Earlier this year, ClarkMorgan discovered a disturbing case of employee theft in the southern province of Guangzhou. Three former employees, all based in Guangzhou, had unlawfully obtained IPR including training materials, proposals, and images,and were using the material with unknowing clients who were unaware that they were in breach of international Intellectual Property Rights (IPR). Guangzhou based lawyer, John Mai of Joseph Lee; Associates, was contacted and we share his insights into how to protect your IPR.

One universal result of economic downturns and company downsizing is the theft of company knowhow and intellectual property by ex-employees who then ‘open shop’ in direct competition with their old employer.

“Three former employees, all based in Guangzhou, had unlawfully obtained IPR…”

An ounce of prevention is worth a pound of cure
Employers who truly value their tangible and intangible assets should always consider the following due diligence in protecting intellectual property and raw R&D:
1) Registering intellectual property such as trademarks, copyright and patents, is a good first step protection. Financial costs tend to be lower than the time needed for registrations to be approved,
normally several months or years. Look ahead to using the registration certificates to stop infringers cold without expensive litigation.
2) Include Confidentiality and Non-Compete clauses when signing contracts with new employees and investigate commercial and criminal penalties to be enforced when breaches occur.
3) Segregate sensitive information when it is being used ‘on the shop floor’ so employees only access one part or component of a confidential project or final product. Particularly if processing
valuable knowledge at different levels of the company.
4) Upgrade physical security, access control, IT and Internet policies and handling procedures for company property and information. Closed-circuit security cameras and door access are just as important as password settings and misuse of USB ports. It is also important to note intellectual property registration, particularly where patents are concerned, involves different levels of public disclosure of what may be considered company secrets or proprietary knowledge. Accordingly, it may be more appropriate to protect such assets through use of internal company security and
counter measures.
Check all baggage, especially outbound.
Exit interviews have never been more important. Increasing numbers of redundancies and dismissals coupled with the poor economic climate can force disgruntled employees to start-up small competitive consultancies or go directly to industry rivals with a company’s technical expertise, materials and content. Knowing who is likely to be a future friend or foe, can be achieved by gauging emotional states and post-tenure loyalty during an exit interview, as well as
indicating how to prevent more staff from following. In addition, a well handled exit interview can ensure future alliances with the employee’s new company. Moreover, employees who receive an
exit interview are more likely to reflect on the benefit of their time with a caring company and be less likely to undermine an operation after they leave.
“…an exit interview is also a good time to remind a departing employee of their obligations regarding intellectual property…”
Nevertheless, an exit interview is also a good time to remind a departing employee of their obligations regarding intellectual property and knowledge they have acquired by doing the following:
1) Review the Confidentiality and Non-Compete Agreements, or employee handbooks with clauses regarding disclosure of sensitive information.
2) Remind the departing employee of the types of information the company considers confidential and the penalties to be enforced if they breach those codes
3) Have them sign a statement acknowledging the exit interview, summarizing the information discussed during the exit interview, confirming their prior signing of confidentiality agreements and continued consent to enforce such contracts.
4) Require the employee to return all company property and items allowing them access to the premises and/or confidential information.

After the horse has bolted

If an ex-employee begins using stolen intellectual property, the following remedies may be considered depending on the exact scenario and the level of protection the employer has invested in:
1) Treat such cases as labor dispute cases and initiate litigation against the individual based on labor relations between the employers and the exited employees. Success will depend on the strength of existing labor contracts, Confidentiality and Non-Compete Agreements, the exact leaving dates and recorded circumstances. If such documentation is vague, the Arbitration Committee for Labor Disputes may take some time to complete the first trial phase. Later
appeals by either side can also damage the employers operation and reputation.
2) With clearer breaches of well prepared Confidentiality and Non- Compete Agreements, court process can be swifter and tend to be lower profile.
3) Civil litigation can also be initiated if an ex-employee begins acting unfairly in the market and competitively using a past employer’s knowhow. The employer will then be required to prove the ex-employee’s bad faith, provide evidence of infringing behavior; estimate damage caused and show a direct relationship between these elements leading from the ex-employee’s actions to the company’s loss. Consequently, this is an expensive route for the employer and taxing for remaining staff tasked with compiling documentation of personal communications and records etc.

Nevertheless, if a company has already registered their intellectual assets, been vigilant in maintaining high standards of physical security and due diligence, enforcement of their rights can be sought through criminal procedures and intellectual property laws which can be smoother and shorter than unforeseen labor disputes in underfunded court battles.