Editors Note: Caroline Horton Rockafellow is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A.
_______________________________________________________________________________________The current labor statistics are out and unemployment remains a concern for the Triangle. According to the Bureau of Labor Statistics’ latest reports, unemployment in the Triangle was down slightly last month but still remains in the 5-6 percent range, which is relatively high for the Triangle area. It is clear that, although other signs indicate we are headed towards an economic recovery, companies are still being forced to reduce their workforce to compete in the marketplace. This is an unfortunate fact that will likely continue for some time to come.

When a company is forced to terminate employees, the consequences are painful, not only for the affected employees, but also to the downsizing company. There are significant issues that must be addressed as a part of such terminations, including but not limited, to employment law issues, reallocation of resources and budgetary considerations. Unfortunately, one critical issue that is often overlooked is the long term protection of intellectual property assets. This is a critical element that should factor into the initial planning stages of any employee termination.

What Assets Are at Risk?

Intellectual Property is an intangible asset, and accordingly, the ownership rights are not always easily identified. The failure to properly identify and document these assets is a common oversight, both on the part of the company and the part of the employee. When an employee leaves a company, most parties recognize that the employee’s desk, chair, computer and other such items belong to and will remain with the company.

Unfortunately, the distinction is not always as simple when it comes to the company’s intellectual property assets. These assets may include such things as customer lists, vendor lists, inventions conceived by the employee (including those not yet disclosed to the company), materials written by the employee, company know-how and trade secrets. A terminated employee may appropriate Intellectual Property assets in three ways.

First, certain tangible items, such as customer lists, vendor lists, data or other confidential materials may be removed by the employee, either through electronic file transfer or by physically removing paper copies of such information.

Second, the employee may take information known to the employee in an intangible form and later reproduce or use such information for the employee’s benefit after termination.

Finally, the employee may have information or knowledge that has value, but has not yet been disclosed to the company. The company likely does not know this information exists, and would therefore not be in a position to restrict the removal of the information. Even if such information is not improperly used by the employee, its potential value is irretrievably lost to the company.

What Steps Should be Taken Before an Employee Is Terminated?

Prior to the termination of any employee or group of employees, the company should take inventory of all documentation and electronic information that may contain corporate intellectual property. The company must ensure that it has access to all electronic records, corporate documents and notebooks. If the employee works from home or takes corporate assets out of the office, the company must have some way to ensure that duplicates of those assets remain in the corporate facilities.

For example, if the employee retains customer lists and contact information on a laptop computer, that information should be periodically backed up by the company and the reliability of the backed up information should be confirmed prior to the termination. In addition, if the company requires employees to maintain invention notebooks, the location of all notebooks should be confirmed prior to the termination and the company should confirm that all notebooks are up to date, witnessed, dated and signed.

This should be a regular practice of the company, but it takes on an even more important role when the company anticipates that it will terminate certain of its employees. In addition, companies should have policies in place that require employees to document all inventions and concepts for inventions in invention notebooks. Conformance with these policies should be confirmed prior to the termination.

Limiting Electronic Loss

Corporate trade secrets are lost in many ways, but one of the most common avenues for loss of trade secrets is disclosure through electronic means. This may be both intentional and unintentional, but either way, it can be devastating for a company. It is not unheard of for a terminated employee to transmit valuable intellectual assets out though electronic means both prior to and following a termination.

Accordingly, electronic access for such employees should be terminated immediately prior to termination or, in the alternative closely monitored in accordance with the company computer policies. It is also advisable for companies to have computer policies in place that permits monitoring of electronic transmissions in a manner that would alert the company if confidential files are being transmitted outside of the company without the company’s consent. This practice is important not only when anticipating a termination, but also as a standard practice of protecting intellectual property assets.

Exit Interview

Often the loss of intellectual property assets following an employee termination has nothing to do with the malice of the former employee, but rather is a result of a failure to educate such employee as to the proper treatment of such assets. Accordingly, an exit interview should be a part of all employee-employer separations. Each employee should be educated as to what assets belong to the company and what rights the employee has to access and use information that he or she was exposed to as part of the employee’s employment.

If the company has not previously been diligent in documenting inventions, this is also a last possible opportunity to request invention disclosures from the employee. This final discussion can play a critical role in protecting the intellectual property and confidential information of the company.

The termination of any employee is usually an emotional time not only for the employee, but also for the employer. It is important that during this highly charged period, the employer take the appropriate steps to analyze and protect its intellectual property and confidential information from being removed or misappropriated at a later date. Steps taken during the employee’s engagement with the employer as well as the discussions that take place upon the employee’s departure will play a significant role in protecting the critical corporate assets from loss or future misappropriation.

Daniels Daniels & Verdonik, P.A. has been serving the legal needs of entrepreneurial and high technology clients for more than 20 years. Caroline Horton Rockafellow is a licensed patent attorney who works primarily in the areas of technology deals and licensing. Questions or Comments can be sent to crockafellow@d2vlaw.com