Trade Secrets Overview, Protection, and Litigation January 30, 2015 Mark C. Zebrowski mofo.com
Overview 2
What Is a Trade Secret? California Civil Code 3426 Information, including a formula, pattern, compilation, program, device, method, technique, or process, that: Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy Need not be novel, technical, etc. 3
Trade Secret Examples Business plans and strategies Customer lists Financial data Technical information Manufacturing process Test protocol and results Next-generation product plans RFP, RFQ, or RFI responses Unpublished patent applications 4
Uniform Trade Secret Act? There are significant differences between states Example: The inevitable disclosure doctrine Prohibits hiring competitor s employee where employee would inevitably have to disclose trade secrets California does not recognize the doctrine 5
The Problem 6
Misappropriation Civil Code 3246.1(b). Misappropriation means: (1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or (2) Disclosure or use of a trade secret of another without express or implied consent by a person who: (A) Used improper means to acquire knowledge of the trade secret; or (B) At the time of disclosure or use, knew or had reason to know that his or her knowledge of the trade secret was: (i) Derived from or through a person who had utilized improper means to acquire it; (ii) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or (iii) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or (C) Before a material change of his or her position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake 7
Who Does This? Source: David S. Almeling, et al., A Statistical Analysis of Trade Secret Litigation in Federal Courts, 45 Gonz. L. Rev. 291, 302 (2009/10). 8
What Do They Take? Ponemon Institute LLC (2009). Data Loss Risks During Downsizing: As Employees Exit So Does Data. 9
How Do They Take it? Ponemon Institute LLC (2009). Data Loss Risks During Downsizing: As Employees Exit So Does Data. 10
What Were They Thinking? Ponemon Institute LLC (2009). Data Loss Risks During Downsizing: As Employees Exit So Does Data. 11
Did They Use It? Ponemon Institute LLC (2009). Data Loss Risks During Downsizing: As Employees Exit So Does Data. 12
Caution You do not want to lose your trade secrets Or use your competitor s 13
Protecting Trade Secrets 14
Need to Protect California Civil Code 3426 Trade Secret Definition Derives independent economic value, actual or potential, from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy If you don t take reasonable efforts to protect, it will not be a trade secret 15
Hiring Employees Employment Agreements Invention Assignment Agreements Employee Manuals / Handbooks Training 16
Employment Practices Invention disclosures Technology policy Including use, storage, transfer, copying, right to inspect Use of personal devices Social media policy Continuing training Supervision / monitoring Recordkeeping and retention Enforcement 17
Designating Trade Secrets By category Physically Electronically 18
Restricting Access To information Physical Electronic Prohibition Access Copying Encryption To facilities 19
Monitoring Access to information Physical Electronic Copying Preserving the record 20
Additional Practices Secure systems (including portable media) from external intrusion Use NDAs Be cautious about what you reveal Trade journals, presentations, etc. Talking shop with third parties Secure disposal Encourage reporting violations Promptly act on any misappropriation Use it or lose it 21
Employment Termination Exit interview Signed acknowledgment Continuing obligation In compliance Gather and preserve evidence Particularly electronic evidence Laptop Phone Record of access Image? Chain of custody 22
Avoiding Trade Secret Claims 23
Hiring New hires must sign zero tolerance policy Do not let a new employee bring anything from a former employer Do not solicit information from new employees Same applies to consultants 24
Additional Practices Document exchange of information with third parties Comply with NDA provisions Collect competitive intelligence properly Obtain information from public sources Attend trade shows; observe competitors activities Ask customers What do we need to do to win your business? and not What did the competition quote? Use clean rooms Document your own developments Duty to inquire if put on notice that may be using trade secrets 25
Response to Suspected Misuse Immediate reporting Do Not: Open if not already opened Delete Forward Copy Print 26
Trade Secret Litigation 27
Anticipation Investigate Develop and maintain evidence Especially electronic Litigation Hold 28
Typical Claims Trade secret statute Exclusive remedy? Breach of contract Loyalty / fiduciary duty Unfair competition Conversion Interference 29
Potential Defendants Perpetrator New employer / company Others users / recipients? Investors? Officers / directors? 30
Requirement to Identify Trade Secrets No trade secret discovery by plaintiff until trade secrets are identified with reasonable particularity Typically contested Defines issues and scope of discovery and relief Prepare and serve concurrent with complaint Consider exhibits 31
Protective Order Authorized in trade secret statutes Prepare and serve proposed protective order with complaint Can apply to trade secret designation 32
Expedited Discovery Seek expedited forensic discovery (imaging) Employee(s) developing or supporting competing business Communication with new employer or co-conspirator(s) Websites accessed and searches performed Deletion of incriminating evidence prior to departure USB devices connected and used to steal trade secrets Creation date and author(s) of key documents 33
Evidence Fifth Amendment Client Access Expert(s) Retain early 34
Remedies Injunction Including affirmative acts Damages Unjust enrichment Reasonable royalty If neither damages or unjust enrichment are provable Punitive damages 35
Attorney s Fees The court may award reasonable attorney s fees and costs to the prevailing party if a claim of misappropriation is made in bad faith a motion to terminate an injunction is made or resisted in bad faith willful and malicious misappropriation exists 36