u.s. strategies for the protection of trade secrets in...
TRANSCRIPT
U.S. Strategies for the Protection of
Trade Secrets in a Global Economy
AIPPI Workshop VIII
2013 Helsinki AIPPI
R. Mark Halligan, Partner, Intellectual Property and Trade
Secrets Litigation, Nixon Peabody LLP
300 S. Riverside Plaza, 16th
Floor, Chicago, IL, USA
312-425-3970 • [email protected]
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Three Important Trends
1. Intangible assets are now paramount in the new
information-based economy
2. Employee mobility and open multi-party innovation
3. Increasing availability of tools capable of hijacking
information assets residing in an electronic environment
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US Litigation & Enforcement
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Broad Protection Available in US
• Both technical and non-technical information are
protectable as trade secrets
• Negative know-how ("what doesn’t work") is protectable
as a trade secret
• Actual or potential economic advantage derived from
secrecy
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US Laws Protecting Proprietary Information
• Uniform Trade Secrets Act (UTSA)
• Restatement (Third) Unfair Competition
• Economic Espionage Act of 1996 18 USC Section 1831 et
seq. (EEA)
• Computer Fraud and Abuse Act 18 USC Section 1030 et
seq. (CFAA)
• State Laws Enforcing Confidential Information and Trade
Secret Agreements With Employees
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International Trade Commission (ITC)
TianRui Group Co. Ltd. v. US International Trade
Commission, 661 F.2d 1322 (Fed. Cir. 2011)
• Under Section 337 of the Tariff Act of 1930, the ITC is
authorized to exclude imports when it finds “[u]nfair
methods of competition and unfair acts in the importation
of [those] articles.”
• Now US corporations can seek expedited relief from the
ITC without having to bring suit in a foreign jurisdiction.
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US Federal Legislation & White House
Developments
• Obama administration strategy on mitigating the theft of
trade secrets: “Prosecuting Trade Secret Theft is a Top
Priority”
• Theft of Trade Secrets Clarification Act of 2012
• Foreign and Economic Espionage Penalty Enhancement
Act of 2012
• Amendments to Sentencing Guidelines for Trade Secrets
Theft
• S. 3389: Protecting American Trade Secrets and
Innovation Act of 2012 (112th Congress, Second Session)
• HR. 2466: Private Right of Action Against Trade Secrets
Theft (113th Congress, First Session, January 20, 2013)
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EONA Proofs for Litigation
Existence: What is “it”?
Ownership: Does Plaintiff have ownership rights in “it”?
Notice: Did Defendant have actual, implied or constructive
notice of the trade secret status of “it”?
Access: Did Defendant have access to “it”?
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Uniform Trade Secrets Act (UTSA)
• “‘Trade secret’ means information, including a formula,
pattern, compilation, program, device, method, technique,
or process, that:
› 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
› Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.”
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Proving the Existence of a Trade Secret
• Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342
F.3d 714 (7th Cir. 2003):
› “Trade Secret is one of the most elusive and difficult concepts
in the law to define.”
• Experienced counsel skilled in the litigation of trade secret
cases often determines success or failure because "trade
secrets" are created and/or lost in trade secrets litigation
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Six-Factor Analysis:
The Litmus Test for Trade Secrets
• Factor 1: The extent to which the information is known
outside the company
• Factor 2: The extent to which the information is known by
employees and others inside the company
• Factor 3: The extent of measures taken by the company
to protect the secrecy of the information
• Factor 4: The value of the information to the company
and its competitors
• Factor 5: The amount of time, effort and money expended
by the company in developing the information
• Factor 6: The ease or difficulty with which the information
could be properly acquired or duplicated by others
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Novelty & Combination Trade Secrets
• Novelty is not required for trade secret protection
• Penalty Kick Mgmt. Ltd. v. Coca-Cola Co., 318 F.3d 1284
(11th Cir. 2003):
› “It is well established that a trade secret can exist in a
combination of known characteristics and components which,
in unique combination, affords a competitive advantage.”
