Trade Secrets Presentation

7/31/2019 Trade Secrets Presentation

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Patent ForumAugust 9, 2012


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Keith Davis, Jones Day([email protected])

August 9, 2012

Trade SecretsDallas Regional Chamber Patent Issues Forum


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Trade Secrets In The News

Paul Shin Devine, Apple global supply manager from 2005 to 2010, sentdrawings, pricing information, and projected sales figures on various Appledevices to suppliers in China, South Korea, Taiwan, and Singapore.Suppliers paid kickbacks, which Apple said totaled more than $1 million.

Xiang Dong Mike Yu, product engineer, copied 4,000 documents, including

design specs, before leaving Ford, where he worked from 1997 to 2007. Later

worked for Beijing Automotive. Specs turned up on his Beijing Automotivelaptop when confiscated at OHare International at his 2009 arrest .

http://www.businessweek.com/articles/2012-03-14/the-great-brain-robbery

Clark Alan Roberts and Sean Edward Howley, both U.S. citizens andengineers at a Goodyear supplier, convicted of entering Goodyear plant

in Kansas under false pretenses, photographing device used to wrap cablefor tires inner thread, and transmitting photos for eventual use by Wyko

contractor in China to build tiremaking equipment.

Yuan Li, research scientist at company 2006-2011, charged with stealingtrade secrets and making them available to rival in which she was partner,Abby PharmaTech, a U.S. subsidiary of Chinese chemical company, andmaking compounds available for sale on Abbys website.
http://www.ncmsfoundation.org/wp-content/uploads/2011/03/sanofi-aventis_logo_clr-300dpi.jpghttp://www.google.com/imgres?imgurl=http://logocompany.info/wp-content/uploads/2012/05/Goodyear-Logo.jpg&imgrefurl=http://logocompany.info/goodyear-logo/&h=378&w=1679&sz=62&tbnid=tYu2CdhcV82NEM:&tbnh=26&tbnw=116&prev=/search?q=goodyear+logo&tbm=isch&tbo=u&zoom=1&q=goodyear+logo&usg=__QJU3PaWgufOX2rqQpSTcaH_zUMA=&hl=en&sa=X&ei=XoMhULvPCY7sqAGp1IGwAQ&ved=0CCcQ9QEwAghttp://www.google.com/imgres?imgurl=http://images2.wikia.nocookie.net/__cb20100507060357/automobile/images/e/ea/Ford_logo.jpg&imgrefurl=http://automobile.wikia.com/wiki/File:Ford_logo.jpg&h=750&w=1500&sz=70&tbnid=Bi3asbI-HIBzIM:&tbnh=65&tbnw=129&prev=/search?q=ford+logo&tbm=isch&tbo=u&zoom=1&q=ford+logo&usg=__CrnJYBt6kjJE1x7pwb0WRqLzNks=&hl=en&sa=X&ei=c4IhUN6vKZL0rAGkjYGYDg&ved=0CBoQ9QEwAAhttp://www.google.com/imgres?imgurl=http://edibleapple.com/wp-content/uploads/2009/04/silver-apple-logo.png&imgrefurl=http://www.edibleapple.com/2009/04/20/the-evolution-and-history-of-the-apple-logo/&h=217&w=174&sz=39&tbnid=Axl9ZK1SeVmrdM:&tbnh=84&tbnw=67&prev=/search?q=apple+logo&tbm=isch&tbo=u&zoom=1&q=apple+logo&usg=__KaxG_1CSqlgOqVwEptn0WTRf50g=&hl=en&sa=X&ei=WYEhUNqfKYr6rAGktoAo&ved=0CBoQ9QEwAA


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Lessons From the $1 Billion Intel Trade-Secret Theft, IEEESpectrum, Nov. 24, 2008

What if the FBI came knocking on your door saying that your employer hadaccused you of stealing US $1 billion from the company? Thats exactly whathappened to Biswamohan Pani, a former Intel engineer who was indicted earlierthis month for stealing trade secrets from the chip maker. Pani allegedlydownloaded more than 100 pages of data containing details about futureIntel chip designs and 19 drawings detailing the chips layouts.

[B]y the time Pani resigned his position at Intel near the end of May, he hadalready been hired by Intel rival Advanced Micro Devices (AMD) to work atone of its R&D labs. For nine days after he reported for duty at AMD on 2June, he was technically still a full-fledged Intel employee, with all the rightsand privileges thereof. One of those privileges was access to an encryptedserver containing a cache of Intels trade secrets. Intel says it has proof thathe raided the server. His supposed intent: to advance his career bystrategically using the information to make himself indispensable to hisnew employer.


