During a downturn years ago, I remember counseling readers not to close their doors to suppliers, even if they had nothing to buy, because those suppliers often are a great window to the rest of the manufacturing world.

A few weeks ago, something appealed to me that changed my mind.

It started over lunch with old friend Phil Zarrow. Phil was brimming with news about what sounded like a wild industry lawsuit, pitting one EMS company against a former employee now running a competitive firm. Hearing one side of the case led me to believe there was a good story to tell about how the US legal system views industry standards.

But as I did my due diligence, tracking down all the affected parties and trying, sometimes in vain, to convince them to speak with me, the story took many twists and turns, and at the end, it raised an even more compelling question.

I won’t dwell on the particulars of the legal case because, in my opinion, they are mostly background noise to the point I want to make. But the gist of it is, an employee left one company, started another, built it to a certain revenue level, and then was sued by his former employer for IP theft, among other things. Along the way, hundreds of thousands of dollars were spent in legal fees, and who knows how much time and stress was spent on issues that have nothing to do with designing and building electronics products.

Much – perhaps all – of this cost in time, energy and yes, dollars, might well have been avoided had the dual questions of “what is intellectual property?” and “who owns it?” been considered early on. As it happened, the plaintiff and defendant both run what would be considered Tier 4 or micro tier shops. There literally are thousands of such plants in the EMS industry around the world. Most make their livings from a relatively modest number of customers – but those customers range from one-man startups to Fortune 50 conglomerates – and the EMS supplier in all likelihood is ill-prepared to run with the big dogs in the IP arena.

Many mid to large EMS companies have faced this problem for some time. Foxconn, for instance, builds mobile phones for Apple and Nokia, two fierce competitors. Some go to extraordinary measures to ensure no customer IP gets compromised. Fabrinet, to name one, uses highly secure areas that are separated from the rest of the factory. Foxconn has an entire plant dedicated to Apple.

Smaller firms usually don’t do much, however, unless manufacturing for, say, a government program that requires additional security measures. Such a lackadaisical approach leaves them exposed. In some smaller companies, staff engineers have complete access to company networks, and in certain cases, may even double as the house IT specialist. That means unfettered access to manufacturing data, customer lists (and pricing), and pretty much everything else. As appears the case here, that level of access can cause certain pain if the employer-employee trust breaks down.

As my conversations over the aforementioned case wound down, I made a list of steps all companies should take to protect their IP:

• First and foremost, identify what must be protected. As one EMS CEO told me, “Some Tier 3 and Tier 4s don’t even know what their IP is. Say they develop a process and have it humming. When it’s very specialized, if they’ve got materials and methods that improve the result or lower the cost, they've got IP.”
• Compartmentalize your data. Information should be made available on an as-needed basis only. This includes parts lists, equipment lists, designs, material recipes, operating parameters, and anything else.
• If necessary, protect key documents, fog windows of engineering or manufacturing areas, mandate keycard entry, or dedicate employees to certain programs.
• Identify the “holes.” They can be employees, customers, suppliers: anyone with special knowledge of your IP.
• Write clear non-disclosure agreements – and hold signatories to them.
• Have employees sign confidentiality agreements, IT policies and any employment agreements before they start. This eliminates the argument they didn't know what they signed, or signed under duress.
• Don’t develop products or processes for customers or other third parties without a production agreement. Doing so will prevent outsiders from getting something for nothing.
• Document your recipes and processes – and mark them confidential. (Failure to do so could undermine future attempts to prosecute IP theft.)

We tend to think of SMT as a black box: The equipment is so good, there’s not much that can’t be designed or built by even the most novice engineer. But beneath the surface still lie some trade secrets. Take care to identify and protect them, lest someone else make their fortune off your investments.

P.S. Be sure to register for PCB West, coming this September to the Silicon Valley: www.pcbwest.com.

Mike Buetow is editor-in-chief of CIRCUITS ASSEMBLY; This e-mail address is being protected from spambots. You need JavaScript enabled to view it .