Secrets and Lies: The Role of Trade
Secrets and Espionage in IP Affairs
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© AIPLA 2016
Speakers
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Moderator – John Lyon – Thomas Horstemeyer, LLP
john.lyon@thomashorstemeyer.com
Speaker – Blair Jacobs – Paul Hastings, LLP
blairjacobs@paulhastings.com
Speaker – Elizabeth Rowe – Univ. of Florida
rowe@law.ufl.edu
Speaker – Marcela Trigo – Trench Rossi
marcela.trigo@trenchrossi.com
© AIPLA 2016
Blair Jacobs
How Enforcing a Trade Secret is Different From
Enforcing a Patent?
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© AIPLA 2016
Overview
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What We will discuss today:
Identify information that is protectable
Evaluate whether and how much to protect it.
Weigh benefits of trade secret versus patent
protection.
Protect your rights and guard against loss.
Enforce your rights.
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© AIPLA 2016
What is a Trade Secret?
Any information that:
Is maintained in secret
Is not generally known by competitors
Provides a competitive advantage
Examples: Customer lists, manufacturing processes,
software, marketing and pricing
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© AIPLA 2016
What is a Covered By a Patent?
Types: Process, machine, article of manufacture,
composition of matter, business method
Standard: new, useful, nonobvious
Limitations: Cannot patent the invention if it has been
offered for sale, publicly disclosed or commercially
exploited for more than one year before filing
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© AIPLA 2016
Differences Between Trade Secrets and Patents
Patent
Trade Secret
Lasts 20 years
Can last forever
Standard to obtain in high
(“nonobvious”)
Must apply and disclose to
protect
Rights exclusive
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Quality of the info need not be
high; lower standard
Must take steps to protect (limit
access)
Rights not exclusive; can be
independently developed or
reverse engineered
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Differences In Obtaining Trade Secrets and
Patents
Patent
• Cost to obtain high
• Time to get is 2-3
years
• Only the first
inventor can get a
patent
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Trade Secret
• Cost to obtain is nothing
• Time to obtain is fairly
instantaneous
• More than one company
can own the same trade
secret, and trade secrets
can be non-patentable
© AIPLA 2016
Key factors to evaluate
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Does it give you a competitive edge?
If others had it, would it damage you?
Can it be reverse engineeered?
Can you keep it a secret and, if so, for how long?
Is it key to your business?
Is it too late to patent it?
© AIPLA 2016
Factors that Might Suggest Patent Protection
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Patents have deterrent effect on competitors
Protects against reverse engineering
Protects against independent development
Allows company to market and advertise without
complete security
Useful for cross licensing, defensive measures in patent
litigation, VC funding for start-ups, etc.
© AIPLA 2016
Factors that Might Suggest Trade Secret Protection
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Expense of obtaining patents
Patents disclose to public for limited time
If injunctive relief might be preferred
Product launch may need to be delayed for patent
process
Patentability concerns because of possible abstract idea
The idea is something that you want to protect more
than 20 years
© AIPLA 2012
Can a Party Have Both Trade Secret and Patent Protection For the
Same Idea?
Christianson v. Colt Industries Operation Corp., 822 F. 2d 1544 (Fed. Cir.
1987). Yes, nine patents issued relating to M-16 rifle and trade
secret protection for process to mass produce the rifles. Court
stated that certain inventive features could be afforded patent
protection while others subject to trade secret principles.
“Patents are not production documents, and nothing in the patent
law requires that a patentee must disclose data on how to mass
produce the invented product, in patents obtained on either
individual parts of the product or on the entire product.”
Id. at 1562
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© AIPLA 2012
How Are Potential Damages Different When Enforcing Trade Secrets
Versus Patents
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Federal courts have restricted damages in patent cases over last 10 years.
Apportionment, complexity of proving lost profits, and numerous cases
criticizing “speculative” testimony of experts has had chilling effect
Limited recoveries in patents – lost profits or reasonable royalty, and
reasonable royalty is floor on damages
Trade secrets allow plaintiff to pursue damages based on unjust enrichment.
