protecting scientific and high tech trade...
TRANSCRIPT
Presenting a live 90‐minute webinar with interactive Q&A
Protecting Scientific and High Tech Trade SecretsCrafting and Enforcing Restrictive Covenants in Light of New Social Media Vulnerabilities
d ’ f l f
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, NOVEMBER 10, 2011
Today’s faculty features:
Russell Beck, Partner, Beck Reed Riden, Boston
Scott Gibson, Founding Partner, Gibson Ferrin, Mesa, Ariz.
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Protecting Scientific and High Tech T d S tTrade Secrets:
Crafting and Enforcing Restrictive Covenants in Light of New Social
Media VulnerabilitiesMedia Vulnerabilities
Russell Beck Scott Gibson
Current State of the Law
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Why We CareWhy We Care
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Why We CareWhy We Care
“In over 85% of trade secretIn over 85% of trade secret cases, the alleged misappropriator was someone the trade secret owner knew – either an employee or a business p ypartner.”
– A Statistical Analysis of Trade Secret y fLitigation in Federal Courts
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Why We CareWhy We Care
“M Th H lf f E E lMore Than Half of Ex‐Employees Admit to Stealing Company Data A di t N St d ”According to New Study
– N.Y. Times (Feb. 23, 2009)
Data theft costs companies $2 million on average/year
– Symantic (2010)Symantic (2010)
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What is a trade secret?What is a trade secret?
“[A] trade secret is one of the most elusive[A] trade secret is one of the most elusive and difficult concepts in the law to define. In many cases, the existence of a trade
t i t b i it i d hsecret is not obvious; it requires an ad hoc evaluation of all the surrounding circumstances.”
Kaib’s Roving RPH Agency, Inc. v. Smith, 237 Or.App. 96, 104, 239 P.3d 247, 251 (2010), quoting Learning Curve Toys, Inc. v. PlayWood T I 342 F 3d 714 723 (7 h Ci 2003) (i l iToys, Inc., 342 F.3d 714, 723 (7th Cir.2003) (internal quotation marks and citation omitted).
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What is a trade secret?What is a trade secret?
• Restatement of Torts § 757 / Common• Restatement of Torts, § 757 / Common Law
U if T d S A (UTSA)• Uniform Trade Secrets Act (UTSA)
• Restatement of Unfair Competition, 3d
• State Statutes (G.L. c. 93, §§ 42, 42A; G.L. c. 266, § 30), )
• Federal: EEA, CFAA, FOIA
• International• International11
What is a trade secret?What is a trade secret?• Restatement of Torts § 757, comment b
“A trade secret may consist of any formula pattern device orA trade secret may consist of any 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.”[Not single ephemeral event][Plus six‐factor test]
U if T d S A § 1(4)• Uniform Trade Secrets Act § 1(4)“‘Trade secret’means information, including a formula, pattern, compilation, program device, method, technique, or process, that: (i) d i i d d t economic al e t l t ti l f(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are ( ) jreasonable under the circumstances to maintain its secrecy.
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Six‐Factor TestSix‐Factor Test
• Extent known outside business• Extent known outside business• Extent known inside business• Extent of measures to guard secrecy• Ease/difficulty to replicate• Effort/cost spent to develop• Value to company and competitorsValue to company and competitors
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What is a trade secret?What is a trade secret?
• Restatement (3d) Unfair CompetitionRestatement (3d), Unfair Competition– Liability for “appropriating”“trade values”
“A trade secret is any information that can be– A trade secret is any information that can be used in the operation of a business or other enterprise and that is sufficiently valuable andenterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.”
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What is a trade secret – really?!What is a trade secret – really?!
• InformationInformation• Confidential‐plus
– SecretSecret– Reasonable measures: “Heroic measures to ensure privacy are notHeroic measures to ensure privacy are not essential, but reasonable precautions must be taken to protect the information.” CVD, Inc. v. Raytheon Co 769 F 2d 842 851 52 (1st Cir 1985)Raytheon Co., 769 F.2d 842, 851‐52 (1st Cir. 1985)
• Commercial Value
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What Trade Secrets are NotWhat Trade Secrets are Not
• General skill and knowledgeGeneral skill and knowledge
• Information disclosed publicly
d k h• Industry know‐how
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Misappropriation: UTSA v. Restatement
• Acquisition– knows or reason to know that
• Acquisition not addressed
acquired improperly
• Disclosure or Useno consent/privilege
• Disclosure or Useno privilege– no consent/privilege
– either: • improperly acquired• knows or reason to know
– no privilege– either:
• improperly discovered• breach of confidenceknows or reason to know
that his knowledge was– from improper source ord t f fid ti lit
• from 3rd person, notice that secret and either:
– improperly discovered– breach of duty– duty of confidentiality
• b/f disclosure, knew or reason to know acquired by accident or mistake
breach of duty
• learned secret with notice that secret and disclosed by mistake
• Change in circumstances • Change in circumstances or paid
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Misappropriation?Misappropriation?• Independent discovery
Obt i i f bli h d lit t• Obtaining from published literature
• Overhearing a discussion in a bar
d b• Listening in to a discussion in a bar
• Observation
• Aerial reconnaissance
• Reverse engineering
• License
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How can we protect them?Restrictive Covenants
• Noncompetition Agreement (“Noncompete”)G d L Cl– Garden Leave Clause
– Forfeiture/Compensation for Competition Agreement• Nonsolicitation AgreementNonsolicitation Agreement• No‐Raid/Anti‐Piracy Agreement
– No Hire• Nondisclosure Agreement• Invention Assignment
• Forfeiture Agreement?
