ROAD TO REFORM ON PROTECTION & UTILIZATION OF TRADE SECRET

Hirokazu Honda, Attorney-at-LawAbe, Ikubo & Katayama

Pre-Meeting AIPLA MWI Orlando, FloridaJan. 27, 2015

PRESENT SITUATION OFLEAKAGE OF TRADE SECRET Big scale of disputes on leakage of trade

secret on basic technologies: the plaintiffs claim damages around/over 100 billion yen Nippon Steel & Sumitomo Metal v. Posco

Technology on Manufacture of Steel sheet Toshiba v. Hynix

Research data for flash memory

Survey on Protection of Trade Secret in 2014 (METI) (through website) 85% of the companies answered the risk of

leakage of technology and know-how was getting higher.

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PRESENT SITUATION OFLEAKAGE OF TRADE SECRET Open-Close Strategy -> Increasing Needs to

Make Technology Secret Survey on Protection of Trade Secret

“Nondisclosure of patentable inventions is increasing” … 29.1% “The leakage of the most important secret technology

will fatal damage to management” … 49.6%

Trade Secret other than Technical Information In many companies “customer information” and

“marketing information” are managed as trade secrets.

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PROTECTION OF TRADE SECRET UNDER THE JAPANESE LAW Wrongful acquiring, using, disclosing, etc. of trade

secret may constitute torts under Civil Code but the provisions of torts are very general, hard to be

established; remedy is basically compensation for damages only

“A person who has intentionally or negligently infringed any right of others, or legally protected interest of others, shall be liable …” Article 709, Civil Code

Protection under the Unfair Competition Prevention Act Special law of torts law defines “trade secret” and the wrongful acts on trade secret

to be “unfair competition” provides remedies including injunction / criminal penalty

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PROTECTION OF TRADE SECRET UNDER THE UNFAIR COMPETITION PREVENTION ACT Trade Secret

means technical or business information useful for business activities, such as manufacturing or marketing methods, that is managed as secret and that is not publicly known

Trade secret should be:1.managed as secret;2.useful for business activities; and3.not publicly known.

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PROTECTION OF TRADE SECRET UNDER THE UNFAIR COMPETITION PREVENTION ACT “managed as secret”

Factors Limited Accessibility

Limited employees are permitted to access Information in writing is stored in a locked place Electronic information is protected by passwords Copying is limited, etc.

One can recognize that the information is secret Seal “secret” on the binders Passwords

Knowledge by employees Internal rules on management of trade secret Lecture to employees Letters / agreements for confidentiality with

employees

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PROTECTION OF TRADE SECRET UNDER THE UNFAIR COMPETITION PREVENTION ACT

The courts have fluctuated …Following factors have been used for both

positive and negative to find the management:Kept information unlocked; employees can

accessNot requested employees to return information

in handVery few employees in a company

Even in a case where the seal “confidential” was put on the documents, the information was not found as managed one, while in “no seal” case the information was found as managed.

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PROTECTION OF TRADE SECRET UNDER THE UNFAIR COMPETITION PREVENTION ACT

“Trade Secret Management Guidelines”

But…

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- provide companies with strategies for effectively managing their valuable information

- describe what measures will be positive on the management of secrets, based on many court decisions

- The line is not clear: companies don’t know what to do for obtaining the legal protection

- The standards recommended seem too strict: smaller, non-listed companies are hard to follow such standards

WHAT CONSTITUTES “UNFAIR COMPETITION”?

Acts by “the first acquirer” acquiring TS by theft, fraud, duress, or other wrongful means

using / disclosing (incl. the disclosure in confidence to a specific person or persons) TS through the above wrongful acquisition

using / disclosing TS disclosed by TS owner for the purpose of acquiring a wrongful gain, or causing injury to such owner

Acts by one who acquired TS disclosed by another who conducted the above acts acquiring TS with the knowledge, or with gross negligence in

not knowing, that there has been an intervening act of wrongful acquisition / disclosure, or using / disclosing TS so acquired

using / disclosing an acquired TS after having learned, or having been grossly negligent in not learning, subsequent to its acquisition, that there has been an intervening wrongful acquisition / disclosure

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REMEDIES; SANCTIONS Remedy for Infringement of Trade Secret

Injunction Compensation for Damages

Extinctive prescription (Statutes of Limitation) 3 years from learning of unfair competition and learning of

the person committing such act 10 years from the time unfair competition began

Penal Provisions Imprisonment with work for not more than 10 years, a fine of

not more than ten million yen, or both Entity whose representative, agent, employee, or other

worker has committed unfair competition shall be punished by a fine of not more than 300 million yen

Except the first acquirer, only one who was disclosed TS from such acquirer (“the second acquirer”) is punished

