1. 1 1 Firm Logo American Intellectual Property Law Association Shhhh! Trade Secrets Update Yuichi Watanabe AIPLA IP Practice in Japan Committee January 27-28, 2015

2. 2 2 Firm Logo Background – Trade Secrets in the U.S. Predominantly governed by state law, not federal law, under the model of UTSA UTSA: Uniform Trade Secrets Act –Drafted by the Uniform Law Commission (ULC) –Codified basic principles of common law trade secret protection –Approved and recommended by American Bar Association for enactment in all the states –As of January 21, 2015, Adopted by 47 states All but New York, North Carolina, and Massachusetts http://www.uniformlaws.org/shared/docs/trade%20secrets/utsa_final_85.pdf

3. 3 3 Firm Logo Background - Uniform Trade Secrets Act Defines “trade secret” as information, including a formula, pattern, compilation, program, device, method, technique, or process, that: –(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and –(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

4. 4 4 Firm Logo Background - Uniform Trade Secrets Act Defines “misappropriation” as: –(i) 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 –(ii) disclosure or use of a trade secret of another without express or implied consent by a person who acquired the trade secret or knew the trade secret was acquired by improper means. Defines “improper means” as including at least: –theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means

5. 5 5 Firm Logo Background - ULC Comments on UTSA There are “proper” means to acquire trade secret, including at least: –Discovery by independent invention; –Discovery by “reverse engineering”; –Discovery under a license from the owner of the trade secret; –Observation of the item in public use or on public display; –Obtaining the trade secret from published literature

6. 6 6 Firm Logo Background – Other Statutory Bases Federal Criminal Statutes –Economic Espionage Act of 1996 –*Theft of Trade Secrets Clarification Act of 2012 –*Foreign and Economic Espionage Penalty Enhancement Act of 2012 *Amended Economic Espionage Act –Computer Fraud and Abuse Act Federal Civil Statutes –None!

7. 7 7 Firm Logo New (Proposed) Legislation Currently, a federal civil cause of action does not exist for trade secrete misappropriation –Congress has considered numerous bills over the years, but none has passed The latest proposed bills are: –Trade Secrets Protection Act of 2014 House Bill –Defend Trade Secrets Act of 2014 Senate Bill

8. 8 8 Firm Logo Trade Secrets Protection Act of 2014 Summary –Authorizes owner of a trade secret related to a product/service used in interstate/foreign commerce, who is aggrieved by misappropriation of such trade secret, to bring a civil action to obtain appropriate relief –Grants district courts original jurisdiction of such actions, subject to a five-year statute of limitations beginning when the misappropriation is or should have been discovered https://www.congress.gov/bill/113th-congress/house-bill/5233

9. 9 9 Firm Logo Trade Secrets Protection Act of 2014 Summary (cont’d) –Authorizes courts, upon ex parte application, to issue an order providing for seizure of property necessary to preserve evidence in such civil action or to prevent the propagation or dissemination of the trade secret –Sets forth remedies for such misappropriation, including granting injunctive relief, awarding damages for losses or unjust enrichment caused, and awarding exemplary damages and attorney fees for willful and malicious misappropriation. https://www.congress.gov/bill/113th-congress/house-bill/5233

10. 10 Firm Logo Defend Trade Secrets Act of 2014 Summary –Authorizes owner of a trade secret aggrieved by an act of economic espionage, theft of a trade secret, or misappropriation of a trade secret related to a product or service used in, or intended for use in, interstate or foreign commerce to bring a civil action under this Act –Authorizes courts, based on an affidavit or verified complaint satisfying the requirements of this Act, upon ex parte application, and if necessary to prevent irreparable harm, to issue appropriate orders including... [see next slide] https://www.congress.gov/bill/113th-congress/senate-bill/2267

11. 11 Firm Logo Defend Trade Secrets Act of 2014 Summary (cont’d) –... (1) providing for preservation of evidence; (2) granting an injunction to prevent any actual or threatened violation; (3) requiring affirmative actions to be taken to protect a trade secret; or (4) providing for the seizure of any property used to commit or facilitate the commission of an alleged violation https://www.congress.gov/bill/113th-congress/senate-bill/2267

12. 12 Firm Logo Defend Trade Secrets Act of 2014 Summary (cont’d) –Authorizes a court to (1) grant an injunction; (2) award damages for actual loss, damages for unjust enrichment, and (in lieu of damages measured by any other methods) damages caused by misappropriation; (3) award exemplary treble damages if the trade secret is willfully or maliciously misappropriated; and (4) award reasonable attorney's fees to the prevailing party if a claim of misappropriation is made in bad faith, a motion to terminate an injunction is made or opposed in bad faith, or a trade secret is willfully and maliciously misappropriated https://www.congress.gov/bill/113th-congress/senate-bill/2267

13. 13 Firm Logo Similarities Between House and Senate Bills The Trade Secrets Protection Act and Defend Trade Secrets Act are very similar –Both follow the language provided by UTSA –Both create a procedure for ex parte seizure of property –Both have five-year statute of limitations beginning from the time when misappropriation is or should have been discovered –Both provide injunctive relief, damages, exemplary damages, and attorney fees

14. 14 Firm Logo Impact if Bills Pass More enforcement tools for trademark owners –Owners can bring private action in either state court or federal court –Owners can choose between state law claims, federal law claims, or assert both –Brand new ex parte seizure procedure UTSA does not provide such a procedure Brand new procedure that did not exist in UTSA Allows trade secret owners to appear in court, without opposition, to obtain court order for seizure of property Probably the most controversial provision in the proposed bills

15. 15 Firm Logo Opposition to Bills 31 law school professors presented letter to Congress opposing legislation because: –Effective and uniform state law already exists; –Acts will damage trade secret law and jurisprudence by weakening uniformity while simultaneously creating parallel, redundant and/or damaging law; –Acts are imbalanced and could be used for anti- competitive purposes; –Acts increase risk of accidental disclosure of trade secret; –Acts have negative impacts on access to information, collaboration among businesses and mobility of labor http://cyberlaw.stanford.edu/files/blogs/FINAL%20Professors%27%20Lette r%20Opposing%20Trade%20Secret%20Legislation.pdf

16. 16 Firm Logo Other News USPTO hosted its first Trade Secret Symposium on January 8, 2015 –“The protection of U.S. trade secrets from misappropriation is an Administration priority.” http://www.uspto.gov/ip/init_events/trade_secret_symposium.jsp http://www.uspto.gov/ip/init_events/trade_secret_symposium.jsp EU Trade Secrets Directive –Efforts to harmonize trade secrets law throughout EU –Currently being debated by the European Parliament http://register.consilium.europa.eu/content/out?lang=EN&typ=ENTRY&i =SMPL&DOC_ID=ST-9870-2014-INIT http://register.consilium.europa.eu/content/out?lang=EN&typ=ENTRY&i =SMPL&DOC_ID=ST-9870-2014-INIT

17. 17 Firm Logo Thanks for your attention! Questions? Yuichi Watanabe Partner Osha Liang LLP Two Houston Center Suite 3500 909 Fannin St. Houston, TX 77009 USA 1-713-228-8600 watanabe@oshaliang.com