Editor’s Note: This article is part three of a seven-part series titled “A Business Leader’s Guide to IP”, in which we will focus on the strategies, opportunities, and impact you can achieve by integrating IP as a core element of your overall business and innovation strategy. As each article is published, we will update links here:


A Business Leader’s Guide to IP:
Part 3 – Combating Theft of Your IP Assets

The value of intellectual property (IP) in today’s innovation-driven enterprise is hard to overstate. At the same time, the impact of losing control of or protection for your IP can be indescribably devastating, both in the marketplace and for the company.

In our last article, we discussed key strategies for preventing IP theft through the application of clearly defined and tightly integrated best practices. In this article, we will look at key steps you can take to respond to IP theft when it happens.

 

The Far-Reaching Impact of IP Theft

When considering the impact IP theft can have on a company, certain factors come to mind most readily: there is the cost of investigating the theft, legal fees associated with litigation, and the expense of fortifying data security systems to plug leaks and prevent future breaches.

However, IP theft can result in a staggering array of ill-effects, some of which are not as easily quantifiable, and many of which can play out over the years. Consider the ripple effect of stolen IP, from loss of market share, standing, and customer confidence to the potential loss of contracts and the dwindling of future opportunities through brand dilution and counterfeiting, which alone can put the losses from IP theft into the hundreds of millions of dollars and also create business and even human safety risks in the marketplace.

Depending on the nature of the theft and the regulatory mandates that apply, the incident may also have to be disclosed to the public, resulting in a possible hit to the firm’s reputation, and added expenses if the company is required to offer protective services to customers following the breach. Another way in which IP theft can devastate business value is through the improper disclosure and unauthorized use of trade secrets, which can create ongoing risks to the enterprise for years to come as the impacts of the disclosure ripple out over time.

 

Understanding the Kinds of IP Theft

IP theft involves any untoward and unauthorized removal, misuse or abuse of intellectual property that is the rightful property of your enterprise. It typically comes in three formats:

  • Employees or former employees unknowingly “leaking” confidential information or deliberately misusing proprietary IP assets or know-how for their own personal gain or that of other companies.
  • Unauthorized theft of undisclosed innovations, trade secrets, research data, documentation or other unpublished intellectual property, typically through cyber-attacks.
  • Competitors and counterfeiters infringing or otherwise misusing trade secrets, brand identity, proprietary design elements, patented inventions and more.

It is important to note that ‘theft’ comes in two flavors here: The first is what we traditionally think of – simply stealing a company’s proprietary secrets without their knowledge and likely selling them to a competitor or exposing them to unauthorized public disclosure. The second is typically in the form of infringing IP rights in the form of granted patents, registered trademarks, or copyrighted materials.

 

Responding to the Crisis and Mitigating the Damage of IP Theft

The first few days and weeks following the discovery of IP theft are especially critical, and business owners seeking to demonstrate that a theft occurred so that they can pursue legal action are well-advised to enlist the assistance of a trusted IP attorney.

The following steps outline the actions to be taken immediately following the discovery or suspicion of IP theft:

 

Step 1. Assess both access and protection.

In order to prove that IP was stolen, a business must demonstrate that the suspected thief had access to the compromised data or information (in the case of a trade secret or other proprietary information), or that the company’s IP rights have been infringed. The more information compiled—such as determining the time frame during which the IP was accessed and the potential ways the alleged perpetrator may have to benefit from the theft— the better. Pay attention here to third parties including business partners and service providers.

It should be noted here that the vast majority of IP theft comes at the hands of an organization’s employees who either accidentally leak data through loose security protocols or who bring the know-how or actual documentation to a competitor when they move on in their career and begin working for another firm. This is a good demonstration of the importance of multi-faceted protection strategies discussed in Part 2 of this series, including well thought out security and IT protocols to reduce the chance for proprietary IP leakage, as well as IP ownership and non-compete clauses in employment agreements.

 

Step 2. Gather evidence. This step is vital to establishing the credibility and strength of any case brought against the alleged infringers. Business owners should consult with their IP legal team to arrive at a detailed list of the types of evidence that will best support their case, but photographic evidence—in the form of actual photos or screenshots (in data-oriented incidents) —is usually valuable. Organizations experiencing IP theft may also be able to supply more in-depth data by searching WHOIS.net, a domain database that may help uncover the IP address of any website publishing the stolen IP, as well as the identity of the website’s owner.

This same tenacity when gathering evidence is equally applicable to non-data cases, but applied instead toward product designs, engineering drawings, prototypes, marketing documentation, competitive claims and more, some of which will be in the public domain and some of which may not be accessible until pre-trial discovery (for litigation in the United States).

It should be noted before we move on to discuss Step 3 that these first two steps are reliant upon the solid foundation we’ve explored in the prior two articles. Specifically, starting with a comprehensive IP audit and then effectively cataloguing and managing your IP assets is invaluable in order to know what has been stolen as well as in gathering evidence that can be effectively used to respond.

Put another way, companies struggle regularly just to track their tangible assets such as office equipment, machinery, furniture and computers. Those at least are physical items that can be identified without much trouble. In the case of IP, the quality and thoroughness of the foundational IP audit and IP asset management processes will have an enormous impact on your ability to avoid or respond to IP theft.

 

Step 3. Assess the damage. Business owners should complete a comprehensive analysis of what the IP theft has cost their organization, keeping in mind that the financial impact is not always immediate or obvious. Consider that the two main types of damages awarded in most infringement actions are reasonable royalties and lost profits.

 

Step 4. Pursue active enforcement. Working with an IP attorney to send a cease and desist letter to any parties who have been discovered using or selling the stolen IP is crucial, as is the pursuit of appropriate legal action in court, if applicable. If the responsible parties do stop using the stolen IP, the letter has served as a method of damage control; if they do not, then the organization that has been breached may have a better standing to prove in court that the misuse is intentional.

 

Step 5. Understand the context. As we can see, IP theft comes in many forms and is pursued from a variety of angles and by a plethora of potential bad actors. That is exactly why a comprehensive IP management and protection strategy must be in place, including elements such as:

  • Clearly defining ownership rights in contracts and employee agreements
  • Monitoring competition through ongoing analytics
  • Taking inventory and cataloguing your IP
  • Issuing cease-and-desist letters where a reasonable basis exists to do so
  • Pursuing action through the courts or various trade commission

Understanding the nature and scope of IP theft in the modern era is vital to mitigating the risks to which organizations are exposed. Business leaders, particularly in the IP-rich technology sector, can begin to formulate a risk management strategy by knowing the ways that tech-savvy thieves can attack, what kind of short- and long-term financial impact might ensue, and what steps to take upon discovering that a breach has occurred.

>> Please join us for the next article in this series,
A Business Leader’s Guide to IP: Part 4 – Shore Up Your Market Position <<

Michael Dilworth

Image Credit: StartupStockPhotos (Pixabay @ Creative Commons)


This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.