Protecting Your IP When Doing Business with Third Parties Presented By Henry B. Ward, III W. Kevin Ransom November 1, 2013

2 Pre-Contract Considerations Contract Considerations Protecting Your IP When Doing Business with Third Parties

3 Pre-Contract Considerations 1.D UE DILIGENCE & R EGISTRATION Copyrights Patents Trademarks 2.C ONFIDENTIALITY Protecting Your IP When Doing Business with Third Parties

4 Safeguarding Confidentiality & Trade Secrets

5 Protecting Your IP When Doing Business with Third Parties What is a Trade Secret? A formula, practice, process, design, instrument, pattern, or compilation of information that is: not generally known or reasonably ascertainable; confers economic benefit to the holder (benefit derives not only from the information but from its secrecy); and is subject to reasonable efforts under the circumstances to maintain its secrecy.

6 What is a Trade Secret? A trade secret is the owner’s possession of information of a type that can, at the owner’s option, be made known to others or withheld from others, i.e., kept secret. Trade secret law is not a protection of rights to an idea, but a right to control dissemination of an idea or fact. Protecting Your IP When Doing Business with Third Parties

7 What is a Trade Secret? Trade secret law has evolved from common law to what is now the prevailing standard in most states known as the Uniform Trade Secrets Act. To date forty-six states, including North Carolina and South Carolina, have adopted the Uniform Trade Secrets Act in large part.

8 Protecting Your IP When Doing Business with Third Parties What is a Trade Secret? North Carolina -- “The North Carolina Trade Secrets Protection Act”, N.C.G.S. § et seq. As with the Uniform Act, the North Carolina statute defines what a trade secret is, prohibits misappropriation, and sets remedies in the form of damages and, in certain instances, attorneys’ fees for misappropriation.

9 Protecting Your IP When Doing Business with Third Parties What is a Trade Secret? Examples: Customer lists; Pricing or margin data; Client date – more than mere “contact information”; Research and development data; Non-public product drawings; Strategic business plans; Sales, marketing, or product manufacturing methodologies; Sales data; Critical self-analysis data.

10 Protecting Your IP When Doing Business with Third Parties Then, what is Confidential Information? Trade secrets are a subset of confidential information. Not all confidential information satisfies the statutory definition of a trade secret. For example, the information in question: may not derive economic value from being kept secret; might be ascertainable by proper means by third parties who wish to obtain economic value from the disclosure or use of the information; or may not have been adequately safeguarded in secrecy to the extent required by statute.

11 Protecting Your IP When Doing Business with Third Parties Then, what is Confidential Information? The terms “trade secret” and “confidential information” are not interchangeable. Confidential information is not protected by statute. Confidential information is protected via contract, such as “non-disclosure agreements” or “confidentiality agreements”. General rule is that confidential information can be anything parties to a confidentiality contract agree is “confidential information” (with exceptions).

12 Protecting Your IP When Doing Business with Third Parties Then, what is Confidential Information? Exceptions: was already known by the receiving party; becomes public knowledge through no fault of the receiving party or any of its Affiliates or Subsidiaries; obtained by receiving party from a third party that is under no obligation of confidentiality; or independently developed by receiving party without the aid or use of disclosing party’s confidential information (typically evidenced in writing).

13 Protecting Your IP When Doing Business with Third Parties Tools for Protection Trade Secret Policy – guidelines for identifying trade secret information and provide reasonable safe guards for such information (should be comprehensive and written). Employment Agreements – suitable confidentiality, non-disclosure, and non-compete clauses in employment agreements. Non-Disclosure Agreements – written agreement third parties defining treatment of trade secret and confidential information.

14 Protecting Your IP When Doing Business with Third Parties Tools for Protection Trade Secret Policy effective procedures for identifying trade secret and confidential information. marking identified information as “confidential” employee agreements. effective computer use and electronic rights policy (restrictions on social media use and download of data). limit access to facilities, databases, and other sources of information. scrutinize marketing, website, and other informational materials.

