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 OfficerCurly—Director of EngineeringMoe—VP of EngineeringShemp—Consulting Engineer
5 Cast of Characters—Little Corp. Cruella DeVil - VP of Marketingand later President, CEO
6 Timeline of EventsBefore year mutually beneficial relationship3/8/95 - CDA signed, both parties bound by terms4/24/95 - Little Corp. presents concept to Goliath audience9/10/95 - Moe fired - “choked” at presentation11/6/95 - Follow-up meeting with Goliath engineers whochallenge Little Corp.’s data and claims. Goliath suggestsrepositioning technology for internet.12/1/95 - Shemp fired
7 Timeline of EventsJan. ‘96 - “New internet Project” announced at Little Corp.Spring ‘96 - Software development slow and productfull of bugsJune ‘96 - Curly firedJuly ‘96 - Cruella hired as VP MarketingSept. ‘96 - Goliath announces future internet product releaseNov. ‘96 - Memo from Cruella to Little Corp. Board re: alleged mismanagement of project by Larry12/2/96 - Larry fired by Board
8 Timeline of EventsDecember ’96 - Cruella shuts down internet project and writes memo outlining strategy to sue GoliathDecember ’97 - Goliath internet product beta releaseJune ’98 - Goliath internet product releaseAugust ’98 - Little Corp. sues Goliath
9 General Lessons of Little Corp. v. Goliath Co. Business relationships are between individuals, but legal relationships are notNew managementEven former allies’ loyalties can be bought/rented . . .Larry - $50,000Curly - $30,000Moe - $20,000Shemp - $110,000
10 Lessons for CDAMaintain 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
14 Lessons for CDAMaintain 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 possibleConfidentiality obligations terminate in 3 years unless otherwise stated
18 Lessons for CDAMaintain 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 possibleConfidentiality obligations terminate in 3 years unless otherwise statedRemember 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&PConduct a trade secret audit and inventoryDevelop and implement the P&PEducate EmployeesEnforce It
22 First Step for Developing A Trade Secret P&P Appoint a Trade Secret Compliance OfficerDuties:controlling the use of NDAsmaintaining logs and records of NDAstrack disclosures and receipts of confidential informationmonitor steps taken to maintain secrecyoversee the implementation and enforcement of the P&P
23 First Step for Developing A Trade Secret P&P Appoint a P&P Development TeamComprised of:trade secret compliance officerrepresentatives of company departments:information technologyhuman resourcestrainingrecords managementsecuritylegal
24 Next Step: Trade Secret Audit and Inventory Reasons for Identifying Company Trade SecretsKnow and understand confidential assetsProtect confidential assets consistentlyReduces risks involving third party trade secretsMeet burden of proof in trade secret litigationoften fast tracklittle time to identify and document trade secretssome problems can’t be fixed
25 Information may be viewed and treated as a trade secret if: Not generally known outside of the companyValuable to the company (or likely would be valuable to competitors), for example:company spent significant effort or money developing the informationgives the company a competitive advantageis likely to lead to a commercial product or licensingcannot be easily acquired or duplicated by othersa competitor is likely to try to arrive at the same development independentlya competitor is likely to design aroundMeasures have been taken to guard the secrecy of the information.
26 Trade Secret Audit and Inventory Identify the information the company wishes to protectby typeby value to the companyby locationby storage methodMemorialize nonwritten informationInclude 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 companyMaintain recordsDevelop procedures for documentingTrade secrets identified by inventorySteps taken to maintain secrecy
27 Trade Secret Audit and Inventory Develop a plan for applying these principles and auditingOne approach: group leaders identify and document secrets in their groups, report to compliance officerIdentification and protection of trade secrets should be a dynamic, ongoing process.portfolio of trade secrets is constantly changingnew confidential information should be documented and protected as it is created or receivedupdate annually, if possibleDevelop procedures for conducting periodic review and update
28 Where to Look for Trade Secrets Technical Information/Research & DevelopmentProduction/Process InformationVendor/Supplier InformationQuality Control InformationSales & Marketing InformationInternal Financial InformationInternal Administrative InformationInternal Computer SoftwareAny information of strategic or other importance to the company
29 Third Step: Developing A Trade Secret P&P Basic GoalsCourts expect a combination of measures that:keep information secret inside the companyprevent or control access to such information by third partiesTwo separate documents, both tailored to the company
30 Developing A Trade Secret P&P P&P and Inventory should be done in conjunction with counselThey have done it beforeAdequate audit and inventoryAdequate steps to maintain secrecyAdequate documentationAdequate procedures and enforcementAttorney-client privilege
31 Developing A Trade Secret Policy Directed to all employeesRelatively shortEasy to understandExpresses general rules, guidelines, principles, and philosophyInforms 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 secretsaccess, use, and disclose company secrets only for business purposes, to benefit the companyresolve doubts in favor of the company and its best interests, and maintain secrecycomply with applicable laws and regulationshonor software licenses and other agreementsreport violations of the P&Pdirect doubts and questions about the P&P to management.
