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Litigation Against Technology Companies Includes Data Security, Privacy, Employment Practices Issues

Litigation Against Technology Companies Includes Data Security, Privacy, Employment Practices IssuesEmerging Challenges for Tech Companies

Litigation for the technology industry goes beyond intellectual property disputes. More and more technology companies face new challenges including issues involving data privacy and data security – front-and-center issues for security-conscious consumers, regulators, and technology companies themselves; and employment practices litigation due to the sector’s mobile and highly valued, talented workforce. In fact, according to a survey conducted by Fulbright, a global legal practice, back in February, the technology sector was among the industries with the highest prospect for increasing in-house litigation management teams. Survey respondents in tech expected the number of in-house lawyers who manage or conduct litigation to increase for 2013.

The potential for litigation is coming from a variety of sources (other than design patents, copyrights, trade dress), among them:

Data Security & Privacy

Cloud computing means increasingly more personal data and commercially sensitive information is being stored remotely in aggregated data centers. And increasing computing power has made data encryption cracking and other forms of “hacking” more powerful.

Since 2005, an estimated 2,800 data breaches have occurred in the United States, with 4% of those breaches leading to federal litigation. However, the risks don’t stop at litigation. Security breaches threaten not only consumer information but also a technology company’s crown jewel: its intellectual property.

Well-designed internal controls, security breach policies, and consumer agreements can help tech companies mitigate these risks. However, for those cases where the breach has caused serious harm to either the company or its consumers, litigation is sought. A properly secured Privacy insurance policy also needs to be in place to offer the protection required in the event of a breach or security issue.

Employment Practices

New technology firms are especially vulnerable to lawsuits arising from employment practices and related human resources issues, such as sexual harassment and discrimination. Newer and fast growing companies are often prey to these types of claims because their management team has not yet designed or implemented procedures for hiring, firing, and disciplining employees.

Tech firms can protect themselves in the event of employee lawsuits, with Employment Practices Liability Insurance (EPLI), which typically covers allegations of discrimination, wrongful termination and sexual harassment of employees. Insurance can be purchased as a standalone product, or it may be bundled with Directors and Officers Liability insurance, which protects against claims that allege misconduct by the officers of a company against individuals or groups affected by the directors’ actions.

What’s more, as the economy improves and the tech sector heats up, workforce mobility is on the upswing. There are increased efforts by companies to acquire premium talent from competitors. New words like “acqui-hire” have even been invented to describe start-up acquisitions by larger companies that target a start-up’s employees, in lieu of the business. Workforce mobility in the technology sector can lead to legal disputes involving claims of intellectual property misappropriation, breaches of employment contracts, interference with employment contracts, and other similar claims. Companies can protect themselves and their intellectual property with appropriate employee agreements and hiring procedures.

Axis Insurance Services, LLC provides a complete portfolio of management liability products for tech companies – from Privacy to Employment Practices to Directors & Officers and Errors & Omission coverages. Give us a call at (877) 787-5258 to discuss your specific needs.

Source: Morgan-Lewis, Fulbright

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Blogged on: June 19, 2013 by Mike Smith
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