TRADE SECRETS

Presented

By

Joseph A. Calvaruso

Orrick, Herrington & Sutcliffe

LLP1 © AIPLA

2012

Overview of Trade Secret Protection

Applicable Law

• Statutory Basis

—Uniform Trade Secrets Act (“UTSA”) Enacted by most of the 50 states.

• Common Law (still the law in New York, for example)

2 © AIPLA 2012

Overview of Trade Secret Protection

What is a trade secret?

• Any information that:

—(1) is secret;

—(2) has commercial value derived from the fact that it is secret; and

—(3) is the subject of reasonable efforts to be kept secret. UTSA

3 © AIPLA 2012

Overview of Trade Secret Protection

• Definition of Misappropriation (UTSA)

– Misappropriation means:

• Improper acquisition -or- Improper use of a trade secret -or-

• Improper disclosure4 © AIPLA

2012

Overview of Trade Secret Protection

Inevitable Disclosure Doctrine

• Inevitable Disclosure Doctrine generally requires a showing that:

— Departing employee knows former employer’s trade secrets;

— Departing employee’s new job duties at competitor are so similar to those in former job that it would be extremely difficult for him to avoid relying on or using former employer’s trade secrets; and

— Departing employee and new employer cannot be depended upon to avoid using former employer’s trade secrets.

5© AIPLA 2012

Overview of Trade Secret Protection

Why use trade secrets?

• Most non-technical information not patentable

• More than a year beyond patenting window

— Note the absolute bar outside U.S.

• Extended protection

6 © AIPLA 2012

Overview of Trade Secret Protection

Jurisdictional Differences in Enforcement UTSA vs. non-UTSA States

• Available remedies

—UTSA (CA): Injunction and damages (actual loss, reasonable royalty, or punitive) provided by statute

—Non-UTSA (NY): Variety of remedies including constructive trust

• Criminal law protection

—UTSA (CA): Available

—Non-UTSA (NY): Not trade secrets, but larceny law protects “secret scientific material”

7

© AIPLA 2012

Overview of Trade Secret Protection

When are your trade secrets at greatest risk?

• Departing employees

• Failed business dealings

• Corporate espionage

70-80% of breaches are caused by insiders, often lower level employees, through carelessness, lack of training, or greed.

8© AIPLA 2012

Internal Trade Secret Program

Internal Trade Secret Procedures

•Employment Practices

•Confidentiality Program and Records Management

•Monitoring and Auditing

•Response procedures9

© AIPLA 2012

Internal Trade Secret Program

Employment Practices

•Require all employees to sign confidentiality agreements

—Acknowledging ownership of confidential information

—Obligations during and after employment

—Address IP assignment issues

10 © AIPLA 2012

Internal Trade Secret ProgramConfidentiality Program and Records Management

• Identify and update secrets to be protected

• Train employees and consultants on record-keeping

• Limit Access

—Meaningful difference between confidential and non-confidential information

• Physical Security

—Restrict access to information and certain physical areas

—Need to know basis

—Security measures including locks, keys, shredding, dumpsters11

© AIPLA 2012

Internal Trade Secret Program

Monitoring and Auditing

•Monitoring compliance (privacy issues)

•Exit interview and related procedures

—Return/seizure of all company property at termination, including electronic copies of materials

12© AIPLA 2012

Internal Trade Secret Program• Monitoring and Auditing

— Examples of questions to ask

• Is the information copied with a photocopier that is openly accessible?

• Are the employees instructed not to discuss secret company projects in front of visitors, especially suppliers and vendors?

• When employees violate such instructions, are they reprimanded?

13 © AIPLA 2012

Internal Trade Secret Program

Response Procedures

• Response procedures when suspecting a departing employee taking confidential with him?

– What to do immediately?

• e.g., secure computer and other storage devices, access to email/network

• e.g., suspend record destruction

• Response procedures when a security breach caused by potential espionage is discovered?

—Should one get law enforcement involved?14© AIPLA 2012

External Business Relationships:Collaboration Agreements

Key Considerations

• Any disclosure of proprietary information must be protected by written agreements

• Must clearly define the scope of what is confidential

• Must clearly define the purpose of the disclosure to the collaboration partner

• Must clearly define the use that can be made with that information (including further disclosure)15

© AIPLA 2012

External Business Relationships:Collaboration Agreements

Exploratory Discussions: NDAs and Feasibility Studies

• Narrow Disclosure – disclose only what is needed to achieve purpose

— Disclosure may not lead to deal and potential partner is likely also considering competitors

— NDA is critical not only for protecting trade secrets, but preserving patent rights

— Keep most valuable (and enabling) information to yourself

— Example: results, but no methods, no formulas, compositions, etc.

16

© AIPLA 2012

External Business Relationships:Collaboration Agreements

Exploratory Discussions: NDAs and Feasibility Studies

• Limit Right to Use and Disclose

— To evaluate technology for purpose of business of business relationship

— Limit sharing of information within each company

• Limit Right for the NDA

— Require return of any documents/presentation handouts

• Don’t progress to the next stage without a new agreement

17© AIPLA 2012

External Business Relationships:Collaboration Agreements

Joint Work

• Clearly define scope of disclosures

— Limit disclosures to “need to know”; use point persons for party interface

— Train your project team in what you consider proprietary and in what can and cannot be shared

— Require written consent before any third party disclosures

• Clearly define scope of use of confidential information

— Define purpose of agreement

— Define each party’s rights and responsibilities18

© AIPLA 2012

External Business Relationships:Collaboration AgreementsJoint Work

• Build a record

— Clearly identify and document all exchanges of Confidential Information

— Keep written records of all internal work under the JDA.

— Keep written records of all oral exchanges of information (including informal calls) and of all documents exchanged

• Clearly define IP rights (including trade secrets and know-how)

— Background IP rights

— Joint discoveries and collaboration IP

— Separate discoveries during collaboration term

— Require cooperation in patenting to avoid harm to respective patent portfolios

19

© AIPLA 2012

External Business Relationships:Collaboration Agreements

Joint Work

• Be Vigilant

—Monitor publications and presentations made by collaborator

—Monitor patent filings

—Periodically exercise audit or inspection rights

—Track inventory and use of confidential information

• Be wary of waiver20

© AIPLA 2012

TRADE SECRETS

Joseph A. Calvaruso Orrick, Herrington & Sutcliffe LLP51 West 52nd Street New York, NY 10019 jcalvaruso@orrick.com 1-212-506-5140

www.orrick.com/ip

Thank YouThank You

21© AIPLA 2012