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Reasonable Measures
• A trade secret need not be locked in a safe
• Absolute secrecy not required; “relative secrecy”—efforts
that are reasonable under the circumstances to
maintain secrecy or confidentiality
• No contract is required
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Proving Misappropriation
• Must prove the existence of a “trade secret” first
• Liability for:
› Unauthorized acquisition
› Unauthorized disclosure
› Unauthorized use
• Notice: Actual, constructive, or implied
• Access: Direct, indirect, or circumstantial
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Memorization Is Not a Defense
• Stampede Tool Warehouse, Inc. v May, 272 Ill. App.2d
580 (1st Dist. 1995):
› “Using memorization to rebuild a trade secret does not
transform the trade secret from confidential information into
non-confidential information. Memorization is one method of
misappropriation.”
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Third-Party Liability
• Improper means used to acquire—“knew or had reason
to know”
• Acquired under circumstances giving rise to duty to
maintain its secrecy or limit its use
• Duty of inquiry
• Application of respondeat superior doctrine
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US Civil Remedies
• Primary remedy is injunctive relief
› To prevent actual misappropriation
› To prevent the threatened misappropriation of trade secrets
(the “inevitable disclosure” doctrine)
• PepsiCo, Inc. v. Redmond, 54 F.3d 1262 (7th Cir. 1995):
› “A plaintiff may prove a claim of trade secret misappropriation
by demonstrating ‘that defendant's new employment will
inevitably lead him to rely on the plaintiff's trade secrets.’”
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US Civil Remedies (cont’d)
• Damages:
› Actual loss to Plaintiff or
› Unjust enrichment caused by misappropriation or
› Reasonable royalty damages
• If willful and malicious misappropriation:
› Attorneys fees and costs
› Exemplary damages
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Trade Secret Misappropriate: Recent
Damage Verdicts
• St. Jude Medical (2011): $2.3 billion (reduced to $947
million
• Dupont/Kolon Industries (2011): $919 million (on appeal)
• Lexar Media (2005): $465.4 million (settled $288 million)
• Sven Peter Mannsfeld (2008): $192 million (settled for
$40 million)
• USA Power LLC (May 2012): $134 million
• Bancorp Services (2002): $118 million
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Litigation SWAT Team
• Time is of the essence:
› FMC Corp. v. Taiwan Tainan Giant Indus. Co., Ltd., 730 F.2d
61 (2d Cir. 1984):
– “A trade secret, once lost, is, of course, lost forever.”
• Rapid response protocols:
› Advance development
› Quick deployment to “stop the bleeding”
• Know your jurisdiction:
› Each jurisdiction requires different strategies for the
protection of trade secrets
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Economic Espionage Act of 1996,
18 USC Section 1831 et seq. (EEA)
• The theft of trade secrets is a federal criminal offense
• “‘Trade secret’ means all forms and types of financial,
business, scientific, technical, economic, or engineering
information, including patterns, plans, compilations,
program devices, formulas, designs, prototypes, methods,
techniques, processes, procedures, programs, or codes,
whether tangible or intangible, and whether or how stored,
compiled, or memorialized physically, electronically,
graphically, photographically, or in writing if—
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Economic Espionage Act of 1996,
18 USC Section 1831 et seq. (EEA)
› (A) the owner thereof has taken reasonable measures to keep
such information secret; and
› (B) the information derives independent economic value,
actual or potential, from not being generally known to, and not
being readily ascertainable through proper means by, the
public.”
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Economic Espionage Act of 1996,
18 USC Section 1831 et seq. (EEA)
• Liability for any person who:
› “steals, or without authorization appropriates, takes, carries
away, or conceals, or by fraud, artifice, or deception obtains
such information”
› “without authorization copies, duplicates, sketches, draws,
photographs, downloads, uploads, alters, destroys,
photocopies, replicates, transmits, delivers, sends, mails,
communicates, or conveys such information”
› “receives, buys, or possesses such information, knowing the
same to have been stolen or appropriated, obtained, or
converted without authorization”
› “attempts to commit any offense described” above
› “conspires with one or more other persons to commit any
offense described” above
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Economic Espionage Act of 1996,
18 USC Section 1831 et seq. (EEA)
• Extraterritorial jurisdiction: Applies to conduct occurring
outside the United States if–
1. The offender is a natural person who is a citizen or
permanent resident alien of the United States, or an
organization organized under the laws of the United States
or a State or political subdivision thereof, or
2. An act in furtherance of the offense was committed in the
United States
• Forfeiture and restitution
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Computer Fraud & Abuse Act,
18 USC Section 1030 et seq. (CFAA)
• Criminal or civil penalties
• Protects any computer “used in interstate or foreign
commerce or communication”
• Pacific Aerospace & Electronics, Inc. v. Taylor:
› “Employers…are increasingly taking advantage of the CFAA's
civil remedies to sue former employees and their new
companies who seek a competitive edge through wrongful
use of information from the former employer's computer
system.” 295 F.Supp.2d 1188, 1196 (E.D. Wash. 2003)
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Computer Fraud & Abuse Act,
18 USC Section 1030 et seq. (CFAA)
• Two bases of liability for computer access:
› “Without authorization” or
› “Exceeding authorized access”
• International Airport Centers v. Citrin, 7th Circuit:
› “Citrin’s breach of his duty of loyalty terminated his agency
relationship…and with it his authority to access the laptop.”
