a five-ingredient formula · 2012-10-10 · regulatory reporting 29 can companies avoid disclosing...

4th Annual Significant Legal Developments Affecting the Chemical, Oil & Gas Industries

© Blank Rome LLP 2012. All Rights Reserved1

Securing Your Trade Secrets:

PRESENTED BY

Securing Your Trade Secrets:

A Five-Ingredient Formula

Michael P. Broadhurst, Blank Rome LLPJoseph G. Poluka, Blank Rome LLPL i h A B i k Bl k R LLP

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Leigh Ann Buziak, Blank Rome LLPKevin M. Passerini, Blank Rome LLPFrederick J. Salek, Heraeus Incorporated

The Formula: Five Active Ingredients

1. Defining Trade Secrets

2. Developing Measures to2. Developing Measures to Secure Trade Secrets

3. Identifying & Responding to Theft

4. Considering Criminal Referrals

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5. Protecting Trade Secrets In the Context of Civil Litigation & Regulatory Reporting



1st Ingredient: Defining Trade Secrets

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What are trade secrets?• Information for which a company strives to maintain confidentiality and

which is competitively valuable

• Includes technical information (e.g., chemical processes)• E.I. du Pont de Nemours and Co. v. Kolon Ind., Inc.:

– Theft of confidential information concerning production and marketing of Kevlar ($991M jury verdict)

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http://www.prweb.com/releases/DuPont/Cooper_River_Kevlar/prweb8856354.htm



What are trade secrets?

• Includes business information (e.g., customer lists and marketing strategies)

• MGA Entertainment Inc. v. Mattel Inc.:

– Theft of business and marketing plans for Bratz dolls ($85M jury verdict on liability; $85M exemplary

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liability; $85M exemplary damages award; $2.52M attorney fee award)

© Jeff Harris, 2012http://gallery.macleans.ca/gallerypopbanner.asp?gallery=barbie

How and when are trade secrets created?

• By employees, consultants, or other third parties

• Through agreements, which are often important to establishing ownership of the trade secrets

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• Everyday business operations



Why are trade secrets important assets?

• Protect investments in research and development, marketing efforts, and strategic planning

• Protect information that may not be protected by patents, trademarks, or copyrights

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• Provide powerful litigation tools and tactics

How are trade secrets protected by law?

• Uniform Trade Secrets Act (UTSA)

– Most states, including PA and (recently) NJ

– But: MA, NY, & TX continue to follow common law or Restatement

• Even so, some residual common law torts remain (e.g., unfair competition and tortious interference with contract)

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unfair competition and tortious interference with contract)

– “Inevitable disclosure” doctrine (e.g., Bimbo Bakeries USA, Inc. v. Botticella and the secret formula for “nooks and crannies “in Thomas’ Original English Muffins)



How are trade secrets protected by law?

• Federal and state criminal statutes (and some with private causes of action)

– Oldies but goodies• Federal

– Economic Espionage Act (foreign entanglement component)– Computer Fraud and Abuse Act

» United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012)

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• State—Aleynikov II?

– Newbies—currently a potpourri of legislation in Congress• “Protecting American Trade Secrets and Innovation Act of 2012”

2nd Ingredient: Developing Measures to g p gSecure Trade Secrets

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How to maintain the confidential nature of trade secrets?

• Agreements (employees and third parties)

• Physical limitations on access and downloading

• Electronic limitations on access and downloading

• Ownership of all electronic devices

• Legends and labels

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Legends and labels

• Policies and procedures

• Exit interviews and check-out procedures

Where does the company keep its trade secrets?

• Under lock and key (perhaps literally)

• Physical vs. Electronic/Tangible vs. Intangible

– Bad news: electronic information can be easily manipulated and taken

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– Good news: electronic information easier to track than paper because it often leaves behind an electronic fingerprint



Corporate Mentality Matters, Too

• Commitment/buy-in from business people

• Treat trade secrets as trade secrets

• Publicity and marketing efforts

• Appropriate and consistent use of litigation and enforcement tools

• Protection of trade secrets integrated into company’s

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Protection of trade secrets integrated into company s culture and values

Who is responsible for protecting the company’s trade secrets?

