Transcript Document

Trade Secrets in
the Workplace
Institute for Corporate Counsel
March 2003
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Intellectual Property Overview
Basic IP Rights
• Patents
• Copyrights ©
• Trademarks ™
• Trade Secrets
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Trade Secret Overview
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What is a Trade Secret?
What is Misappropriation?
Penalties for Misappropriation
Steps to Protect Trade Secrets
Steps to Reduce Misappropriation Risk
Questions & Discussion
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What is a Trade Secret?
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What is a Trade Secret?
• A Trade Secret is Information that:
– derives independent economic value, actual or
potential, from not being generally known to
the public or to others who could derive
economic value from its disclosure or use; and
– is the subject of reasonable efforts under the
circumstances to maintain its secrecy.
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What is a Trade Secret?
“Information” Can Broadly Include:
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formulas
patterns
compilations
programs
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devices
methods
techniques
processes
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What is a Trade Secret?
• Specific Examples of Information That May
Constitute a Trade Secret:
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customer and supplier lists
recipes/formulas
computer source code
manufacturing methods
business plans and marketing strategies
pricing and costs
“negative information”/avoiding blind alleys
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What is Not a Trade Secret?
• Specific Examples of Information that Does
Not Constitute a Trade Secret
– “generally known”
– lacking in actual or potential “independent
economic value”
– “general knowledge, skills and experience”
acquired on the job
– not subject of reasonable efforts to maintain
secrecy
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Information That Is “Generally Known”
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Observable or apparent product features
Scientific principles and laws of nature
Standard industry practices
Textbook or open literature concepts
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Information Lacking “Independent Economic Value”
• Information of no real economic value or
competitive significance
• Stale or historic information
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An Employee’s “General Knowledge, Skills & Experience”
• If a chef quits her job to start her own
restaurant, what information is she entitled
to use?
– knowing to oil or butter the pan before
cooking?
– suitable cooking temperature ranges for certain
foods?
– specific recipes?
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What is a Trade Secret?
• A Trade Secret is Information that:
– derives independent economic value, actual or
potential, from not being generally known to
the public or to others who could derive
economic value from its disclosure or use; and
– is the subject of reasonable efforts under the
circumstances to maintain its secrecy.
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What Are “Reasonable Efforts” to Maintain Secrecy?
• no hard and fast rules
• must be reasonable under the circumstances
– a reasonable effort for a major manufacturer
may not be reasonable for a garage shop
inventor
• stay tuned for some practical tips
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Information Not Subject to Reasonable Secrecy Measures
• Information disclosed in patents
• Information disclosed in SEC filings
• Information disclosed in data books,
websites, etc.
• Information observable on plant tours
• Information disclosed in speeches and
articles
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Potential Loss of Trade Secret Protection
• What if an employee distributed the
company’s trade secrets to outsiders without
authorization?
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Comparison of Patent and Trade Secret Protection
• Patent vs. Trade Secret Protection
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limitations on patentability
where overlap, concepts mutually exclusive
public disclosure vs. private information
scope of protection
length of protection
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Choosing Patent vs. Trade Secret Protection
• Ability to sufficiently protect information
from disclosure
– ease of reverse engineering
– risk of inadvertent public disclosure
• Need for disclosures to customers or others
• Licensing considerations
• Cycle Time/Duration of competitive
significance
• Cost considerations
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What is Misappropriation?
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What is Misappropriation?
Misappropriation:
• Disclosed or used in violation of an
obligation of confidentiality
• Disclosed or used by one who knows or
ought to know it was derived from someone
who violated an obligation of confidentiality
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What is Misappropriation?
Misappropriation:
• Acquired by improper means
• Disclosed or used by one who knows or
ought to know it was acquired by someone
through improper means
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What is Misappropriation?
Misappropriation:
• Disclosed or Used Under Circumstances
Where One Knows or Has Reason to Know
It was Acquired by Accident or Mistake
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What is Misappropriation?
Inducement
• Inducing misappropriation by others
• Inducing breach of confidentiality
obligations
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Penalties for Trade Secret
Misappropriation
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Penalties for Trade Secret Misappropriation
Civil
Liability
Monetary Damages
+Injunction: Pre/post-trial
+“Double” Damages
+ Attorneys’ Fees
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Penalties for Trade Secret Misappropriation
Civil
Liability
Overlapping
Criminal
Statutes
Monetary Damages
+Injunction: Pre/post-trial
+”Double” Damages
+ Attorneys’ Fees
State Criminal Statutes
Federal Criminal Statutes
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State Criminal Statutes
• Cal. Penal Code § 499c: Theft of Trade
Secret
• Cal. Penal Code § 496: Receiving Stolen
Property
• Cal. Penal Code § 502: Unauthorized
Access to Computers, Computer Systems,
and Computer Data
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Federal Criminal Statutes
• Economic Espionage Act of 1996
18 U.S.C. §§ 1831-1839
• Mail and Wire Fraud
18 U.S.C. §§ 1341, 1343
• R.I.C.O.