440 F.3d 418 (7th Cir. 2006)
› (J. Posner)
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Computer Fraud & Abuse Act,
18 USC Section 1030 et seq. (CFAA)
• Provides federal subject matter jurisdiction
• Extraterritorial jurisdiction:
› Applies to any “protected computer,” whether that computer is
located within the United States or outside the United States
• Civil penalties:
› Injunctive relief
› Damages
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State Laws and Employee Agreements
• Most states will enforce confidential and proprietary
information agreements employees execute in favor of
employers.
• These agreements offer the advantage of protecting
broader types of information that must be kept
confidential, including information that may not qualify as
statutory “trade secrets.”
• Agreements are often part of or signed in connection with
separate non-competition agreements that offer further
protection against disclosure or use of confidential
information.
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Trade Secret Misappropriation:
The “Threat”
• Foreign Economic Espionage: “The greatest transfer of
wealth in history”
• Advanced Persistent Threat (APT)
• “What’s Yours is Mine:” Symantec Study
› 3,317 individuals in 6 countries across industries:
– United States: 788
– UK: 530
– France: 491
– Brazil: 565
– China: 440
– Korea: 503
• “The majority of employees transfer work documents
outside and don’t understand that it’s wrong to engage in
such conduct.”
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Social Media
• B.Y.O.D. (Bring Your Own Device) versus
C.O.P.E. (Company Owned Personally
Enabled)
• Forfeiture of trade secret asset protection
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Symantec Study: Recommendations
• Employee education
› Employees must know that taking confidential information is
“wrong”
› Periodic "security awareness" training should be required
• Enforce NDAs
› Review and strengthen employment agreements
› Use "trade secret" exit interviews
› Enforce agreements by taking appropriate legal action
• Monitoring technology: DLP (Data Leak Protection)
› Critical to monitor BOTH "trade secrets in motion" and "trade
secrets at rest“
› Flag for inappropriate "access" and inappropriate "use" of
confidential company information
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Corporate Protection Strategies
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Protection Strategies
• Success in litigation often depends on the strategies in
place before any misappropriation occurs
• Protocols for suspected employees
• Protocols for internet leaks
• Protocols for “trade secrets at rest” and “trade secrets in
motion”
• Protocols for foreign actors and actions
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Contracts, Contracts, Contracts…
• Contracts are critical for proprietary information
protection in a global economy
• New contractual provisions for trade secret protection:
› Establish CFAA liability in employment agreements
– Employee is not authorized to use the computer for his own
personal benefit or for purposes contrary to the company’s
business interests
› Explicitly define and limit use in non-disclosure agreements
– Limited use licenses: Use of proprietary information is
solely for the “limited purpose” of…
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Employee Exit Interviews
• Foundation for civil liability
› EONA proofs
• Foundation for criminal liability
› Mark J. Krotoski, U.S. Department of Justice, speaking at the
InfoSec World Conference on March 11, 2008:
– “Exit Interviews often provide the evidence that we need to
pursue Economic Espionage Act violations.”
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Global Strategies:
Legal and Practical Approaches
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Realities of Globalization
• Third parties outside the US now have greater access to
US firms and sensitive technologies
• Digitization—trade secrets are transferred over networks
and are vulnerable to cyber-espionage
• Information security today—greater emphasis on
protecting “what is leaving” the enterprise instead of “what
is entering” the enterprise
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Global Strategies:
Legal and Practical Approaches
• National systems differ widely and each requires a tailored
approach based on the law and type of legal system
› Common law systems based on the English legal system
tend to have well-developed and predictable protections for
trade secrets
› Civil law systems, such as the EU, provide swift and effective
remedies upon the requisite factual showing, but discovery is
virtually nonexistent
› Asian legal systems have not historically recognized
intellectual property rights; contracts still the basis for
enforcement
› Developing nations must balance the value of protecting the
secret with the political value of building domestic industries
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Global Strategies:
Legal and Practical Approaches
• Enforcement issues also need to be addressed
› Civil remedies?
