Supply Chain Shortages: How Wrongdoers Can Steal Your Secrets

02 May 2022 Labor & Employment Law Perspectives Blog
Author(s): Taylor Appling Terrell Richard Miller

For months, companies in all industries have been talking about indefinite global supply chain disruptions and worker shortages. This is particularly true in the energy industry, with oil prices surging even before Russia invaded Ukraine.

The industry has been experiencing not only shortages of skilled workers but also shortages of specialized equipment and tools. The scarcity of such specialized items, which are already valuable for their trade secrets and proprietary technologies, coupled with the increased demand and need for the tools, is making them even more valuable. And, consequently, even more attractive to thieves — thieves with access to increasing technology for reverse engineering and copying products at record speeds.

Employees Are Not the Only Potential Thieves

Given the added value of a trade secret or proprietary information, alone, companies likely already have basic protections in place to prevent obvious wrongdoings (i.e., to prevent departing employees from taking information to competitors). But the surging values of specialized and hard-to-obtain tools and equipment is a reminder that employees are not the only ones tempted to take such valuable trade secrets and technology. It is best to protect adequately your information from those in your supply chain too.

Companies Are Finding Themselves in Need of Quick Injunctive Relief against Thievish Customers and Distributors Too

We are seeing companies whose patented products (acquired by a customer or distributor in their chain) were shipped to a country where they had no patent protection, then reverse engineered and replicated. While such actions in non-patent-protected jurisdictions are generally permissible, absent adequate contractual protections, the increased demand and shortages of supply are resulting in these counterfeit tools making their way back through the stream of commerce to patent-protected jurisdictions. Upon learning (often through word-of-mouth from others in the supply chain) that a counterfeit has arrived in a protected jurisdiction, management has to act fast to obtain expedited restraining orders and injunctive relief to prevent the counterfeit from being relocated and/or destroyed.

Whether the harmed company has valid claims for relief, in addition to patent infringement, requires a look at its agreements with customers, distributors, and others in the supply chain and whether its information and IP are adequately protected by contract (e.g., contractual prohibitions against reverse engineering, disassembling, and engaging or assisting others in doing so, etc.).

Review Your Contracts and Act Quickly if Theft Is Suspected

These cases should serve as a reminder that wrongdoers can come from across the supply chain. Some employers are realizing their current safeguards are outdated and insufficient. It is important for employers (in all industries) to review their current trade secret and IP protections to ensure protections are adequate across the chain — not only to prevent their own employees from improperly disclosing and using the information but also to prevent distributors and customers, and their respective employees, from taking unfair advantage of the current global economic situation by stealing such valuable secrets.

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