1. LEE BURGUNDER LEGAL ASPECTS of MANAGING TECHNOLOGY Third Ed. LEGAL ASPECTS of MANAGING TECHNOLOGY Third Ed.

2. Protection of Secret Information Chapter 7

3. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 3 Governing Laws and Policies Sources of Protection State: State: –Uniform Trade Secrets Act. –Restatement of Torts. Federal: Economic Espionage Act. Federal: Economic Espionage Act.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 4 Rationales for Trade Secret Laws Patent is public and expires but TS is confidential and can be maintained indefinitely. Patent is public and expires but TS is confidential and can be maintained indefinitely. Patent remains with company but TS can “travel” with departing employees. Patent remains with company but TS can “travel” with departing employees. Patent can be infringed but TS can, at best, be reverse engineered. Patent can be infringed but TS can, at best, be reverse engineered. Patent infringement has civil penalties but TS may have federal criminal penalties. Patent infringement has civil penalties but TS may have federal criminal penalties.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 5 Kewanee Oil v. Bicron Corp. Facts: Employees of Kewanee signed NDA. Left company to work for Bicron, a competitor. Kewanne sued. Facts: Employees of Kewanee signed NDA. Left company to work for Bicron, a competitor. Kewanne sued. Issue: Do trade secret laws interfere with disclosure rationale of patents? Issue: Do trade secret laws interfere with disclosure rationale of patents?

6. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 6 Decision: Trade Secret laws do not interfere with the disclosure objectives of the patent laws. Decision: Trade Secret laws do not interfere with the disclosure objectives of the patent laws. Rationale: Rationale: –Trade secret laws are an important and efficient means to protect R&D, information, and unpatentable inventions. –Inventors with potentially patentable inventions likely will not rely on trade secret protection. –Trade secret protection is weaker than patent protection. Kewanee Oil v. Bicron Corp.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 7 Definition of a Trade Secret Under Uniform Trade Secret Act: Under Uniform Trade Secret Act: –Information (formula, pattern etc) –that has independent economic value, –not known by or readily ascertainable by those who can benefit from it, and –is subject to reasonable security measures.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 8 Misappropriation = “Bad Dog!” Theft, fraud, espionage, etc. Theft, fraud, espionage, etc. Breach of fiduciary duty or promise. Breach of fiduciary duty or promise. Reasonable awareness about trade secrets and obligations. Reasonable awareness about trade secrets and obligations. Reverse engineering and independent creation are acts of a good dog. Reverse engineering and independent creation are acts of a good dog.

9. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 9 Integrated Cash v. Digital Transactions Facts: IC employees left and formed DT. They created programs very similar to those at IC. IC sued. Facts: IC employees left and formed DT. They created programs very similar to those at IC. IC sued. Issues: Issues: –Did Digital misappropriate trade secrets from Integrated Cash (ICM)? –Does it matter that the secrets were developed by the employees who left ICM and formed Digital?

10. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 10 Decision: DT misappropriated trade secrets, even though the employees developed the trade secrets for ICM. Decision: DT misappropriated trade secrets, even though the employees developed the trade secrets for ICM. Rationale: Rationale: –ICM retains a protectible trade secret in its product –Unique combination of publicly known elements can be a trade secret. –Knowledge about failures in experimentation may be a trade secret. Integrated Cash v. Digital Transactions

11. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 11 Acquisition by improper means. Acquisition by improper means. Disclosure or use when reasonably aware that such actions would breach fiduciary duties to maintain secrecy, Disclosure or use when reasonably aware that such actions would breach fiduciary duties to maintain secrecy, Disclosure or use when should reasonably know that trade secret comes from a person who used improper means to acquire it. Disclosure or use when should reasonably know that trade secret comes from a person who used improper means to acquire it. Disclosure or use when should reasonably know that trade secret comes from a person who breached a duty to maintain secrecy. Disclosure or use when should reasonably know that trade secret comes from a person who breached a duty to maintain secrecy. Dealing with Third Parties

12. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 12 Proving Misappropriation High investment in trade secret, High investment in trade secret, Access by alleged misappropriators, and Access by alleged misappropriators, and Fast development by alleged misappropriators. Fast development by alleged misappropriators.

13. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 13 Remedies for Misappropriation Injunctions: Injunctions: –For actual or threatened misappropriation (inevitable disclosure). –Departing employees. Damages or Royalties: Damages or Royalties: –Willful and Malicious -- Double damages and attorneys fees. Criminal -- State and federal laws. Criminal -- State and federal laws.

14. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 14 Confidentiality agreements. Confidentiality agreements. Restricted Access. Restricted Access. Label trade secret materials. Label trade secret materials. Computer and Internet secrecy. Computer and Internet secrecy. Exit interviews. Exit interviews. Protection Measures

15. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 15 Protection Measures Plant tours, speeches, publications and trade shows. Plant tours, speeches, publications and trade shows. Customers. Customers. Non-Compete clauses (but m ay violate public policy in certain states). Non-Compete clauses (but m ay violate public policy in certain states). Do not provide access to entire trade secret. Do not provide access to entire trade secret.

16. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 16 Federal Economic Espionage Act Illegal to steal trade secrets in either interstate or foreign commerce Illegal to steal trade secrets in either interstate or foreign commerce Aimed at foreign espionage, but covers domestic acts as well. Aimed at foreign espionage, but covers domestic acts as well. Actions brought only by Justice Department Actions brought only by Justice Department Criminal penalties Criminal penalties

17. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 17 TRIPs. TRIPs. –WTO members are required to enforce their trade secret laws with effective remedies. Importance of confidentiality agreements. Importance of confidentiality agreements. Need for practical security measures Need for practical security measures International Trade Secret Protection

18. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 18 Presenting Unsolicited Ideas to Third Parties How Companies Handle Unsolicited Ideas: Waiver for unsolicited ideas. Waiver for unsolicited ideas. Advice for offering unsolicited ideas. Advice for offering unsolicited ideas. File for a patent. File for a patent. Don’t disclose crucial elements without obtaining an agreement. Don’t disclose crucial elements without obtaining an agreement. –Dangle the carrot.

19. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 19 Aliotti v. R. Dakin & Co. Facts: In the context of a company buyout, Favorite Things/Dakin shared trade secrets with competitor Dakin. Dakin then manufactured very similar products. Facts: In the context of a company buyout, Favorite Things/Dakin shared trade secrets with competitor Dakin. Dakin then manufactured very similar products. Issues: Issues: –Did Dakin infringe Aliotti’s copyrights? –Did Dakin breach an implied-in-fact contract with Aliotti? –Did Dakin commit a breach of confidence?

20. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 20 Decision: Dakin did not infringe copyrights, breach an implied-in-fact contract or commit a breach of confidence. Decision: Dakin did not infringe copyrights, breach an implied-in-fact contract or commit a breach of confidence. Rationale: Rationale: –Copyright claim: –There was no substantial similarity of protectible expression, therefore no infringement. Aliotti v. R. Dakin & Co.

21. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 21 Rationale (continued) : Implied-in-fact Contract: Aliotti did not present her designs for sale, but to help persuade Dakin to buy Favorite Things. Aliotti did not present her designs for sale, but to help persuade Dakin to buy Favorite Things. No contract is implied if an “idea man” blurts out the idea without first striking a bargain No contract is implied if an “idea man” blurts out the idea without first striking a bargain Aliotti v. R. Dakin & Co.

22. © 2004 West Legal Studies in Business A Division of Thomson Learning LEGAL ASPECTS OF MANAGING TECHNOLGY LEE BURGUNDER Third Ed. 22 Rationale (continued) : Breach of Confidence: Three of the Ding-A-Saurs were already on the market and were not confidential Three of the Ding-A-Saurs were already on the market and were not confidential Constructive notice of confidentiality is not sufficient Constructive notice of confidentiality is not sufficient Aliotti v. R. Dakin & Co.