33 Developing Trade Secret Procedures Much more detailedThis presentation is the tip of the icebergChecklistCompany’s rules for handling confidential informationThey should control and standardize procedures for:Identifying trade secretsHandling trade secrets inside the companyTrade secrets leaving the companyEquipment used in connection with trade secretsPeople 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 secretsImplementing clean room proceduresCompany’s engagement in R&D (or other joint projects) with third parties, involving trade secretsEducating company employees regarding the P&P
35 Developing Trade Secret Procedures State that the definition and scope of potential trade secrets is very broadInclude examples of trade secretsInclude examples of trade secret materialsCompany may wish to protect information that does not rise to the level of a trade secret.may designate several levels of confidential informationmay 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:Proprietarymay include all intellectual propertyConfidentialmay be available for licensing and disclosure to third partiesRestrictedmay not be available for licensing and disclosure to third parties without special approvalSecretmay not be disclosed outside the company without Board approvalTop Secretmay be known by only a few peoplemaybe no one knows the whole secret
37 Developing Trade Secret Procedures Develop restrictions applicable to each level of confidentiality“Need to know” matrixDevelop rules for labeling confidential information appropriately:Company nameConfidentiality statementCopying, disclosure, and use restrictionsOnly authorized persons may access, use, discloseLabel every page
38 Physical Safeguards Write Procedures for: Creating maintaining, and using a trade secret repositoryRestricting access to secret information, documents, plants, and facilitiesExamples……….
39 Physical Safeguards Write Procedures for Controlling: Dividing and coding informationVisitors/toursIdentity badges and/or access cardsMovement of informationAreas where secret information is keptShredding or other destructionDON’T FORGET THE GARBAGEPhysical and e-copiesTechnological copy protectionsCopying & copiesEmployees who work outside the office:materialsaccessstorageHours and monitoring access to information or facilitiesInformation 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 locksfingerprint and retinal readersvoice recognitionchanging locks and security codes periodicallyfencesSignssecurity guards and dogstelevision monitorsalarms
41 Procedural Safeguards Write Procedures for: Assuring that access to trade secret information is on a need-to-know basisBringing or using at work:CamerasIPODSControlling disclosures in:SpeechesTechnical papersBusiness and marketing documents
42 Procedural Safeguards Write Procedures for: Scrubbing old computers before disposing of them or donating them to charityDistributing trade secret informationdepending on level of confidentialityNot by (including text messaging and instant messaging)
43 Procedural Safeguards Write Procedures for: The end of the day:log out of computerlock up secret documentslock the officemake sure everyone is gone from the divisionlock the division officessign out
45 Write Procedures for Electronic Data and Electronic Devices Network and information access, firewallsEncryption of communicationsUse of computers, fax machines, photocopiers, etc.MonitoringStorageCopying and downloadingTransmissionTracking and logging accessAutomatic legendscopying restrictionssecrecy restrictions
46 Write Procedures for Information Leaving the Company What information can be disclosedWho can disclose itWho has authorized accessHow and whenParticipation in Open Source/Standards BodiesMarking trade secret informationEncryption(including text messaging and instant messaging):no personal software or accounts for business or personal communications at the officerequire copying the bossThe use peer-to-peer applications
47 Write Procedures for Information Leaving the Company Monitoring employee communications, consistent with privacy lawslaw may require informing employees that phone and (including text messaging and instant messaging) will be monitoredsome countries may not allow monitoringMonitoring attachment sizeMonitoring third parties who have received company secretsUsing content filtering tools that automatically encrypt, block, holdMonitoring vendors with access to secrets
48 Write Procedures for Information Leaving the Company ShippingNDAsAgreements 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 agreementThird line: confidentiality agreements should be executed with all employees with potential access to trade secrets
50 Write Procedures for Controlling People Employee intake proceduresEmployee exit proceduresDevelop procedures for requiring employees who create information or inventions to:assign IP to the companylicense previous inventions to the companyagree to injunctive relief for breaches of the agreementCurrent 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 confidentialHandling unsolicited third party informationVoluntarily receiving third party informationUsing company NDA versus third party NDAReverse engineering/clean room
52 Write Procedures for Education Develop programs to educate employees about:the importance of trade secretsthe P&Pthe potential consequences of violating the P&PImplementing such education, and followup
54 Worse: Not enforcing it Develop rules and procedures to enforce the P&P:Develop an enforcement planIncorporate the P&P into company code of conductDevelop rules for when and how:employees should be disciplinedemployees should be terminatedcriminal prosecution should be soughtEnforce P&P consistentlyto avoid defenses in litigationto reduce likelihood of claims of discrimination
56 Speaker InformationLaura 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 DisclaimerThese 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.