Protecting OEMs' Intellectual Property -- OEMs and their EMS partners can both take steps to protect intellectual property.

If you were president of an electronics industry consulting firm, you might be asked by a client to forecast the future strategies and pitfalls for electronics manufacturing. In fact, our clients have been requesting this information for 14 years. A few years ago, we advised one client to watch for legal cases involving alleged breach of confidential information in an electronics manufacturing services (EMS) environment, given that EMS companies are privy to confidential information about the multiple, and often competing, original equipment manufacturers (OEMs) they serve. Unfortunately, this prediction has come true.

Gary E. Weiss, managing partner of Orrick, Herrington & Sutcliffe LLP's Silicon Valley office, is an intellectual property litigator. He has several cases pending involving third-party manufacturers that allegedly breached their nondisclosure agreements. Gary reviewed several of these cases at our Quarterly Forum for Electronics Manufacturing Outsourcing and Supply Chain this past August.

Gary reminded us that we live in an era in which information is shared ever more frequently among companies. The increased use of contract manufacturing-and the concomitant increase in transferred information-has dramatically increased the risk of misappropriation of confidential and proprietary information, also known as "trade secrets." At the same time, employee mobility has increased. Together, these trends create a significant risk of unauthorized use and disclosure of companies' trade secrets.

However, the risk of breaching confidential information in an EMS environment can be reduced. The first key to reducing security risks is to segregate each customer OEM's information from the others. In some cases, insist that separate employees, in separate locations, do the work for two competitors. The second key is to educate EMS employees on their company's obligations concerning nondisclosure of information.

EMS companies can take the following four steps to protect trade secrets:

- itemize all trade secrets disclosed by OEMs

- foster a culture of respect for and protection of OEMs' trade secrets through employee education, employee nondisclosure agreements and physical security measures

- notify OEM customers of any significant threat to confidentiality, including the departure of key employees and suspicious third-party requests

- respond swiftly to attempted misappropriation, conduct exit interviews, collect documents from departing employees, review departed employee's workspace and computers and contact the employee's new employer.

Protecting trade secrets has long been a top priority for high-tech OEMs. The money OEMs invest in creating new technologies and inventions-and the competitive advantage those intellectual property assets convey-requires that OEMs protect their confidential information. Because prudent OEMs should not rely only on their EMS partners to protect their intellectual property, six steps for OEMs are listed in Table 1.

The steps for OEMs and EMS providers are well worth the investment in procedures, training and reinforcement, as compared to the months or years that could be spent tied up in court as a plaintiff or defendant.

Pamela Gordon is president of Technology Forecasters, Inc., Alameda, CA; www.techforecasters.com.

---

TABLE 1: Steps that outsourcing OEMs can take to protect trade secrets.

1. Do not rely blindly on a nondisclosure agreement. Monitor your EMS partner's conduct, including surprise visits to check proprietary-protection procedures against actual practices.

2. Insist that your EMS partner insulate your trade secrets from your competitors' information. Does the EMS provider designate different locations? Different employees?

3. Notify the EMS provider as to which specific information is confidential.

4. Insist that the EMS provider police its employees.

5. Insist that the EMS provider notify you of employee departures and third-party requests to build similar equipment.

6. Contractually prohibit your EMS provider from reverse-engineering your product.

http://www.circuitsassembly.com

Copyright [copyright] 2001 CMP Media LLC