1. TRADE SECRET LAW IN THE U.S.
AIPPI JAPAN
April 10, 2013
John (Jack) J. Penny
Nutter, McClennen & Fish LLP

2. Overview of Trade Secret Protection
Applicable Law
Statutory Basis
I. Uniform Trade Secrets Act (“UTSA”) enacted by 46 of the 50 states (all states except CA, NY, MA, TX) – sought to alleviate the differences between the states by creating a uniform trade secrete law
II. Economic Espionage Act of 1996
III. Theft of Trade Secret Clarification Act 2012
IV. Foreign and Economic Espionage Penalty Enhancement Act of
Common Law
State Common Law, e.g. CA, NY, MA
Uniform Federal Common Law in the ITC

3. Overview of Trade Secret Protection
What Is A Trade Secret?
Any information that:
is secret;
has commercial value derived from the fact that it is secret; and
is the subject of reasonable efforts to be kept secret. UTSA

4. Overview of Trade Secret Protection
Definition Of Misappropriation (UTSA)
Misappropriation means;
Improper acquisition or Improper use of a trade secret or (must know or have Improper disclosure reason to know it is a trade secret)

5. Overview of Trade Secret Protection
Available Remedies
Civil remedies
UTSA (CA): Injunction and damages (actual loss, reasonable royalty, or punitive) provided by statute
Non-UTSA (NY): Variety of remedies including constructive trust
Criminal law protection
Fines and imprisonment under Federal Law
UTSA (CA): Available

6. Overview of Trade Secret Protection
Inevitable Disclosure Doctrine (from 1995 PepsiCo case)
A person may be prevented from working for another company if the person’s job duties (at the new company) would inevitably cause the person to rely upon former employer’s trade secrets
Generally requires a showing that:
Person knows former employer’s trade secrets;
Departing employee’s new job at competitor is so similar to those in former job that it would be extremely difficult for him to avoid using former employer’s trade secrets; and
Departing employee and new employer cannot be depended upon to avoid using former employer’s trade secrets.

7. Overview of Trade Secret Protection
Why Use Trade Secrets?
To protect non-patentable subject matter (e.g., non-technical info., non-patentable info., etc.)
To avoid risk of patent becoming invalid (which amounts to disclosure without benefit)
More than a year beyond patenting window (situation is different outside U.S.)
Extended protection (no finite term as in patents)

8. Overview of Trade Secret Protection
When Are Trade Secrets At Greatest Risk?
Departing employees
Failed business dealings
Corporate espionage
Most breaches are caused by insiders (at company), often lower level employees, through carelessness, lack of training, or greed.

9. DuPont v. Kolon (E.D. VA 2011)
DuPont sued Kolon Industries for “theft of trade secrets and confidential information” re. production and marketing of Kevlar (high strength synthetic fiber)
Jury awarded DuPont damages of $919 million
Departing employee (Michael Mitchell) retained confidential information and illegally gave to Kolon
Mitchell pleaded guilty and was sentenced to 18 months in prison

10. Trade Secret Protection In The ITC
Tian Rui Group Co. Ltd. v. U.S. Int’l Trade Comm’n, (Fed. Cir. 2011)
Confirmed that § 337 applies to trade secret misappropriation even where unfair act occurs exclusively overseas.

11. Trade Secret Protection In The ITC (cont’d)
In The ITC Complainant Must Prove:
One or more trade secrets exist and are not within public domain;
Complainant is owner of the trade secret or has proprietary interest in it;
The complainant disclosed the trade secret to the respondent while in a confidential relationship or the respondent wrongfully obtained the trade secret by unfair means; and
The respondent used or disclosed the trade secret causing injury to the complainant.

12. II. Economic Espionage Act (EEA) of 1996 - 18 U.S.C. § 1831-1839
Criminalizes Theft Or Misappropriation Of Trade Secrets:
To benefit a foreign government, instrumentality or agent § 1831
Related to or included in a product that is produced for or placed in interstate or foreign commerce to the economic benefit of anyone other than the owner and with the intent to cause injury § 1831
Knowing possession, receipt or purchase of stolen or misappropriated trade secrets falling into either 1 or 2 above § 1831 and 1832
Attempting or conspiring with others to commit 1, 2 or 3 above § 1831 and 1832

13. Economic Espionage Act (EEA) of 1996 - 18 U.S.C. § 1831-1839 (cont’d)
Remedies For EEA Violations:
Although there is no private right of action under EEA, the government may obtain injunctive relief to prevent further disclosure of a trade secret by the defendant or third parties.
Fines up to $10,000,000 for organizations and $500,000 for individuals.
Imprisonment up to 15 years for individuals.

14. United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012)
Court Of Appeals Reversed Lower Court Conviction Holding:
§1832 of EEA – Theft of Trade Secrets – applies to “a trade secret, that is related to or included in a product that is produced for or placed in interstate or foreign commerce. . .”
“Goldman’s HFT system was neither ‘produced for’ nor ‘placed in interstate or foreign commerce’ – Goldman had no intention of selling its HFT system or licensing it to anyone.”