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Lessons From the $1 Billion Intel Trade-Secret Theft, IEEESpectrum, Nov. 24, 2008

Although there are no pending criminal or civil actions against AMD, there aresome steps Intel needs to take to ensure that its rival is not sandbagginginother words, biding its time before coming out with chip designs based on theinformation. Among them is aggressively demanding that AMD cooperate inan internal investigation in which witnesses would be interviewed andcomputers would be reviewed forensically to see if any of the information

allegedly taken was transferred to or copied on any of AMDs systems.

A big open question is why Intel didnt cut off Panis systems access themoment he tendered his resignation. Pani lied about where he was goingafter leaving Intel, concocting a suspicion-diverting story about going to work for ahedge fund. One of two things was going on There either wasnt a

procedure in place, or the procedure wasnt followed to deal with thatresignation in terms of data security. In other words, did somebody have achecklist? Did HR get notified? Did IT get notified? Did someone say, Thisperson has given notice. What do we do now?


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Lock the Barn Door ...

Vigilance in the area of trade secrets is required,particularly because once a trade secret is madepublic all ownership is lost.

- Computer Assocs. Intl, Inc. v. Altai, Inc.,918 S.W.2d 453, 457 (Tex. 1996) (emphasis added)


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Before the Horse Gets Out

It is self-evident that the subject matter of a trade secret mustbe kept secret.

- Luccous v. J.C. Kinley Co., 376 S.W.2d 336, 338 (Tex. 1964)

Before information can be termed a trade secret, there mustbe a substantial element of secrecy.

- Astoria Indus. of Iowa, Inc. v. SNF, Inc., 223 S.W.3d 616, 634(Tex. App.Fort Worth 2007, pet. denied)

A trade secret must be a secret.- Ineos Group Ltd. v. Chevron Phillips Chem. Co., LP,

312 S.W.3d 843, 852 (Tex. App.Houston [1st Dist.] 2009,no pet.) (emphasis in original).


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Statistics and Surveys

Scott Adams


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InfoBrief, NCSES, National Science Foundation (NSF 12-307, Feb. 2012)


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Ponemon Institute LLC. (2009). Data Loss Risks During Downsizing: As Employees Exit so Does Data.



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Some other statistics: Top 5 states with trade secret case filings: California, Illinois,

Michigan, New York, Texas

7-9 years: How often trade secret litigation has doubled in the UnitedStates

85%: How often the alleged misappropriator was known to the TSowner Employee, former employee, or business partner

Halfof information misappropriated is business information; the otherhalf is technical information and know-how

42%: How often the TS owner prevailed on all TS claims in litigation 5%: How often TS owner prevailed on some TSs but not others


Almeling et al., A Statistical Analysis of Trade Secret Litigation in FederalCourt, 45 Gonzaga L.R. 291 (2009)

See also Almeling et al., A Statistical Analysis of Trade Secret Litigation in

State Courts, 46 Gonzaga L.R. 291 (2010)


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The Law

If at first you don't succeed [at protecting your trade

secrets], you're not Chuck Norris.


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Texas

Trade secret: A trade secret consists of aformula, process, device, or compilation whichone uses in his business and which gives him

an opportunity to obtain an advantage overcompetitors who do not know or use it.

Computer Assoc. Intl, Inc. v. Altai, Inc., 918 S.W.2d453, 455 (Tex. 1996); Hyde Corp. v. Huffines, 158 Tex.

566, 314 S.W.2d 763, 777 (Tex.), cert. denied, 358 U.S.898 (1958).


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Texas

Trade secret: Factors to be considered include:

(a) the extent to which the information is known outside of thebusiness of the party claiming the information is a trade secret

(b) the extent to which the information is known by employeesand others involved in the partys business

(c) the extent of the measures taken by the party to guard thesecrecy of the information

(d) the value of the information to the party and to his or hercompetitors

(e) the amount of effort or money expended by the party indeveloping the information

(f) the ease or difficulty with which the information could beproperly acquired or duplicated by others

- In re Bass, 113 S.W.3d 735 (Tex. 2003).


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Texas

Misappropriation: Use or disclosure of a trade secretthat was acquired through a relationship of trust orthrough fraud or other improper means, including

breach of: Fiduciary relationship Employment relationship Express or implied contract

Other confidential relationship Hyde Corp. v. Huffines, 158 Tex. 566, 314 S.W.2d

763,770 (Tex.), cert. denied, 358 U.S. 898 (1958)


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Texas

The mere fact that knowledge of a product might beacquired through lawful means such as inspection,experimentation, and analysis does not preclude

protection from those who would secure thatknowledge by unfair means. Although informationgenerally known and readily ascertainable is notprotectable, the fact that information is discoverable bylawful means does not deprive its owner of protectionfrom one acquiring it by unfair means.

