IP and cybersecurity disputes are top legal concerns for tech companies

No industry is a stranger to litigation, but for the tech sector, it appears intellectual property (IP) and patent disputes, followed by cybersecurity and data protection issues, are among the top legal matters that keep tech company managers up at night.

According to the 17th Annual Litigation Trends Survey by Norton Rose Fulbright, which surveys hundreds of in-house litigation leaders from global corporations, labor and employment disputes are also high on the list for tech companies.

Startup teams, legal counsel and other internal stakeholders looking to address these legal challenges should consider three key factors impacting the sector.

IP disputes: The top litigation concern facing the sector

Technology respondents were more likely to be concerned about IP disputes than any other potential dispute source, with 46% listing them among the most concerning, compared to 16% across all industries.

Given that the core function of most technology companies is to develop and market innovative technology and solutions, it is unsurprising that tech companies listed IP disputes as having the most relevance and importance to them. Respondents cited the critical nature of IP assets to their core business as the reason why disputes were such a concern.

The costs associated with these disputes, particularly when defending against accusations of patent infringement, were top of mind for respondents. Defending against IP disputes can be a drain on resources, particularly given the continued cost and prevalence of disputes initiated by “patent trolls” — entities whose primary business is to obtain and enforce patents against technology companies — far exceed the costs associated with leveraging the patent to provide goods and services.

Many respondents reportedly are expanding their legal teams. Strategies include adding additional in-house legal staff, engaging outside counsel to focus on specific IP strategies, expanding investigation and enforcement actions against potentially infringing activity, enhancing the protection of company patents and building a more mature and robust contract drafting and review process for IP-related contracts.

Tech firms feel exposed to cybersecurity, data protection disputes

Technology respondents listed cybersecurity and data protection issues as the top concerning dispute trend, more than any other industry — 71% reported they felt more exposed to cyber security/data protection disputes, compared to the previous 12 months. They said protecting both their own proprietary information and their customer’s information was critical, particularly in an increasingly global market.

Compared to their peers in other industries, however, tech companies were less likely to view these issues as a significant new source of disputes (presumably because the technology industry is well aware of and already acquainted with the risk associated with such disputes).

As technology companies consider how to safeguard and protect their information, it is no surprise that many are looking to expand their legal teams. According to a litigation leader for an IT services company that manages and hosts data for its clients outside the U.S., a top priority in 2022 is expanding legal capabilities in-house and engaging outside counsel to address privacy and data protection issues.

Counsel can assist in balancing regulatory, legal and strategic considerations around data protection issues. For example, protecting IP and trade secret information from non-authorized users is not only a strategic concern — it may also undermine arguments in legal disputes as to whether the company has taken adequate steps to protect its IP against misappropriation.

Similarly, a growing number of regulators require companies to implement policies, procedures and safeguards to protect non-public business information and personal information.

Notably, the New York Department of Financial Services (NYDFS) requires covered entities to develop procedures for the secure disposal “of any nonpublic information” that is no longer necessary for a legitimate business purpose. Given growth in digital payments services shows no sign of abating, this may be of particular interest and consideration for this market.

Multiple respondents identified the growing patchwork and maturation of data protection regulations around the world as a growing legal concern on the horizon. They reported being concerned about the growing maturity of GDPR and the patchwork of emerging data protection regulations both in the United States and abroad, as well as the additional regulatory scrutiny that has come in recent years around cybersecurity.

Enhancing data security and assessing IT vulnerabilities is another way respondents have chosen to address data protection concerns. Anticipating increased scrutiny and privacy disputes initiated by clients regarding the security of their data, respondents report taking measures to increase IT security, conduct internal and independent audits of their security practices, and maturing compliance with industry guidelines around information security.

Labor and employment disputes remain costly and common

Labor and employment-related disputes are ranked among the most numerous disputes among technology sector respondents, with nearly half reporting that employment disputes were among their highest-volume matters. This increase in frequency indicates higher concern year over year, with 27% of 2021 survey respondents listing employment disputes among their top concerns, compared to 19% in 2020.

Respondents identified diversity, equity and inclusion (DEI) as the largest non-legal factor influencing labor and employment dispute trends. Respondents drew a connection between disputes linked to discrimination and social justice as a potential new source of labor and employment disputes and noted that these types have been on the rise over the last few years.

Although labor and employment disputes are not a novel legal concern, these disputes and arbitrations remain a key cost center for most respondents. Respondents reported that some of the actions they planned to take to address employment disputes included maturing their internal policies and procedures and reporting, as well as expanding the use of alternative disputes resolution methods.

Respondents reported that their concerns around labor and employment disputes, including class actions, also overlapped with data protection issues, as the theft of employee personal data can spawn class actions and increased regulatory scrutiny.