› Administrative remedies?
› Criminal remedies?
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Global Strategies:
Legal and Practical Approaches
• Contracts can be used to build an adjudication
mechanism into the private contract including:
› Definition of “trade secrets”
› Definition of what constitutes “misappropriation”
› The right to interim (injunctive) relief
› Procedures for international arbitration and adjudication of
disputes
› Liquidated damages and remedies for violations
› Right to discovery, inspections of equipment, etc.
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Global Strategies:
Legal and Practical Approaches
• “Carrots & Sticks”
› Incentives can be as effective as penalties, especially with
individual employees and small businesses, particularly in
developing nations
› Penalty clauses in contracts should be specific, with high U.S.
dollar amounts
• Be cautious of licensees
› Regularly monitor compliance with confidentiality agreements
and security measures
› Consider multiple licensees in multiple countries in a region,
each having access to only a specific piece, to reduce risk
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Two Cardinal Rules
of Trade Secret Protection
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Two Cardinal Rules
of Trade Secret Protection
• Restricted access
› Permit access to trade secrets only “on a need to know basis”
› Be careful of multiple security levels: Courts have held that
information available at lower security levels was not
protected by “reasonable measures” in light of more secure
environments available
• Compartmentalization
› Break up the pieces of the puzzle
› Individuals only have access to their piece of the puzzle
Nixon Peabody’s Approach
to Trade Secrets
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Our Trade Secret Team
• Nixon Peabody’s Trade Secret Team is made up of
seasoned professionals that have extensive experience
in dealing with all aspects of trade secret identification
and protection.
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Our Trade Secret Team
• Our Team is composed of top-flight practitioners from
across the firm who practice in a range of areas --- all
important to protecting these valuable assets.
› Intellectual Property/Patents
› Intellectual Property/Brands & Creations
› Labor & Employment
› Business Litigation
› Financial Services Litigation
› Government Investigations/White Collar
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A 360° Approach to Trade Secrets
Unlike some other firms, that view Trade Secrets as an “IP
issue” or as an “employment matter,” we understand that to
effectively manage and protect an organization’s trade
secrets, we need to pull all of the pieces together in a
robust and comprehensive effort. We take a complete 360
degree approach. We understand the content that is a risk
and we know how to protect it effectively --- through proper
technology applications, procedures, training,
communications, and, if necessary, litigation or other
dispute resolution.
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A 360° Approach to Trade Secrets
Employment Practices
Intellectual Property
Investigations Litigation
Financial Expertise
Technology
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Presenter Bio – R. Mark Halligan Esq.
• Partner, Nixon Peabody, LLP, Chicago Office
• Practice Areas: Intellectual Property, Intellectual Property Litigation, Litigation & Dispute Resolution, Technology
• Accomplished trial lawyer focused in intellectual property litigation and complex commercial litigation in federal and state courts
• Experienced patent litigator focused on protection and enforcement of trade secrets
• Frequent author and lecturer on intellectual property issues; Adjunct Faculty of The John Marshall Law School in Chicago where he teaches trade secrets law.
• Northwestern University, J.D.; University of Cincinnati, B.A. summa cum laude
•Chambers USA: America’s
Leading Lawyers for Business for
Intellectual Property
•“Top-flight IP strategist” in IAM
250: A Guide to the World’s
Leading IP Strategists, 2011 and in
IAM 300: A Guide to the World’s
Leading IP Strategists, 2012
•Illinois “Super Lawyer”
consecutive years since 2005
•Legal 500 Leading Lawyer in
Trade Secrets Litigation
•Best Lawyers 2013 for Intellectual
Property
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Questions
THANK YOU.
R. Mark Halligan, Nixon Peabody LLP
300 S. Riverside Plaza, 16th Floor, Chicago, Illinois 60606 USA
(312) 425-3970 ▪ [email protected]