IAC, Ltd. v. Bell Helicopter Textron, Inc., 160 S.W.3d191, 198-99 (Tex. Ct. App.Fort Worth 2005) (citing In

re Bass, 113 S.W.3d 735, 739 (Tex. 2003))


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California

Trade secret: Information, including a formula, pattern,compilation, program, device, method, technique, orprocess, that:

(1) Derives independent economic value, actual orpotential, from not being generally known to the publicor to other persons who can obtain economic valuefrom its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the

circumstances to maintain its secrecy. Cal. Civ. Code 3426.1(d) (adopting UTSA)


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California

Misappropriation:(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 impliedconsent 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 hisor her knowledge of the trade secret was:

(i) Derived from or through a person who had utilized improper meansto 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 personseeking relief to maintain its secrecy or limit its use; or

(C) Before a material change of his or her position, knew or had reasonto know that it was a trade secret and that knowledge of it had been

acquired by accident or mistake. Cal. Civ. Code 3426.1(b) (adopting UTSA)


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Advertising & marketing strategies

Contract and payment terms

Cost information

Customer lists

Engineering drawings and software

Formulas for product designs

Manufacturing processes

Marketing & competitor research

Pricing, revenue, and salesinformation

Profit margins

Software

Strategic plans

Examples of Trade Secret Information


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How to Protect Your Trade Secrets


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How to Protect Your Business from Espionage: Six Steps

1. Recognize there is an insider and outsider threat to your company.

2. Identify and valuate trade secrets.

3. Implement a proactive plan for safeguarding trade secrets.

4. Secure physical and electronic versions of your trade secrets.

5. Confine intellectual knowledge on a "need-to-know" basis.

6. Provide training to employees about your company's intellectual

property plan and security.

http://www.fbi.gov/about-us/investigate/counterintelligence/economic-espionage/

Pretty Good Advice From the FBI
http://www.google.com/imgres?imgurl=http://images1.wikia.nocookie.net/__cb20070824222855/uncyclopedia/images/9/93/Fbi_logo.gif&imgrefurl=http://uncyclopedia.wikia.com/wiki/File:Fbi_logo.gif&h=446&w=432&sz=54&tbnid=RYUWOZ0XTImDIM:&tbnh=86&tbnw=83&prev=/search?q=FBI+logo&tbm=isch&tbo=u&zoom=1&q=FBI+logo&usg=__vf0HiSO0fOy8Tn_GIW8g-Oow6oY=&hl=en&sa=X&ei=cLghULq0JuOEygHS94GQAQ&ved=0CCkQ9QEwAg


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Prioritize & identify confidential information

What type of information (strategy, sales, technical, etc.)? How is the information generated ? How critical is the information to the business?

Where is it located (within United States/outside United States)? How is it stored (server, database, locally, hard copy, cloud)? How is it accessed (network, Internet, laptop, tablet, PDA)? Who has access (within company and outside of company)?

How am I able to track access and copies? Understand technology related to all of the above!

Step 2: Identify Trade Secret Information


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Create a written, definitive, enforceable protection policy covering: Identity of confidential information Access to confidential information

Investigation & screening of persons prior to access

Maintaining confidentiality of information

Including disclosure process, public and otherwise Use of technology to limit access & preserve confidentiality Legal obligations related to confidential information

Access, maintenance, copies & storage

Nondisclosure & noncompete agreements

Audit & reporting requirements Misappropriation plan

Document trade secret development & use

Document trade secret value (sales, royalties, licenses)

Educating employees

Step 3: Implement a Protection Plan


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Generally Mark confidential information as such Police access to information

Technology:

Limit & track access, copies & downloads; password protect

Be aware of access by and storage on mobile devices Including ability to remotely wipe or block access

Legal:

Non-disclosure agreements & audit rights Employment agreements & non-competes

Jurisdictional limitations (especially outside the United States) Ownership rights & joint confidential information (joint ventures)

Step 4: Secure Trade Secrets


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Investigate recipients of confidential information Background checks of new employees Investigate vendors, OEMs & partners Conflicts & competition

Provide public information if possible

E.g., joint venture or M&A due diligenceTechnology

Legal

Contractual provisions limiting access to information Audit provisions Reporting provisions

Step 5: Need-to-Know Access


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Step 6: Training (and ENFORCEMENT)