• Everyone!

– Key personnel: Legal, IT, HR, and management working together

• Explain and Warn?

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• Consider value of key personnel’s training employees not only on the importance of trade secrets, but also on the company’s efforts to protect its trade secrets and to monitor and police against theft of trade secrets



Flip side: How does the company avoid accusations for misappropriating

its competitors’ trade secrets?

• Policies and procedures• Clear written instructions and contracts with new

employees coming from competitors and with third parties who may have had access to competitors’ trade secret information

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t ade sec et o at o• Ask about post-employment obligations during

interviews and explain company’s position• Again, training

3rd Ingredient: Identifying & Responding g y g p gto Theft

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How does the company determine if its trade secrets have been taken?

• Close relationship between legal and HR

• Keystroke/mass-downloading software

• Preservation of exiting employees’ computer images

• Regular monitoring, especially in sensitive areas

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• Unfortunately, theft usually occurs from within—good HR policies and managers can serve as a check

What if there is a suspicion that someone has stolen trade secrets?

• Investigation and review of email traffic and downloading

• Forensic examination of relevant computers/servers

– Made easier when devices are company-owned and by policies preserving computer images from the get-go

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• Consider immediate injunctive relief to secure information and/or stop threatened misappropriation, coupled with contemporaneous preservation notices to relevant parties



What are the typical remedies?

Injunctive relief both preliminary and permanent• Injunctive relief—both preliminary and permanent

– Early options: temporary restraining order versus preliminary injunction

– Value of expedited discovery to securing better relief up front

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• Damages—lost profits, disgorgement/constructive trust, reasonable royalties, attorneys’ fees, and punitive/exemplary damages

Considerations Before & During Litigation

• Make sure you have the goods—either actual or threatened misappropriation of legitimate trade secrets– Do you need discovery to obtain relief?

• Attorneys’ fees available for bad faith maintenance of trade secret litigation– Eaton Corp. v. Frisby

• Developing case law involving unfair competition as a result of

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malicious litigation– American Chem. Society v. Leadscope, Inc.

• Policy of declining to comment on litigation



4th Ingredient: Considering Criminal g gReferrals

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• Parallel proceedings

What is the relationship between criminal and civil protection of trade secrets?

– Potential stay of civil litigation

• Overlap between civil and criminal theft statutes

– Economic espionage and theft of trade secrets codified at

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p g18 U.S.C. §§ 1821–39

– Not just “criminal”: some criminal statutes have civil remedies and even private causes of action



When should the company authorize an internal investigation?

• What is the source of the complaint?

• What is the mission?

• What is the scope?

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What are the considerations before referring the matter to the authorities?

• Are you the victim or the alleged perpetrator, and how may you be perceived?

• How serious is the theft and the subject matter of the trade secret?

• Does the company have “clean hands”?

• Has the company established adequate protective measures and practices?

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• Is civil litigation pending or planned?– Statutes of limitation, risk of stay, and risk of perceived overreaching by

referral during litigation



5th Ingredient: Protecting Trade Secrets In the Context of Civil Litigation & gRegulatory Reporting

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Can companies avoid disclosing trade secrets in litigation?

• Opposing counsel view discovery of a company’s trade secrets as a pressure point in ordinary litigation

• Ensure that confidentiality agreements are in place– Compare with protective order—tough standard in many jurisdictions and risk of

contempt

• Redactions and filing under seal (check local rules)

• Provisions limiting the use of information and measures to protect from disclosure and to secure the return of information after the litigation

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disclosure and to secure the return of information after the litigation

• Enforce where necessary and if improperly used by adversary—breach of contract versus civil contempt



Questions?

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a five-ingredient formula · 2012-10-10 · regulatory reporting 29 can companies avoid disclosing...

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