18 U.S.C. §§ 1961-1968
• National Stolen Property Act
18 U.S.C. §§ 2311-2322
• Fraud and Related Activity
18 U.S.C. § 1029
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Penalties for Trade Secret Misappropriation
Civil
Liability
Monetary Damages
Unjust Enrichment
+Injunction: Pre/post-trial
+ “Double” Damages
+ Attorneys’ Fees
Overlapping
Criminal
Statutes
State Criminal Statutes
Federal Criminal Statutes
Business
Considerations
Harm to Reputation
Disruption to Customer
Relationships 28
Steps to Protect
One’s Trade Secrets
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Steps to Protect One’s Trade Secrets
“Just because you’re paranoid
Doesn’t mean they’re not after you.”
Nirvana, “Territorial Pissings” from Nevermind
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Steps to Protect One’s Trade Secrets
Workplace Controls
Evolving
Reasonable
Efforts
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Workplace Controls
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restricted distribution
off-limits areas
visitor access procedures
disposal of sensitive materials
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Steps to Protect One’s Trade Secrets
Workplace Controls
Materials-Marking
Practices
Evolving
Reasonable
Efforts
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Materials-Marking Practices
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defined procedure
employee training
automatic e-mail headers
guarding against overuse
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Steps to Protect One’s Trade Secrets
Workplace Controls
Materials-Marking
Practices
Evolving
Reasonable
Efforts
Electronic Security Measures
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Electronic Security Measures Today and Tomorrow
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firewall
access cards
encryption of transmissions
password protection
digital watermarks
“read-only” email
preserving audit trails
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Steps to Protect One’s Trade Secrets
Workplace Controls
Materials-Marking
Practices
Evolving
Reasonable
Efforts
Electronic Security Measures
Vigilance
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Vigilance
• Assign a Gatekeeper
– Attorney or Senior Business Person
– Reviews Materials Before Publication or
Distribution
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Vigilance
• Assign a Gatekeeper
– Attorney or Senior Business Person
– Reviews Materials Before Publication or
Distribution
Tours
Articles
Patent Disclosures
Trade Shows
Speeches
Website
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Steps to Protect One’s Trade Secrets
Workplace Controls
Materials-Marking
Practices
Evolving
Reasonable
Efforts
Electronic Security Measures
Vigilance
Employment Practices
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Employment Practices
• Confidentiality Agreements
– protect company’s confidential information
(whether trade secrets or not)
– protect third party’s confidential information
given to company
– no improper use or disclosure of former
employer’s confidential information
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Employment Practices
• Intake Procedures
• Employee Handbook and Education
• Compliance Procedures
• Exit Interviews
– return company documents
– laptops, email accounts, server access
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Steps to Protect One’s Trade Secrets
Workplace Controls
Materials-Marking
Practices
Evolving
Reasonable
Efforts
Electronic Security Measures
Vigilance
Employee Practices
Non-Disclosure Agreements
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Typical Non-Disclosure Agreement Terms
• Applies to specific information disclosed and
designated as “Confidential”
• Limits use of the Confidential information to
specific purpose
• Prohibits disclosure of the Confidential
information to third parties
• Requires precautions to avoid the inadvertent
disclosure of the Confidential information
• Requires the return or destruction of Confidential
information at a particular time or when the
business need for it has passed.
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Non-Disclosure Agreements
• Lots of bad forms out there. Beware!
• Provisions to Pay Attention to:
– time limits
– carve-outs for information “otherwise known”
– carve-outs for information “independently
developed”
• Potential for contamination of important
players.
• Recordkeeping.
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Steps to Reduce
Misappropriation Risk
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Setting the Stage
• As employees move, so do trade secrets.
• Employees are often required to make black
and white distinctions in a gray world.
• There are no realistic safe harbors.
• The name of the game is minimizing and
managing risk.
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Step 1: “Do The Right Thing, and Act Like It.”
• Do your own work.
• Be open and honest in describing your
conduct.
• If you have a problem . . .
– take appropriate prompt action
– seek Legal Department advice
– don’t ignore it or procrastinate
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Step 2: Use Prudent Hiring Procedures
• Hire based on your needs and the
candidate’s skills
• Be straightforward and honest in approach
• Credibility and integrity count
• Do your homework
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Step 3: Implement Prudent Employment Policies
• Implement policies requiring respect for
others’ intellectual property rights.
• Discuss those policies openly, and make sure
your employees know you’re serious.
• Respect your employee’s judgment on the
limits of what he can and cannot do or
discuss.
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Step 4: Document Independent Development
• Make and preserve your record.
• Consider taking a snapshot of work in
progress.
• Consider hiring a respected, neutral expert.
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Step 5: Think Carefully!
• In litigation, everything you do may be
scrutinized.
• Perfectly legitimate and ordinary business
conduct may be distorted and twisted.
• Be cognizant of how things can be
mischaracterized or cast in the worst
possible light.
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Factors Juries Tend to Find Significant
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Similarity of position and responsibilities
Degree of supervision and controls
Speed of R&D activities
Deviations from normal practice
Use of pre-existing company resources
Time and cost to market
Misrepresentations or concealment
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Trade Secrets in
the Workplace
Mark A. Samuels
www.omm.com
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