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Restrictive Covenants: Current LawRestrictive Covenants: Current Law• State Law
• Contracts– Consideration
– Writing?
– Ancillary to an otherwise valid agreement (employment)
• Reasonableness– Time, space, scope
– TestTest
– Context20
Restrictive Covenants: Current LawRestrictive Covenants: Current Law• Legitimate Business Interests
G ll R i d L i i B i– Generally‐Recognized Legitimate Business Interests
• Trade secretsTrade secrets• Confidential information• Goodwill• Others: Training; Special/Unique skills
– Business Interests That Are Not Recognized as LegitimateLegitimate
• Ordinary competition• General skill and knowledgeg
• Public Policy Considerations21
Ch ll tChallenges toRestrictive CovenantsCovenants
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“As much as three quartersAs much as three-quarters of the value of publicly traded ycompanies in America comes from intangible assets up fromfrom intangible assets, up from around 40% in the early y1980s.”
The Economist October 22 2005
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The Economist, October 22, 2005
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Competitionp
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Why is it unfair for ythis person this person pp
to compete into compete in this waythis way??this waythis way??
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Crafting Effective and Enforceable Restrictive
CovenantsCovenants
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When Covenants Are Too Broad…When Covenants Are Too Broad…• Strict construction
• Avoid “forms”
d• Wording– ejusdem generis
• All or Nothing (“Red Pencil”)
“Bl P il”• “Blue Pencil”
• Reformation
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Key Clauses/ConsiderationsNoncompetes
C id i• Consideration– Value vs. Reason for covenant (former TX law)
– Continued employment
• Time, space, scope – narrowly– Consider the risk posed – what, where, how long
– If necessary and appropriate, use step‐down provisions:
e.g., “within 50 miles, and if 50 miles is determined by a court to be overly broad, then within 25 miles”
L iti t b i i t t t b t t d• Legitimate business interests to be protected37
Key Clauses/ConsiderationsNoncompetes
• Assignment/successors in interest clause• Assignment/successors‐in‐interest clause
• Change of position/responsibilities
• Extension/tolling
• Severability or judicial modification/savings y j / gclause– Separate contracts in red pencil states?Separate contracts in red pencil states?
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Key Clauses/ConsiderationsNoncompetes
• Return of property• Return of property– Identify materials, information to be returned at end of relationshipend of relationship
– Be wary of deletion/destruction • Ma need for b siness• May need for business
• May need as evidence
– Consider whether to require making personal– Consider whether to require making personal electronics available for inspection/cloning
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Key Clauses/ConsiderationsNoncompetes
I j ti li f ( b d)•Injunctive relief (no bond)– Acknowledgment of irreparable harm
•Attorneys’ fees•Attorneys’ fees•Choice of law/forumLi id t d d•Liquidated damages
•ADR?
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Enforcing Restrictive Covenants
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FFormSubstanceSubstance
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B S ifiBe Specific
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B Sk ti lBe Skeptical
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B C tiBe Cautious
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StartStart
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Emerging Issues
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Emerging IssuesEmerging Issues• Misapropriation and Memory
“We fail to see why complainant is entitled to less protection when the names on the list are carried off inprotection when the names on the list are carried off in the employee’s memories.”
W ll ’ L d IWoolley s Laundry, Inc. v. Silva, 304 Mass. 383, 389–90 (1939).
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Emerging IssuesEmerging Issues• Misappropriation and Memory
S i l M di• Social Media
• Federal Trade Secret Act
h• Changing Noncompete Laws
• Enforcing Cross Borders – The California Conundrum
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Useful ResourcesUseful Resources• Blogs
Fair Competition Law [www faircompetitionlaw com]– Fair Competition Law [www.faircompetitionlaw.com]
– BiziBoom [www.biziboom.com]
• Twitter• Twitter– @russellbesq
– @TradeSecretLaw@
• Wikipedia– Noncompetesp
– Trade Secrets
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