Leads to much broader scope of potential damages
Trade secrets also afford enhancement of damages for “willful and malicious
misappropriation”
Finally, an injunction is typical if trade secret misappropriation is proven,
while injunctions are challenging in patent cases as a result of Ebay and its
progeny
© AIPLA 2012
Trade Secret Checklist
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Can you keep it a secret?
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How many people need to know the secret to make it function?
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Ability to reverse engineer
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What is employee turnover rate in company?
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How many partners do you rely upon for manufacturing?
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Market life of concept
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Is invention embedded in product OR is it part of internal manufacturing
process?
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Is product regularly observed in public settings?
© AIPLA 2016
Enforcement Strategies
• Sales and marketing will often be the first to know if IP is being
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used by someone else
Pursue infringers diligently
Track competitors data sheet and patent filings to look for
adoption of your ideas
Establish comprehensive out-processing process for departing
employees
Pursue ex-employees or consultants who take your trade secrets
Consider notifying FBI under Economic Espionage Act if
circumstances are appropriate
© AIPLA 2016
The Economic Espionage Act Can Be Your Friend
• FBI and US Attorney have broad range of subpoena powers
• A plea deal worked out as part of an EEA investigation can lead to
substantial evidence in subsequent civil suit
• EEA can punish attempt and conspiracy, so broader scope of
wrongs is implicated
• A company that has civil action can ride on coat tails of
government investigation to create significant trial themes adverse
to a company that has wrongly obtained trade secrets
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© AIPLA 2016
Rise of Private Right of Action under EEA
No private cause of action historically
2. July 29, 2014 – HR 5233, approved by House Judiciary
Committee, proposes civil action under EEA
3. Bill proposes 5 year statute of limitations and ex parte civil
seizure
4. Senate Bill (“Defend Trade Secrets Act of 2014”) also would
create uniform private right of action for trade secret theft.
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Introduced on April 29, 2014
Also provides for ex parte seizure and 5 year statute of limitations
© AIPLA 2016
Elizabeth Rowe
Role of the EEA in Combatting Misappropriation
The Economic Espionage Act – signed in 1996
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Domestic Misappropriation
-Most prosecutions involve employees,
former employees, and other company
insiders
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Attempts and Conspiracies
+Prosecution possible without actual theft of trade secrets
+ Most cases charged as an “attempt to” or “conspiracy to” steal
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© AIPLA 2016
Third parties are also culprits . . .
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Foreign Misappropriation
EEA’s reach extends outside the United States if
a) the defendant is a US citizen or corporation or
b) any “act in furtherance of the offense” committed within
the US
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© AIPLA 2016
Foreign Governments
Strategic cyberattacks growing (geopolitical assaults?)
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China
 “[the Chinese] are stealing
everything that isn’t bolted
down, and it’s getting
exponentially worse.”
 The Chinese are “the world’s
 The Chinese Government’s
response:

- “groundless
accusations”
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- “baseless, unwarranted,
and irresponsible
most active and persistent
perpetrators of economic
espionage.”
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© AIPLA 2016
Limitations of the EEA
No private cause of action
2. Reporting problems
3. Technology
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Small companies left out
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Intangible information
Architecture of the Internet
Increased likelihood of foreign offenders
Underrepresented in prosecutions
Most vulnerable to misappropriation and attacks
From 2008 – 2013,
companies classified as
“large” were represented as
victims in over 90% of trade
secret prosecutions.
© AIPLA 2016
Global perspective: differences in enforcing
trade secrets in different regions of the
world
Marcela Trigo
AIPLA - La Quinta – January 29th
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© AIPLA 2016
The Law – Protection Grounds
© AIPLA 2016
Trade Secret – Definition
WTO TRIPs definition:
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not generally known among or readily accessible to persons within the circles
that normally deal with the kind of information in question;
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has commercial value
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has been subject to reasonable steps under the circumstances, by the person
lawfully in control of the information, to keep it secret.