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Back to the Factors

(a) the extent to which the information is known outside of the businessof the party claiming the information is a trade secret

- Cannot be public information; think prior art

(b) the extent to which the information is known by employees andothers involved in the partys business

- Limited disclosure and distribution

(c) the extent of the measures taken by the party to guard the secrecy ofthe information

- Technology; NDAs & contractual terms; audit rights; backgroundinvestigations; monitoring copying and distribution

(d) the value of the information to the party and to his or her competitors

- Nexus to success & sales; efforts taken to preserve secrecy

(e) the amount of effort or money expended by the party in developingthe information

- Document development costs and relative importance

(f) the ease or difficulty with which the information could be properly

acquired or duplicated by others


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Other Considerations

Occupy Wall Street effect Big companies dealing with small inventors

Small inventors dealing with big companies Statute of limitations: 3 years in Texas

Discovery rule may toll statute but dont count on it

Equitable defenses laches

Inevitable disclosure (Un)enforceability of noncompete agreements Noncompete restrictions must be reasonable


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Noncompete Agreements

Texas Covenants Not to Compete Act(Tex. Bus. Com. Code 15.50-15.52)

An enforceable non-compete must:

Be ancillary to or part of otherwise enforceable agreement atthe time the agreement is made;

Protect a legitimate business interest; Contain reasonable limitations as to the scope of activity to be

restrained;

Contain reasonable geographical limitations; and Contain reasonable durational limitations

- Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011)

Extraterritorial Misappropriation and


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Extraterritorial Misappropriation and

Federal Statutes

Some problems with extraterritorial misappropriation Personal jurisdiction Choice of law Discovery Enforceability Remedies and injunction

Federal Statutes: Economic Espionage Act,

18 U.S.C. 1831 et seq. (1996)

- Includes criminal and civil actions by the Federal Government,including over extraterritorial misappropriations, but no privatecauses of action

- See Robert Kantner, Protecting Trade Secrets Internationally Through aComprehensive Trade Secret Policy(available through Jones Day)

- See alsohttp://tradesecretshomepage.com/indict.html#_Toc9924962 (describingconvictions under the Economic Espionage Act)

Receiving Confidential Information


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(Beware Greeks Bearing Gifts)


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If you receive confidential information, you couldbe inviting a lawsuit!

Competitors? Same products? Same customers?

Former employee? Small businesses or sole inventors?

Recipients commercial success = his or her tradesecret!

Potential acquisitions & deals; due diligence Sales & marketing leads

Technical leads & information

Industry knowledge

Conflicts cause problems!



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Before you receive confidential information, ask: Do you need the information?

Public information a sufficient substitute?

Is the information, in fact, confidential? Sales information? Technical information

Who is going to receive the information? How are you going to ensure its confidentiality?

The point: You need to have a policy for receivingconfidential information too!



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When receiving confidential information

Be specificidentify the confidential information? Require information to be clearly identified marked

No generic NDAs (confidential information)

Memorialize what is public and what is not

Memorialize dealings and communications between parties

Beware oral communications (he said, she said)

If you disagree that information is confidential, say so Need to know still applies

Use public information if possible (no thank you)

Take only what needed (not a buffet)

Take only when needed (due diligence)



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Preserve the confidentiality of any received information

Limit & enforce disclosure If competitors, or you have similar information

Maintain clean room environment

Be careful what you say especially internally! Consider disclosing conflicts of interests

Do not take confidential information at face value (e.g., financial or

marketing information) Return & destroy



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Parting Thought: Avoid the Flu


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- Use hand soap

- Get a flu shot

- Get regular checkups

- Watch for flu symptoms

- Get a prescription

- Take your medicine

Dont end up in the

emergency room!

Dont Get Pneumonia!


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CREATE.org, Trade Secret Theft: Managing the Growing Threatin Supply Chains(available athttp://www.create.org/views/trade-secret-theft-managing-growing-threat-supply-chains )

Nicola Searle, The Criminalization of the Theft of Trade Secrets:An Analysis of the Economic Espionage Act, IP Theory: Vol. 2:

Iss 2, Article 2 (2012) (available athttp://www.repository.law.indiana.edu/ipt/vol2/iss2/2)

J. Benjamin Bai and Guoping Da, Strategies for Trade SecretsProtection in China, 9 Nw. J. Tech. & Intell. Prop. 351 (2011)(available at

http://scholarlycommons.law.northwestern.edu/njtip/vol9/iss7/1)

State Bar of Texas Unfair Competition and Trade SecretsCommittee website:http://texasbariplaw.org/committees/committee/trade-secrets/

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