Trade Secrets By Timothy B. McCormack

Trade Secrets Law Basics  Overview  Policy Basis for Trade Secrets Protection  Legal Basis for Trade Secrets Protection  Protectable Subject Matter  Trade Secret Protection Programs  Trade Secret Litigation Tips for Defense and Prosecution

Overview  Trade Secrets Law is concerned with the protection of technological and commercial information not generally known in the trade against unauthorized commercial use by others  A trade secret may be inclusive of patentable subject matter

Policy Basis for Trade Secrets Protection  Encourage research and development by providing protection to the originator of business information  Maintain proper standards of business ethics See Kewanee Oil Company v. Bicron Corp., 416 U.S. 470 (1970)

Policy Basis for Trade Secrets Protection(Cont’d)  The trade secret owner is not granted exclusivity to the information, but rather is only protected against improper acquisition and / or use of the information  Others are free to discover a trade secret by any fair means

 The most widely-used common law definition of a trade secret was first set forth in the Restatement of Torts, § 757 comment b (1939): [A trade secret is] [a]ny formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. Legal Basis for Trade Secrets Protection

 In recent years, trade secret law has become largely statutory.  The Uniform Trade Secret Act (UTSA) has now been adopted in 46 states and the District of Columbia.  Washington adopted the UTSA as of January 1, RCW et seq. Legal Basis for Trade Secrets Protection (Cont’d)

Trade Secret = 1.Information used in business 2.Information is secret 3.Reasonable efforts to maintain secrecy 4.Provides competitive advantage

The Restatement also lists six factors to be considered in determining the existence of a trade secret:  the extent to which the information is known outside the business;  the extent to which it is known by employees and others involved in the business;  the extent of measures taken to guard the secrecy of the information;  the value of the information;  the amount of efforts or money expended in developing the information; and  the ease or difficulty with which the information could be properly acquired or duplicated by others. Legal Basis for Trade Secrets Protection

Protectable Subject Matter  Almost any knowledge or information used in conjunction with one’s business may be held as a trade secret. Specific examples include:  Formulas for chemicals, drugs, cosmetics, foods, etc.  Industrial Processes  Technical “know-how”  Blueprints and drawings  Computer software  Sources of supply, pricing information, identity of vendors or suppliers, and customer lists

Trade Secret Protection Programs  A formalized Trade Secret Protection Program generally consists of three components:  employee / contractor relations  documentation  physical security

Easy Safeguards  Contracts; Contracts; Contracts!  Marking Trade Secret Documents as Confidential  Use of Confidential Information Cover Page  Change of Passwords Regularly  Education and Awareness  Meeting Reminders and Awareness  Follow Existing Protocol for Document Destruction and Retention  Maintain Awareness of Physical Security Precautions  Encryption  Colored Badges

Easy Safeguards  Controlling plant access to company files and facility locations;  Central control of blueprints and engineering drawings (software too);  Use of security systems and guards;  Providing locked storage for sensitive information such as laboratory notebooks;  Implementation of document protection and retention policies; and  Use of computer passwords and firewalls throughout the organization

Easy Safeguards  Establishing / enforcing clear policies about confidential business information;  Identifying technological and technical information deemed to be secret;  Advising / training employees and others of the existence of trade secrets;  Use of nondisclosure and confidentiality agreements with employees and others;  Limiting access to trade secrets on a “need-to-know-basis”;  Trade Secret Audits and Follow-Up Audits

Trade Secret Litigation Tips For Defense & Prosecution  Identify the Trade Secrets – Rule 30(b)(6)  Motions In Limine (prima face)  Protective Orders  Motion to Dismiss - Rule 12(b)(6)  Summary Judgment – Rule 56

Special Topics: Inevitable Trade Secret Misappropriation  Under the common law, liability for trade secret misappropriation required acquisition by another by improper conduct or unfair means together with the use or disclosure by such person to the trade secret owner’s detriment.  Under the UTSA, the definition of misappropriation is much broader; it can include simple acquisition of a trade secret by a person who knows or has reason to know that the trade secret was acquired by improper means – no subsequent or impending use of the trade secret is required.

Special Topics: State Criminal Laws  Ala. Code Section 13A (Supp. 1986)  Ark. Stat. Ann. §§ ; (1977)  Cal. Pen. Code Ann. § 499c Colo. Rev. Stat. §  (Fla. Stat. Ann. § (West 1976 and Supp. 1986)  Ga. Code Ann. § (1984)  Ill. Rev. Stat. ch. 38, § 15-1 (Smith-Hurd Supp. 1986)  La. Rev. Stat. Ann. §§ 14:73.1, 14:73.2 (West 1986)  Me. Rev. Stat. Ann. Title 17-A § 352 (1964)  Mass. Ann. Laws ch. 266 § 30(4) (1986)  Mich. Comp. Laws §§ to (1991)  Minn. Stat. Ann. § (Supp. 1986)  Mo. Stat. Ann. §§ ,  N.H. Rev. Stat. Ann. § 637:2 (1974)  N.J. Stat. Ann. § 2c:20-1 (Supp. 1986)  N.M. Stat. Chap. 30 §  N.Y. Consol. Laws Ann., Penal § 155 (McKinney 1975)  Ohio Rev. Code Ann. §  Okla. Stat. Ann. Title 21 § 1732 (1983)  Pa. Consol. Stat. Ann. Title 18 § 3930 (Purdon 1983) Tenn. Code Ann. § (1982)  Tex. Pen Code Ann. § (Vernon 1974)  V.I. Code Ann. tit. 14, § 1665 (1992)  RCW § 9A  Wis. Stat. Ann. §  Wyo. Stat. § (1992)

Contact Information Timothy B. McCormack Attorney at Law COURIER/MAILING ADDRESS 617 Lee Street Seattle, WA USA DIAL ADDRESS Telephone Facsimile INTERNET ADDRESS E: