2. Using Non-Disclosure Agreements Offensively and Defensively

3. Trade Secret Litigation A Case Study
LITTLE CORP. V.
GOLIATH CO.

4. Cast of Characters—Little Corp.
Larry—President, Chief Executive Officer
Curly—Director of Engineering
Moe—VP of Engineering
Shemp—Consulting Engineer

5. Cast of Characters—Little Corp.
Cruella DeVil - VP of Marketing
and later President, CEO

6. Timeline of Events
Before year mutually beneficial relationship
3/8/95 - CDA signed, both parties bound by terms
4/24/95 - Little Corp. presents concept to Goliath audience
9/10/95 - Moe fired - “choked” at presentation
11/6/95 - Follow-up meeting with Goliath engineers who
challenge Little Corp.’s data and claims. Goliath suggests
repositioning technology for internet.
12/1/95 - Shemp fired

7. Timeline of Events
Jan. ‘96 - “New internet Project” announced at Little Corp.
Spring ‘96 - Software development slow and product
full of bugs
June ‘96 - Curly fired
July ‘96 - Cruella hired as VP Marketing
Sept. ‘96 - Goliath announces future internet product release
Nov. ‘96 - Memo from Cruella to Little Corp. Board re: alleged mismanagement of project by Larry
12/2/96 - Larry fired by Board

8. Timeline of Events
December ’96 - Cruella shuts down internet project and writes memo outlining strategy to sue Goliath
December ’97 - Goliath internet product beta release
June ’98 - Goliath internet product release
August ’98 - Little Corp. sues Goliath

9. General Lessons of Little Corp. v. Goliath Co.
Business relationships are between individuals, but legal relationships are not
New management
Even former allies’ loyalties can be bought/rented . . .
Larry - $50,000
Curly - $30,000
Moe - $20,000
Shemp - $110,000

10. Lessons for CDA
Maintain a paper trail of what you disclosed and/or received and when [and who was present]
[Accurately] Define how the Confidential Information may be used in as much detail as possible

11. Lessons for CDA
Goliath Corp

12. Lessons for CDA
Goliath

13. Court Order

14. Lessons for CDA
Maintain a paper trail of what you disclosed and/or received and when [and who was present]
[Accurately] Define how the Confidential Information may be used in as much detail as possible
Confidentiality obligations terminate in 3 years unless otherwise stated

15. Lessons for CDA
Goliath

16. Court Order

18. Lessons for CDA
Maintain a paper trail of what you disclosed and/or received and when [and who was present]
[Accurately] Define how the Confidential Information may be used in as much detail as possible
Confidentiality obligations terminate in 3 years unless otherwise stated
Remember that ALL Confidential Information must be marked CONFIDENTIAL, or if disclosed orally, must be designated CONFIDENTIAL and then confirmed as such in writing WITHIN 30 DAYS of the disclosure

20. Tailoring a Trade Secret Policy and Procedures to Your Company

21. Developing A Trade Secret Program in 5 “Easy” Steps
Appoint the right people to develop P&P
Conduct a trade secret audit and inventory
Develop and implement the P&P
Educate Employees
Enforce It

22. First Step for Developing A Trade Secret P&P
Appoint a Trade Secret Compliance Officer
Duties:
controlling the use of NDAs
maintaining logs and records of NDAs
track disclosures and receipts of confidential information
monitor steps taken to maintain secrecy
oversee the implementation and enforcement of the P&P

23. First Step for Developing A Trade Secret P&P
Appoint a P&P Development Team
Comprised of:
trade secret compliance officer
representatives of company departments:
information technology
human resources
training
records management
security
legal

24. Next Step: Trade Secret Audit and Inventory
Reasons for Identifying Company Trade Secrets
Know and understand confidential assets
Protect confidential assets consistently
Reduces risks involving third party trade secrets
Meet burden of proof in trade secret litigation
often fast track
little time to identify and document trade secrets
some problems can’t be fixed

25. Information may be viewed and treated as a trade secret if:
Not generally known outside of the company
Valuable to the company (or likely would be valuable to competitors), for example:
company spent significant effort or money developing the information
gives the company a competitive advantage
is likely to lead to a commercial product or licensing
cannot be easily acquired or duplicated by others
a competitor is likely to try to arrive at the same development independently
a competitor is likely to design around
Measures have been taken to guard the secrecy of the information.

