American Intellectual Property Law Association
TRADE SECRET LAW IN THE U.S.
AIPPI JAPAN
April 10, 2013
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John (Jack) J. Penny
Nutter, McClennen & Fish LLP
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Overview of Trade Secret Protection
Applicable Law
•
•
Statutory Basis
̶
I. Uniform Trade Secrets Act (“UTSA”) enacted by 46 of the 50
states (all states except CA, NY, MA, TX) – sought to alleviate the
differences between the states by creating a uniform trade secrete
law
̶
II. Economic Espionage Act of 1996
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III. Theft of Trade Secret Clarification Act 2012
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IV. Foreign and Economic Espionage Penalty Enhancement Act of
2012
Common Law
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State
Common Law, e.g. CA, NY, MA
̶
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Uniform Federal Common Law in the ITC
Overview of Trade Secret Protection
What Is A Trade Secret?
• Any information that:
̶ is secret;
̶ has commercial value derived from the fact that it is
secret; and
̶ is the subject of reasonable efforts to be kept secret.
UTSA
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Overview of Trade Secret Protection
Definition Of Misappropriation (UTSA)
• Misappropriation means;
Improper acquisition
-orImproper use
-orImproper disclosure
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of a trade secret
(must know or have
reason to know it is
a trade secret)
Overview of Trade Secret Protection
Available Remedies
• Civil 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
— Fines and imprisonment under Federal Law
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— Firm
UTSA
(CA): Available
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Overview of Trade Secret Protection
Inevitable Disclosure Doctrine (from 1995 PepsiCo case)
• A person may be prevented from working for another
company if the person’s job duties (at the new company)
would inevitably cause the person to rely upon former
employer’s trade secrets
• Generally requires a showing that:
— Person knows former employer’s trade secrets;
— Departing employee’s new job at competitor is so similar
to those in former job that it would be extremely difficult for
him to avoid using former employer’s trade secrets; and
— Firm
Departing
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depended upon to avoid using former employer’s trade
secrets.
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Overview of Trade Secret Protection
Why Use Trade Secrets?
• To protect non-patentable subject matter (e.g.,
non-technical info., non-patentable info., etc.)
• To avoid risk of patent becoming invalid (which
amounts to disclosure without benefit)
• More than a year beyond patenting window
(situation is different outside U.S.)
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• Extended protection (no finite term as in patents)
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Overview of Trade Secret Protection
When Are Trade Secrets At Greatest Risk?
• Departing employees
• Failed business dealings
• Corporate espionage
Most breaches are caused by insiders (at company),
often lower level employees, through carelessness,
lack ofFirm
training,
or greed.
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DuPont v. Kolon (E.D. VA 2011)
• DuPont sued Kolon Industries for “theft of trade
secrets and confidential information” re. production
and marketing of Kevlar (high strength synthetic
fiber)
• Jury awarded DuPont damages of $919 million
• Departing employee (Michael Mitchell) retained
confidential information and illegally gave to Kolon
• Mitchell pleaded guilty and was sentenced to 18
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months in prison
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Trade Secret Protection In The ITC
Tian Rui Group Co. Ltd. v. U.S. Int’l Trade
Comm’n, 2010-1395 (Fed. Cir. 2011)
• Confirmed that § 337 applies to trade
secret misappropriation even where unfair
act occurs exclusively overseas.
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Trade Secret Protection In The ITC (cont’d)
In The ITC Complainant Must Prove:
• One or more trade secrets exist and are not within
public domain;
• Complainant is owner of the trade secret or has
proprietary interest in it;
• The complainant disclosed the trade secret to the
respondent while in a confidential relationship or the
respondent wrongfully obtained the trade secret by
unfair means; and
• The respondent used or disclosed the trade secret
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causing
injury to the complainant.
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II. Economic Espionage Act (EEA) of 1996
- 18 U.S.C. § 1831-1839
Criminalizes Theft Or Misappropriation Of Trade Secrets:
• To benefit a foreign government, instrumentality
or agent
§ 1831
• Related to or included in a product that is produced
for or placed in interstate or foreign commerce to the
economic benefit of anyone other than the owner and
with the intent to cause injury
§ 1831
• Knowing possession, receipt or purchase of stolen or
misappropriated trade secrets falling into either 1
or 2 above
§ 1831 and 1832
• Attempting
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or 3 above
§ 1831 and 1832
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Economic Espionage Act (EEA) of 1996
- 18 U.S.C. § 1831-1839 (cont’d)
Remedies For EEA Violations:
• Although there is no private right of action under
EEA, the government may obtain injunctive relief to
prevent further disclosure of a trade secret by the
defendant or third parties.