For everyone “for the purpose of acquiring a wrongful gain, or causing injury to such owner” is required

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DISCUSSION ON PROTECTION AND UTILIZATION OF TRADE SECRETS

Subcommittee on Protection and Utilization of Trade Secrets started discussion in September, 2014

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Ministry of Economy, Trade and Industry

Industrial Structure Council

Intellectual Property Committee

Subcommittee on Protection and Utilization of Trade Secrets

INTERIM SUMMARY BY SUBCOMMITTEE(TO COLLECT PUBLIC COMMENTS)

Necessary Circumstances Minimum measurement for obtaining legal protection as trade secrets Multipronged measurement such as personnel matters, information

security necessary for more effectiveness of protection of trade secrets

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Basic Idea1.Provide necessary circumstances to efficiently exercise the protection of leakage of trade secrets2.Deter infringement of trade secrets in the aspects of both civil and criminal more strongly

・ Amendment of “Trade Secret Management Guidelines”・ System on providing advices by lawyers and patent attorneys for such measurement

AMENDMENT OF “TRADE SECRET MANAGEMENT GUIDELINES” Minimum standard measures necessary for the legal

protection for trade secrets “best practice” “recommended measures” will be described

in another “manual for protection of trade secrets” or like

Management of trade secret Subject of management as secret (range of secret

information) should be clarified to employees so that their foreseeability and stability of business are secured

Intention to manage certain trade secrets should be clearly expressed to employees by measures of management so that employees’ recognizability is secured Content and extent of measures depends on the scale and type

of companies, employees’ duties, character of information, etc.

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DETERMENT OF INFRINGEMENT OF TRADE SECRETS IN LEGAL SYSTEM

Criminal Provisions Expansion of the range of punishable conducts Raise of upper limit of a fine Amendment to offence without complaint

Civil Provisions Mitigation of plaintiff’s burden of proof Extension of the period for enforcing the right to

demand injunction, damages, etc. Expansion of the conducts to be the subject of

injunction/damages

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EXPANSION OF THE RANGE OF PUNISHABLE CONDUCTS

Intentional unfair acquisition of trade secrets abroad should be the subject of punishment.

Existing Law “Use / disclosure” of trade secrets abroad which are

managed in Japan is punishable. “Acquisition” of trade secrets abroad is not stipulated.

Necessity Global business expansion Increase of trade secrets archived abroad, such as in

cloud services

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EXPANSION OF THE RANGE OF PUNISHABLE CONDUCTS

Intentional use / disclosure of trade secrets with knowledge that it was unjustly acquired should be the subject of punishment.

Existing Law One who unjustly acquired trade secrets other than

from “the first acquirer” of the secrets is not punished.

Necessity Higher risk of stolen secrets widely/quickly distributed

through high-spec information communication terminal, etc.

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EXPANSION OF THE RANGE OF PUNISHABLE CONDUCTS

Transfer, import and/or export of goods with knowledge that it was made by using trade secrets should be the subject of punishment.

Existing Law No punishment.

Necessity Use of trade secrets is hard to be proved. Prohibition of the sale of products made by using such

trade secrets should lead infringers to considering that such infringement of trade secrets will not pay.

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MITIGATION OF BURDEN OF PROOF

If plaintiff proved: defendant unjustly acquired trade secrets; or defendant manufactured products which are

manufactured by using trade secrets,

the defendant’s use of trade secrets is legally presumed, and in turn the defendant has burden of proof of its non-usage of the trade secrets.

Subjects of such shift of burden of proof Process of manufacturing products Technical trade secrets such as a method on

assaying

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MITIGATION OF BURDEN OF PROOF

… defendant manufactured “products which are manufactured by using trade secrets” Require considerable correlation between trade secrets

at issue and defendant’s products, to exclude the technology less relevant to defendant’s products from the subjects for shift of burden of proof

○ [Trade Secret] technology on metal with special structure

[Product] metal with special structure similar to the technology

× [Trade Secret] technology outside manufacturing process (illumination; method for keeping cleanliness, etc.)

[Product] all the products in defendant’s factory

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MITIGATION OF BURDEN OF PROOF

Existing Law No provision.

Necessity Hurdle to the proof of infringement

Evidence on defendant’s use of trade secrets usually exists at the defendant’s side

Limits of order to submit documents necessary for proving the infringement under Article 7 of the Act Rare to reach the issuance of the order Substantial time to examine the application of the order

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THANK YOU FOR YOUR ATTENTION!

Hirokazu Honda, Attorney-at-LawAbe, Ikubo & KatayamaE-mail: hirokazu.honda@aiklaw.co.jpURL: http://www.aiklaw.co.jpPhone: +81-3-3273-2600 Fax: +81-3-3273-2033