© AIPLA 2016
Trade Secret – Definition
Brazilian Law definition (in the negative):
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confidential knowledge, information or data
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usable in industry, commerce or service rendering
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expect those that are of public knowledge or obvious to a person
skilled in the art.
© AIPLA 2016
IP Law: three different cases
 The violation of a trade secret is considered an act of unfair competition: civil and criminal
offenses.
 Disclosure, exploitation or use of confidential information, without the authorization of its
rightful owner (provided that the information was not of public knowledge and was not
obvious to an expert on the subject) to which the infringer gained access by means of:
a contractual or employment relationship (even after the termination of the
contract); or
2. through unlawful means; or
3. access to test results or other undisclosed data submitted to government
entities as a condition for approval of commercialization of products
(data package exclusivity ~ WTO TRIPs Section 39.3).
1.
© AIPLA 2016
Enforcement in Brazil
Remedies:
 search and seizure (preparatory or incidental);
 anticipated production of evidence (exhibition of documents, interrogation of a party,
witnesses hearing and expert examinations);
 preliminary (even ex parte) and permanent injunctions
 Damages (material and moral);
 Criminal sanctions (imprisonment and fine).
Burden of proof:
 As a general rule, the burden of proof generally falls on the plaintiff. The defendant will
only carry such burden if and when argues there are facts that would hinder, modify or
terminate the plaintiff’s right (which will need to be proven).
© AIPLA 2016
Enforcement in Brazil
 Requirements for a preliminary injunction:
likelihood of success on merit;
ii. the need for an urgent decision from courts to avoid irreparable damages; and,
iii. “balance of hardships” (courts shall assess if the damage to be suffered by the defendant
due to the injunction is not greater than the benefits it will provide to plaintiff).
i.
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Court may request plaintiff to post a bond or a fiduciary guarantee, in case it is
deemed necessary.
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If injunction is reversed, plaintiff may be liable for damages it may have
caused.
© AIPLA 2016
Enforcement in Brazil
© AIPLA 2016
Labor Law
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The act of disclosing trade secrets and confidential information from the employer, when
acquired in service is considered a serious fault and authorizes the employer to
terminate the employment contract;
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The employee's duty of confidence should remain in effect as long as the information
remains in secret, has commercial value and has been subject to reasonable protection
measures (undefined term).
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Non-compete agreements are possible, but there are court decisions limiting term (up
to 2 or 5 years, depending on the context).
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In the absence of a non-compete agreement, the employee is not prevented
from using such knowledge, provided that the information is not secret (confidential
/ trade secret).
© AIPLA 2016
Current Protection and Enforcement in Brazil
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Material damages: (i) actual damages stemming from the violation of trade secret rights;
and (ii) loss of profit or loss of commercial opportunities. The compensation for actual
damages, shall be determined by the benefits that the injured party would have gained
had the infringement not occurred. The compensation for loss of profits may be
calculated by the most favorable and adequate of the following standards (which the
plaintiff may choose or leave the decision up to the judge):
I.
II.
III.
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The benefits that the injured party would have gained had the infringement not occurred;
The benefits that were gained by the infringer of the right; or
The licensing fees that the infringer would have paid the owner of the trade secret for the
lawful use of the trade secret.
Moral damages (e.g. damage to the company’s reputation with clients, partners,
franchisees, investors, furnishers and/or damages to its general credit).
© AIPLA 2016
Technology Transfer Agreements: the BPTO’s
practice
 Registration before the BPTO is a condition for remittance of royalties abroad,
tax deductibility of payments, and validity against third parties. In addition, for
payments to be actually remitted to Assignor, registration with the Brazilian
Central Bank is also required.
 The BPTO condutes a thorough and restrictive analysis of such agreements,
which must detail the reasons why the technology/ knowledge is valuable and
the benefits that will derive from it.
© AIPLA 2016
Technology Transfer Agreements: the BPTO’s
practice
Main restrictions:
• BPTO does not recognize the concept of licensing in such
agreements. Said agreements are considered a permanent transfer of rights.