15. III. Theft Of Trade Secrets Clarification Act
Expanded EEA In Two Major Ways:
Expands the scope to include services as well as products.
Expands the scope of trade secrets covered by § from those trade secrets “included in a product which is produced for or placed in” interstate or foreign commerce to “a product or service used in or intended for use in” interstate or foreign commerce.

16. IV. Foreign and Economic Espionage Penalty Enhancement Act of 2012 (H
IV. Foreign and Economic Espionage Penalty Enhancement Act of 2012 (H.R. 6029)
Amends the federal criminal code to increase the maximum fine for economic espionage, became law Jan. 14, 2013,
Individuals found guilty of economic espionage can be fined up to $5,000,000.
Organizations found guilty of economic espionage can be fined up to $10,000,000 or three times the value of the stolen trade secret to the guilty organization including expenses for research, design and other costs of reproducing the secret that the guilty organization was thereby awarded.

17. Internal Trade Secret Program
Internal Trade Secret Procedures
A. Employment Practices
B. Confidentiality Program and Records Management
C. Monitoring and Auditing
D. Response procedures

18. Internal Trade Secret Program (cont’d)
A. Employment Practices
Require all employees to sign confidentiality agreements:
Acknowledging ownership of confidential information
Specifying obligations during and after employment
Addressing IP assignment issues

19. Internal Trade Secret Program (cont’d)
B. Confidentiality Program And Records Management
Identify and update secrets to be protected
Train employees and consultants on record-keeping
Limit Access
Meaningful difference between confidential and non-confidential information
Physical Security
Restrict access to information and certain physical areas
Need to know basis
Security measures including locks, keys, shredding, dumpsters

20. Internal Trade Secret Program (cont’d)
Coca Cola’s Famous Secret Recipe
Perhaps the most famous trade secret is the secret recipe for coca- cola (Coke)
Invented by John S. Pemberton on 1886, only shared with a small group and not written down
1919 Ernest Woodruff purchased the Coca-Cola Company, and deposited the secret formula (on paper) in a bank vault in N.Y. as collateral for the loan
When the loan was paid off in Woodruff moved the formula to SunTrust Bank in Atlanta
In 2011, formula was moved to a vault at a public, interactive exhibit at the World of Coca-Cola in Atlanta

21. Internal Trade Secret Program (cont’d)
C. Monitoring And Auditing
Monitoring compliance
Exit interview and related procedures
Return/seizure of all company property at termination, including electronic copies of materials

22. Internal Trade Secret Program (cont’d)
D. Response Procedures
Response procedures when suspecting a departing employee taking confidential with him?
What to do immediately?
e.g., secure computer and other storage devices, access to /network
e.g., suspend record destruction
Response procedures when a security breach caused by potential espionage is discovered?
Should one get law enforcement involved?

23. External Business Relationships: Collaboration Agreements
Key Considerations
Any disclosure of proprietary information must be protected by written agreements
Must clearly define the scope of what is confidential
Must clearly define the purpose of the disclosure to the collaboration partner
Must clearly define the use that can be made with that information (including further disclosure)

24. External Business Relationships: Collaboration Agreements (cont’d)
Exploratory Discussions: NDAs And Feasibility Studies
Narrow Disclosure – disclose only what is needed to achieve purpose
Disclosure may not lead to deal and potential partner is likely also considering competitors
NDA is critical not only for protecting trade secrets, but preserving patent rights
Keep most valuable (and enabling) information to yourself
Example: results, but no methods, no formulas, compositions, etc.

25. External Business Relationships: Collaboration Agreements (cont’d)
Exploratory Discussions: NDAs And Feasibility Studies (cont’d)
Limit Right to Use and Disclose
To evaluate technology for purpose of business of business relationship
Limit sharing of information within each company
Require return of any documents/presentation handouts
Don’t progress to the next stage without a new agreement

26. External Business Relationships: Collaboration Agreements (cont’d)
Joint Work (cont’d)
Clearly define scope of disclosures
Limit disclosures to “need to know”; use point persons for party interface
Train your project team in what you consider proprietary and in what can and cannot be shared
Require written consent before any third party disclosures
Clearly define scope of use of confidential information
Define purpose of agreement
Define each party’s rights and responsibilities

27. External Business Relationships: Collaboration Agreements (cont’d)
Joint Work (cont’d)
Build a record
Clearly identify and document all exchanges of Confidential Information
Keep written records of all internal work under the JDA.
Keep written records of all oral exchanges of information (including informal calls) and of all documents exchanged
Clearly define IP rights (including trade secrets and know-how)
Background IP rights
Joint discoveries and collaboration IP
Separate discoveries during collaboration term
Require cooperation in patenting to avoid harm to respective patent portfolios

28. External Business Relationships: Collaboration Agreements (cont’d)
Joint Work (cont’d)
Be Vigilant
Monitor publications and presentations made by collaborator
Monitor patent filings
Periodically exercise audit or inspection rights
Track inventory and use of confidential information

29. Thank you for your attention. Questions?
John (Jack) J. Penny
Nutter, McClennen & Fish LLP
155 Seaport Blvd.
Boston, MA,
* Special thanks to Joe Calvaruso for providing many of the slides on which this presentation is based
John (Jack) J. Penny