26. Trade Secret Audit and Inventory
Identify the information the company wishes to protect
by type
by value to the company
by location
by storage method
Memorialize nonwritten information
Include catchall language
“purpose of inventory is to identify types of company trade secrets to better inform management, and may not be complete”
Describe the value of the secret information to the company
Maintain records
Develop procedures for documenting
Trade secrets identified by inventory
Steps taken to maintain secrecy

27. Trade Secret Audit and Inventory
Develop a plan for applying these principles and auditing
One approach: group leaders identify and document secrets in their groups, report to compliance officer
Identification and protection of trade secrets should be a dynamic, ongoing process.
portfolio of trade secrets is constantly changing
new confidential information should be documented and protected as it is created or received
update annually, if possible
Develop procedures for conducting periodic review and update

28. Where to Look for Trade Secrets
Technical Information/Research & Development
Production/Process Information
Vendor/Supplier Information
Quality Control Information
Sales & Marketing Information
Internal Financial Information
Internal Administrative Information
Internal Computer Software
Any information of strategic or other importance to the company

29. Third Step: Developing A Trade Secret P&P
Basic Goals
Courts expect a combination of measures that:
keep information secret inside the company
prevent or control access to such information by third parties
Two separate documents, both tailored to the company

30. Developing A Trade Secret P&P
P&P and Inventory should be done in conjunction with counsel
They have done it before
Adequate audit and inventory
Adequate steps to maintain secrecy
Adequate documentation
Adequate procedures and enforcement
Attorney-client privilege

31. Developing A Trade Secret Policy
Directed to all employees
Relatively short
Easy to understand
Expresses general rules, guidelines, principles, and philosophy
Informs employees of the existence of company’s trade secret protection procedures

32. Developing A Trade Secret Policy
State that employees have affirmative obligations to:
identify, protect, and maintain secrets
access, use, and disclose company secrets only for business purposes, to benefit the company
resolve doubts in favor of the company and its best interests, and maintain secrecy
comply with applicable laws and regulations
honor software licenses and other agreements
report violations of the P&P
direct doubts and questions about the P&P to management.

33. Developing Trade Secret Procedures
Much more detailed
This presentation is the tip of the iceberg
Checklist
Company’s rules for handling confidential information
They should control and standardize procedures for:
Identifying trade secrets
Handling trade secrets inside the company
Trade secrets leaving the company
Equipment used in connection with trade secrets
People with access to trade secrets

34. Developing Trade Secret Procedures
They should control and standardize procedures for (cont’d):
Company’s receipt of third party trade secrets
Implementing clean room procedures
Company’s engagement in R&D (or other joint projects) with third parties, involving trade secrets
Educating company employees regarding the P&P

35. Developing Trade Secret Procedures
State that the definition and scope of potential trade secrets is very broad
Include examples of trade secrets
Include examples of trade secret materials
Company may wish to protect information that does not rise to the level of a trade secret.
may designate several levels of confidential information
may protect them in different ways

36. Developing Trade Secret Procedures
Establish meanings for terms and use them consistently (and not interchangeably if they have different meanings). For example:
Proprietary
may include all intellectual property
Confidential
may be available for licensing and disclosure to third parties
Restricted
may not be available for licensing and disclosure to third parties without special approval
Secret
may not be disclosed outside the company without Board approval
Top Secret
may be known by only a few people
maybe no one knows the whole secret

37. Developing Trade Secret Procedures
Develop restrictions applicable to each level of confidentiality
“Need to know” matrix
Develop rules for labeling confidential information appropriately:
Company name
Confidentiality statement
Copying, disclosure, and use restrictions
Only authorized persons may access, use, disclose
Label every page

38. Physical Safeguards Write Procedures for:
Creating maintaining, and using a trade secret repository
Restricting access to secret information, documents, plants, and facilities
Examples……….

39. Physical Safeguards Write Procedures for Controlling:
Dividing and coding information
Visitors/tours
Identity badges and/or access cards
Movement of information
Areas where secret information is kept
Shredding or other destruction
DON’T FORGET THE GARBAGE
Physical and e-copies
Technological copy protections
Copying & copies
Employees who work outside the office:
materials
access
storage
Hours and monitoring access to information or facilities
Information in plain view

40. Physical Safeguards Write Procedures for:
Installing security measures with varying degrees of security based on the level of confidential information kept in each area, e.g.:
automatic locks
fingerprint and retinal readers
voice recognition
changing locks and security codes periodically
fences
Signs
security guards and dogs
television monitors
alarms

41. Procedural Safeguards Write Procedures for:
Assuring that access to trade secret information is on a need-to-know basis
Bringing or using at work:
Cameras
IPODS
Controlling disclosures in:
Speeches
Technical papers
Business and marketing documents

42. Procedural Safeguards Write Procedures for:
Scrubbing old computers before disposing of them or donating them to charity
Distributing trade secret information
depending on level of confidentiality
Not by (including text messaging and instant messaging)

43. Procedural Safeguards Write Procedures for:
The end of the day:
log out of computer
lock up secret documents
lock the office
make sure everyone is gone from the division
lock the division offices
sign out

44. Procedural Safeguards Write Procedures for:
Safeguarding documents
Labeling
Securing
Copying
Screening
Tracking

45. Write Procedures for Electronic Data and Electronic Devices
Network and information access, firewalls
Encryption of communications
Use of computers, fax machines, photocopiers, etc.
Monitoring
Storage
Copying and downloading
Transmission
Tracking and logging access
Automatic legends
copying restrictions
secrecy restrictions

46. Write Procedures for Information Leaving the Company
What information can be disclosed
Who can disclose it
Who has authorized access
How and when
Participation in Open Source/Standards Bodies
Marking trade secret information
Encryption
(including text messaging and instant messaging):
no personal software or accounts for business or personal communications at the office
require copying the boss
The use peer-to-peer applications

47. Write Procedures for Information Leaving the Company
Monitoring employee communications, consistent with privacy laws
law may require informing employees that phone and (including text messaging and instant messaging) will be monitored
some countries may not allow monitoring
Monitoring attachment size
Monitoring third parties who have received company secrets
Using content filtering tools that automatically encrypt, block, hold
Monitoring vendors with access to secrets

48. Write Procedures for Information Leaving the Company
Shipping
NDAs
Agreements with third parties (e.g., license agreements, collaboration agreements, joint venture agreements)

49. Write Procedures for Controlling People
First line of defense: disclose trade secrets only on a need-to-know basis 
Second line: ensure that everyone with a need-to-know has executed a confidentiality agreement
Third line: confidentiality agreements should be executed with all employees with potential access to trade secrets 

50. Write Procedures for Controlling People
Employee intake procedures
Employee exit procedures
Develop procedures for requiring employees who create information or inventions to:
assign IP to the company
license previous inventions to the company
agree to injunctive relief for breaches of the agreement
Current employees may need new consideration, and new agreement and consideration may be needed after material change in job (e.g., a promotion)

51. Write Procedures for Receiving Third Party Secrets
Assume third party information is confidential
Handling unsolicited third party information
Voluntarily receiving third party information
Using company NDA versus third party NDA
Reverse engineering/clean room

52. Write Procedures for Education
Develop programs to educate employees about:
the importance of trade secrets
the P&P
the potential consequences of violating the P&P
Implementing such education, and followup

53. What is worse than having no P&P?

54. Worse: Not enforcing it
Develop rules and procedures to enforce the P&P:
Develop an enforcement plan
Incorporate the P&P into company code of conduct
Develop rules for when and how:
employees should be disciplined
employees should be terminated
criminal prosecution should be sought
Enforce P&P consistently
to avoid defenses in litigation
to reduce likelihood of claims of discrimination

55. Questions?

56. Speaker Information
Laura Masurovsky is an experienced intellectual property litigator with more than 25 years of practice in federal and state courts. She concentrates on complex patent and trade secrets litigation involving a wide range of technologies including pharmaceuticals, medical devices, wireless communication, computer hardware and software, e-commerce, and consumer electronics.

57. Disclaimer
These materials are public information and have been prepared solely for educational and entertainment purposes to contribute to the understanding of U.S. intellectual property law. These materials reflect only the personal views of the authors and are not a source of legal advice. It is understood that each case is fact specific, and that the appropriate solution in any case will vary. Therefore, these materials may or may not be relevant to any particular situation. Thus, the authors and Finnegan, Henderson, Farabow, Garrett & Dunner, LLP cannot be bound either philosophically or as representatives of their various present and future clients to the comments expressed in these materials. The presentation of these materials does not establish any form of attorney-client relationship with the authors or Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. While every attempt was made to ensure that these materials are accurate, errors or omissions may be contained therein, for which any liability is disclaimed.