• Limitations concerning the assignee’s rights to use the technology will only be
allowed when the agreement is terminated by its own fault. Otherwise, the
recepient will be free to use the technology as it pleases, without violation any
confidentiality clauses previously foreseen (territorial limitations allowed);
• Limited term (5 years, renewable for an addition 5-year term, upon detailed
justification concerning the need to renew such agreement);
• Limited term of confidentiality clause (maximum of 20 years, which is the
duration of a patent protection);
• All imported equipment (and parts thereof) shall be excluded from the
calculation of the royalties.
• Depending on the type of business activity and relation between parties, BPTO
provides a limitation for remittance of royalties that may vary from 1% to 5% of
the net sales price.
© AIPLA 2016
Best practices:
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Effective TS Program includes:
 NDAs (with employees and third party service provides)
 Restrictions of access (IT and physical)
 Track and mark documents “confidential”
 Training and education
 Surveillance and monitorment
 Attention when dealing with universities and public entities
 Attention with BPTO’s practice
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Major importance of an effective TS program for enforcement purposes.
© AIPLA 2016
Current Situation
EU Commission “Study on Trade Secrets” April 2013
(MARKT/2011/128/D) – authored by Baker & McKenzie
increasing threat to business owners
 no harmonized law on trade secret protection
 different definitions and statutory classifications among Member States
obstruct cross-border protection
 different scope of remedies
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© AIPLA 2016
Current Situation
© AIPLA 2016
Excerpt from: Baker & McKenzie, Study on Trade Secrets for the European Commission, 2013, p 23.
Current Situation
© AIPLA 2016
Excerpt from: Baker & McKenzie, Study on Trade Secrets for the European Commission, 2013, p 30 f.
Case for Harmonization
“There are important differences in the Member States legislation as regards the
protection of trade secrets ...The differences in the legal protection of trade secrets
imply that trade secrets do not enjoy an equivalent level of protection throughout the
Union, thus … weakening the overall deterrent effect of the rules.The internal
market is affected in so far as such differences lower businesses’ incentives to undertake
innovative-related cross-border economic activity,.”
- Council of the EU - Proposal (9870/14, 19 May 2014)
© AIPLA 2016
Proposed Draft Directive
Proposed Draft Directive on the Protection of Trade Secrets
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still work in progress
introduced by Commission in November 2013
opinion of Council of the EU in May 2014
voted on in the European Parliament in June 2015
next steps: talks on first-reading agreement in November 2015
entry into force expected in 2016
© AIPLA 2016
Proposed Draft Directive
Main Goals
increase confidence and amount of investment in innovation
 encourage cross border collaboration in R&D projects
 discourage theft and misuse of trade secrets
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Key Provisions
uniform definition following Art. 39 TRIPS
 civil law remedies harmonized
 procedural rules harmonized
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© AIPLA 2016
Proposed Draft Directive
Art. 2: Uniform definition
secrecy of information
 commercial value
 reasonable steps to protect secrecy
 significant change in many national jurisdictions
 requires substantial efforts in areas such as
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IT and physical security
NDAs
training, documentation
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Proposed Draft Directive
Art. 4: Exceptions
independent discovery
 legitimate use of freedom of expression or information
 reverse engineering
 legitimate whistle-blowing
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© AIPLA 2016
Proposed Draft Directive
Art. 11-13: Remedies
injunctive relief
 recall of infringing goods
 destruction of infringing goods and documents
 damages
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© AIPLA 2016
Proposed Draft Directive
Art. 8: Preservation of trade secrets in legal
proceedings
Common dilemma: claimant needs to disclose trade secrets in order to
substantiate infringement
 Solution is still under discussion
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Proposal 1: total exclusion of defendant, only its legal counsel has access
Proposal 2: only one representative of defendant and legal counsel have
access (more likely to pass)
© AIPLA 2016
Summary and Outlook
© AIPLA 2016
Thank you!
Marcela Trigo
marcela.trigo@trenchrossi.com
+55 21 974327914
+ 22 21 22064925
Questions and Answers?