing your job is stressful. Employees also take data inadvertently but later realize the value they can exploit. Others willfully take the data.
What are the risks
There are many risks that come with data loss. These include:
- Confidentiality breach – The data breach may be a confidentiality breach that could affect existing contracts or have professional consequences for your leadership.
- Regulatory action – You may be subject to inquiry or fines from your regulator.
- Loss of customers – The loss can be either through news of a data breach leading to prospects not signing and customers not renewing, or the departed employees poaching prospects and customers
- Loss of IP – You could lose your competitive advantage.
The loss of IP can have a last effect on your business. You could see departing employees set up their own businesses to build unrealized projects you had to shelve. Worse they may just try and undercut your business. Through leaks your trade secret may be irreparably damaged. You don’t have exclusive control of the trade secret or parts of it.
Solutions to risks of employee departures
There are many solutions to data and IP loss.
Many of the solutions relate to proper planning and culture. If you have a workforce of over 100 people, we’ve seen the benefits of using People Analytics. (Talk to Visier.)
A culture of compliance and using meaningful IP education helps. We provide IP education and the reviews are great.
Protect against data loss with meaningful protections and compartmentalization. If an employee doesn’t need access to all the data, then compartmentalize.
Also, it helps to have knowledgeable contingent staff help with the layoffs be they in HR or legal. (If you need contract HR person we can suggest a few.)
Registered IP is more robust against layoffs than IP held in secret or under the common law. Registered IP includes:
Each of these has a clear owner as defined by public records. In patents and trademarks you don’t need to show copying you just need to show infringement.
Patent practices for when employees leave
A lot of textbook guidance assumes employees remain for decades. In both good and bad economic times this is what happens. Patents are an IP right that can handle departing employees.
Patent are robust
Patents can withstand employee exits. If the employee leaves their employer still owns the patent application or patent. Unlike a trade secret, you don’t need to show they copied any information. As well, the employer can file for a patent application after the separation.
Employment law helps with employee departure
You may question if the employee would sign the needed paperwork for inventions. As in what happens if you file for a patent naming a former employee as an inventor. They often do sign when asked, especially if you give them enough time. However, if they won’t you can use their employment agreement showing they had the obligation to sign a declaration and assignment. Your HR team can speak to the existence of such clauses. If you don’t have such in your employment agreements talk to an IP-savvy employment lawyer. (We can name a few.)
Local patents help — File a patent in Canada
Finally, people often ask why file in Canada? One reason for companies with Canadian operations is to protect against former employees competing against you. Having a few Canadian patents signals to your alumni to innovate more.
Layoffs are tough for everyone mostly for those leaving but also for those remaining. There is guilt and a lot work to be shared by fewer people. A founder or IP manager in an innovative company consider that patents are more robust against employees leaving than are trade secrets. Also, consider that now is the time to innovate as giants struggle. If you have any questions please do contact us.