Your worst nightmare has become a reality: A former employee has taken your confidential information to a competitor.
Maybe you've noticed unusual patterns in lost business, or perhaps another employee tipped you off about the theft. Whatever the warning signs, you need to act quickly and strategically. Here's your step-by-step guide to responding to trade secret theft in North Carolina.
Act Fast, But Smart
The moment you suspect trade secret theft, start documenting everything. Write down when and how you discovered the potential theft, what information you believe was taken, and any evidence you've found so far. This documentation will be crucial if you need to take legal action.
However, resist the urge to confront the suspected thief immediately. Hasty accusations without proper evidence can expose you to defamation claims and make it harder to gather evidence. Instead, focus on preserving evidence and consulting with legal counsel experienced in trade secret matters.
Preserve All Evidence
Digital evidence disappears quickly, so preservation requires swift and thorough action. Work with your IT team or an outside forensics expert to secure and preserve all relevant electronic devices, including company computers, phones, and servers the suspected thief accessed.
It's crucial that no one "clean up," modify, or reassign these devices, as they might contain vital evidence that you would risk losing. Your team should gather access logs showing who accessed what information and when, paying special attention to unusual patterns like large downloads or access to files outside normal job duties.
Make sure to collect all relevant emails, particularly any sent to personal email accounts or unusual recipients. Don't forget to check cloud storage access logs and printer records. Throughout this process, document any suspicious behavior that occurred before the suspected theft, such as unusual interest in confidential information or unexpected downloads.
Assess the Damage
Beyond looking for direct evidence of trade secret use, consider conducting a thorough business impact analysis. How much did it cost to develop the stolen information? What market advantage does it provide? Are there ways to mitigate the damage through product modifications or accelerated development of next-generation solutions?
Some North Carolina companies have successfully turned theft incidents into opportunities for innovation, using the crisis as motivation to improve their products or processes beyond what was stolen.
Before rushing to court, carefully evaluate what information was taken and its potential impact. Consider whether the stolen information still qualifies as a trade secret. Have you maintained reasonable security measures? Is the information still secret, or has it become public knowledge? Is the information still relevant or has it become outdated? These questions will affect your legal options.
Look for signs that the stolen information is being used. Are former customers suddenly getting specialized offers from competitors? Has a competitor launched suspiciously similar products? Have former business partners started going elsewhere? Document these incidents – they'll help prove both the theft and your damages.
Understand Your Legal Options
North Carolina businesses have several legal tools available when trade secrets are stolen. The North Carolina Trade Secrets Protection Act provides state-level protection, while the federal Defend Trade Secrets Act offers additional options, especially if your trade secrets cross state lines.
Under both laws, you can potentially recover:
- Your actual losses due to the theft
- The thief's gains from exploiting your secrets
- Court orders prohibiting further use of your secrets
- Attorney fees in certain cases
- Punitive damages for intentional theft
Recent cases show courts take trade secret theft seriously. In 2024, companies won multiple verdicts exceeding $400 million in trade secret cases. While such large awards are rare, they demonstrate that courts understand the value of trade secrets.
Consider Your Goals
Before filing a lawsuit, clearly define your objectives. Do you primarily want to stop the theft and prevent future use of your secrets? Or do you need to recover damages? Sometimes, a strongly worded cease-and-desist letter to the competitor might achieve your goals more quickly and cheaply than litigation, particularly if they cooperate with an investigation into an employee's theft of information.
Remember that trade secret litigation can be expensive and time-consuming. It often requires technical experts, forensic analysis, and extensive discovery. Make sure the potential recovery justifies the cost and effort.
Take Immediate Protective Steps
While building your legal case, several immediate actions can help minimize damage.
Start by reviewing and likely revoking the suspected thief's access to any company systems or information, making sure to check for lingering remote access to email, cloud storage, or other systems. Consider having counsel send a cease-and-desist letter directing that they not use the information and a reminder about their confidentiality obligations – this documentation can prove valuable if you need to demonstrate they knew they were violating their duties. Beware, too, that such a letter could also trigger the start of a ticking clock on applicable statutes of limitations. A decision to bring formal legal action should be made relatively quickly.
Depending on the situation, you might need to notify customers or business partners if their confidential information might be compromised, though always consult with legal counsel before making any public statements about the theft.
This is also the time to review and strengthen your security measures to prevent future theft, whether through updated access controls, improved monitoring systems, or additional employee training.
Learn from the Experience
Use the incident as an opportunity to strengthen your trade secret protection program by analyzing how the theft occurred and what could have prevented it.
Regular security audits often reveal vulnerabilities before they're exploited – many companies discover during litigation that their security measures weren't as robust as they thought. Create clear, written policies about confidential information, ensuring employee handbooks and training materials explicitly identify what information is confidential and how it should be handled. Implement monitoring systems that can detect unusual patterns of access or downloading, as many thefts could have been prevented if companies had noticed suspicious activity earlier.
Pay special attention to your exit interviews and departure protocols, as careful documentation during employee departures often provides valuable evidence if problems arise later.
Moving Forward
While discovering trade secret theft can feel devastating, remember that you have options. North Carolina law provides strong protections for trade secret owners who take reasonable security measures. The key is acting quickly but strategically to preserve evidence and protect your rights.
Consider joining industry groups or local business organizations that share information about trade secret protection. The Research Triangle area, in particular, has several technology and business groups that regularly discuss intellectual property protection strategies. These networks can provide valuable insights about emerging threats and effective protection measures. They can also help you stay informed about new security technologies and best practices that might benefit your business.
Don't let fear of theft paralyze your business. Instead, use this experience to build stronger protections while maintaining the innovation and customer relationships that make your business successful.
With proper planning, experienced counsel, and a quick response to suspected theft, you can protect your trade secrets and maintain your competitive advantage in today's challenging business environment.
Trade Secret Tuesday Articles
- Part 1: Your Most Valuable Business Asset Might Not Be What You Think: Trade Secrets for NC Business Owners
- Part 2: Why Your Employees Are Your Biggest Trade Secret Risk (And What NC Business Owners Can Do About It)
- Part 3: What to Do When Someone Steals Your Trade Secrets: A North Carolina Business Owner's Action Plan