• Fines up to $10,000,000 for organizations and
$500,000 for individuals.
• Imprisonment up to 15 years for individuals.
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United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012)
Court Of Appeals Reversed Lower Court Conviction
Holding:
• §1832 of EEA – Theft of Trade Secrets – applies to “a
trade secret, that is related to or included in a product
that is produced for or placed in interstate or foreign
commerce. . .”
• “Goldman’s HFT system was neither ‘produced for’ nor
‘placed in interstate or foreign commerce’ – Goldman
had no intention of selling its HFT system or licensing it
toFirm
anyone.”
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III. Theft Of Trade Secrets Clarification Act
Expanded EEA In Two Major Ways:
• Expands the scope to include services as well as
products.
• Expands the scope of trade secrets covered by §
1832 from those trade secrets “included in a
product which is produced for or placed in”
interstate or foreign commerce to “a product or
service used in or intended for use in” interstate or
foreign commerce.
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IV. Foreign and Economic Espionage Penalty
Enhancement Act of 2012 (H.R. 6029)
• Amends the federal criminal code to increase the
maximum fine for economic espionage, became law
Jan. 14, 2013,
• Individuals found guilty of economic espionage can
be fined up to $5,000,000.
• Organizations found guilty of economic espionage
can be fined up to $10,000,000 or three times the
value of the stolen trade secret to the guilty
organization including expenses for research,
design
and other costs of reproducing the secret
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that the guilty organization was thereby awarded.
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Internal Trade Secret Program
Internal Trade Secret Procedures
• A. Employment Practices
• B. Confidentiality Program and Records
Management
• C. Monitoring and Auditing
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• D.Firm
Response
procedures
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Internal Trade Secret Program (cont’d)
A. Employment Practices
• Require all employees to sign confidentiality
agreements:
— Acknowledging ownership of confidential
information
— Specifying obligations during and after employment
— Addressing IP assignment issues
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Internal Trade Secret Program (cont’d)
B. Confidentiality 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
— Firm
Security
Logomeasures including locks, keys, shredding,
dumpsters
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Internal Trade Secret Program (cont’d)
Coca Cola’s Famous Secret Recipe
• Perhaps the most famous trade secret is the secret recipe for cocacola (Coke)
• Invented by John S. Pemberton on 1886, only shared with a small
group and not written down
• 1919 Ernest Woodruff purchased the Coca-Cola Company, and
deposited the secret formula (on paper) in a bank vault in N.Y. as
collateral for the loan
• When the loan was paid off in 1925. Woodruff moved the formula to
SunTrust Bank in Atlanta
• In Firm
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formula was moved to a vault at a public, interactive
exhibit at the World of Coca-Cola in Atlanta
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Internal Trade Secret Program (cont’d)
C. Monitoring And Auditing
• Monitoring compliance
• Exit interview and related procedures
— Return/seizure of all company property at
termination, including electronic copies of
materials
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Internal Trade Secret Program (cont’d)
D. 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?
— Firm
Should
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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)
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External Business Relationships:
Collaboration Agreements (cont’d)
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.
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External Business Relationships:
Collaboration Agreements (cont’d)
Exploratory Discussions: NDAs And Feasibility Studies
(cont’d)
• Limit Right to Use and Disclose
— To evaluate technology for purpose of business of
business relationship
— Limit sharing of information within each company
— Require return of any documents/presentation
handouts
• Don’t progress to the next stage without a new
agreement
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External Business Relationships:
Collaboration Agreements (cont’d)
Joint Work (cont’d)
• 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
— Firm
Define
each party’s rights and responsibilities
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External Business Relationships:
Collaboration Agreements (cont’d)
Joint Work (cont’d)
•
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
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— Firm
Require
cooperation in patenting to avoid harm to respective
patent portfolios
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External Business Relationships:
Collaboration Agreements (cont’d)
Joint Work (cont’d)
• 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
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Thank you for your attention. Questions?
John (Jack) J. Penny
Nutter, McClennen & Fish LLP
155 Seaport Blvd.
Boston, MA, 022110
1-617-439-2566
jpenny@nutter.com
John (Jack) J. Penny
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* Special thanks to Joe Calvaruso
for providing many of the slides on
which this presentation is based