15 Protecting Your IP When Doing Business with Third Parties Tools for Protection Confidentiality Agreement Terms Identify by type the business information to be kept confidential. Indicate purpose for maintaining confidentiality. Employee, agents, etc. acknowledgement as to the need for maintaining confidentiality. Duration (discussed later). Remedies available. No limitation on types of damages or cap.

16 Protecting Your IP When Doing Business with Third Parties Confidentiality Agreement Trade secret and confidential information should be treated separately. No duration on trade secret information. Confidential information limited time duration (if required by receiving party) (e.g., 5 years). No time limit on trade secret information. Time limit may destroy trade secret protection.

17 Protecting Your IP When Doing Business with Third Parties Trade Secret Time Limit Case studies: Silicon Image, Inc. v. Analogk Semiconductor, Inc. Trade secret – registers map of semiconductor chip. Third party NDAs included two year duration on confidentiality. Court found that reasonable steps to protect trade secrets were not shown where obligations to maintain information as confidential had expired.

18 Protecting Your IP When Doing Business with Third Parties Trade Secret Time Limit Case studies: D.B. Riley, Inc. v. AB Engineering Corp Trade secret – drawings and specifications for fuel systems manufactured for Riley by AB. NDA included ten year duration on confidentiality. Court found that reasonable steps to protect trade secrets were not shown where obligations to maintain information as confidential had expired.

19 Protecting Your IP When Doing Business with Third Parties Trade Secret Time Limit Case studies: ECT Intern., Inc. v. Zwerlein Trade secret – designs for electrical control systems, customer list, and prospects. Employee agreement included one year duration on confidentiality. Court found that ECT manifested an intent that after expiration of the year, the employee was under no restriction to maintain the secrecy of confidential information.

20 Contract Considerations 1. Scope of License Grants - Trademarks (advertise, distribute, manufacture (have manufactured), market, offer for sale, promote, sell) - Patents (import, make, offer for sale, sell, use) - Copyrights (display, distribute, perform, prepare derivative works, reproduce) Protecting Your IP When Doing Business with Third Parties

21 Contract Considerations 1. Scope of License Grants (Continued) - Exclusive / Non-exclusive - Territorial limitations - Term Patent term issue Protecting Your IP When Doing Business with Third Parties

22 Contract Considerations 2.Covenants Restrictions on use Restrictions on challenging or contesting rights Not patents Protecting Your IP When Doing Business with Third Parties

23 Contract Considerations 3.Trademark-Specific Issues Quality control obligations Approval Rights Co-branding Protecting Your IP When Doing Business with Third Parties

24 Contract Considerations 4. Transferability Issues Sublicensing Assignability Approval rights Change of control Other considerations - Competitors - Change in scope of license - Not in material breach - Transfer fee Protecting Your IP When Doing Business with Third Parties

25 Contract Considerations 5.Derivatives, Enhancements and Improvements Ownership Need a written assignment Trademarks – Need goodwill License Restrictions on 3 rd party use Other considerations Representations and warranties (ownership, employee/contractor assignments, originality, no adverse acts/omissions) Protecting Your IP When Doing Business with Third Parties

26 Contract Considerations 6. Other Considerations Reporting obligations and Audit rights Underpayments – Interest, audit costs and attorneys fees Infringements Right to enforce Recovery Protecting Your IP When Doing Business with Third Parties

27 Contract Considerations 6. Other Considerations (Continued) Indemnification Unauthorized use If mutual, include exceptions – combination, unauthorized use, breach Limitation on Liability and Disclaimer of Consequential Damages Protecting Your IP When Doing Business with Third Parties

28 Contract Considerations 6. Other Considerations (Continued) Breach remedies Jurisdiction Equitable relief Attorneys’ fees Protecting Your IP When Doing Business with Third Parties

29 Contract Considerations 6. Other Considerations (Continued) Obligations upon expiration/termination Discontinue use Inventory issues Wind-down period – Under what circumstances? Protecting Your IP When Doing Business with Third Parties

30 Questions? Protecting Your IP When Doing Business with Third Parties