2013 ACC-SoCal In-House Counsel Conference #IHCC13
Swimming With Piranhas: Hiring Competitor’s Top Talent & Being Fiercely Competitive Without Exposing Your Company
Avoiding Trade Secret Misappropriation, False
Advertising & Unfair Competition Claims January 23, 2013
Los Angeles, California
Moderator: Harrison Perla, Esq. Panelists: Lynda Zadra-Symes, Jeff Van Hoosear,
Susan Natland and Diane Reed @KnobbeMartens at Twitter
#IHCC12 The recipient may only view this work. No other right or license is granted.
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Via Federal Express Dear President: I am General Counsel for Fierce Competitor, LLC. (“FCL”). It has come to my attention that your company has recently hired Pat O’Neil Riley, a former V.P. of Sales and & Marketing at FCL. Given Pat’s position at FCL, Pat had access to a variety of confidential and proprietary information. Whatever Pat knows clearly qualifies as a TRADE SECRET of FCL and should not be used by your company … We demand that you cease and desist from the use and disclosure of all information and data that Pat obtained while a V.P. at FCL … We further demand your immediate confirmation that your company will not use or disclose any TRADE SECRETS or proprietary information of FCL … Unless I have your immediate confirmation by the close of business yesterday, FCL will proceed to enforce all legal remedies available to it, including, false advertising, unfair competition, trade libel, as well as all other remedies that our outside counsel have not yet even thought of … I expect to hear from you by yesterday. Have a nice day. Sincerely, General Counsel
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What is your next step?
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Understanding Trade Secrets: Protection and Misappropriation
Trade Secret Definition
Marking Confidential
NDAs
Avoiding Liability
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What is a Trade Secret?
“Trade secret” is a legal term for knowledge, or information that is confidential or secret
Another term that you may sometimes hear is “confidential” or “proprietary” information
These terms are more or less synonymous: – Trade secrets – Proprietary information – Confidential information
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Laws governing the protection of trade secrets
In the U.S., the protection of trade secrets is
governed by state law Trade secret laws vary from state to state There is no U.S. or federal system for recognizing
trade secrets Some foreign countries have laws to protect trade
secrets, but those laws vary from country to country (so governing law is important)
Some foreign countries do not even recognize trade secrets as a form of IP
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What are the legal requirements to protect trade secrets?
Generally, the law will recognize and protect a trade secret if it constitutes information that: – Is not generally known (i.e., it is secret or confidential) – Has value to you or would have value to a competitor – Is subject to reasonable efforts/procedures to preserve
its confidentiality
Conversely, if the information is publicly available or otherwise falls into the public domain, it is not protectable as a trade secret
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What kind of information can be protected?
Almost anything!
Business information – Financial data – Sales data – Customer or vendor data – Operational information – Branding information – Advertising and marketing data – Prospective products, services, or programs
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What kind of information can be protected?
Technical, engineering, testing or scientific information or data
Computer software and related documentation Manufacturing processes or methodologies Recipes, formulas or instructions The law tends to favor technical information over
business information – so be especially careful with protecting business information to preserve its trade secret status
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Do you need to file or register anything to protect a trade secret?
There is no legal system for registration of a trade secret
Whether information qualifies as a trade secret is based on a good faith belief that it meets the requirements
There are important procedures for preserving a trade secret as a protectable asset
It is fairly easy to lose trade secret status
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How do I protect a trade secret?
The most important things to do: – TREAT THE INFORMATION IN A CONFIDENTIAL
MANNER – Clearly label or designate the information as “confidential” or “proprietary”
– Maintain the information in a locked or secure location that cannot be accessed without appropriate authorization
– Limit access to the information only to those within the company who need to know it
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How do I protect a trade secret?
– Do not publish or distribute the information to the public – Use appropriate agreements with confidentiality clauses – Monitor or audit compliance on a regular basis to ensure
(and demonstrate, if necessary) that the procedures to protect you trade secrets are in force and being followed
– Treat your trade secrets and your NDAs as your other IP (status reports, etc.)
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What if I need to share the information?
Be sure to enter into an appropriate agreement requiring the recipient of the information to maintain the confidentiality of the information
One type of common agreement is a Non-Disclosure Agreement or “NDA”
There are several types for different situations, so be sure to consult legal counsel before signing an NDA or asking someone else to sign one
The NDA should limit the purpose and use of confidential information
The NDA should have a general IP assignment clause
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NDAs and Other Agreements
Any agreement can have a “confidentiality” clause to preserve the trade secret status of information exchanged pursuant to the agreement
A few examples are: – Employee agreements – Consulting agreements – Development (R&D) agreements – Software development agreements – Manufacturing agreements – Vendor agreements – Supply agreements
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How long do trade secrets last?
Trade secret protection can last forever Duration is unlimited as long as the
information is kept secret – Coca-Cola (recipe) – KFC (recipe) – Google (algorithm) – The New York Times Bestseller List (algorithm)
If the information is released to the public, even illegally, the trade secret will be lost
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How can trade secret status be lost?
Publishing articles or white papers containing the trade secret information
Posting the information on a website or in social media
Presenting the information at a trade show or conference
Speaking to others outside the company about the information
Selling, distributing or presenting a product or sample that embodies the information (under certain circumstances)
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What circumstances?
The sale or distribution of a product from which the information can be discerned by reverse engineering will cause the information to lose trade secret status! – Reverse engineering of competitor’s products is often conducted as routine “competitive intelligence” by many companies
– Several labs specialize in reverse engineering products to determine product composition, physical characteristics, and even how the product was made
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Other ways to lose trade secret status
Other ways to lose trade secret status: – The information is developed independently by another
party The trade secret status may not be lost but you cannot enforce
your trade secret rights against that party
– The information is developed independently or discovered by another party and made available to the public The information falls into the public domain and trade secret
status is lost
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Still other ways to lose trade secret status
Breach of an NDA or other confidentiality agreement – legal action may be available but the trade secret status is still lost – Even though there is an NDA, it is not a guarantee that
the party receiving the trade secret will honor the confidentiality obligations of the agreement
– Thus, disclosure of trade secrets under the protection of an NDA must be carefully evaluated, including the level of trust that is reposed in the receiving party
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Losing Trade Secret Protection
Publication Disclosure
Presentation Disclosure
Inadvertent Disclosure
Sale or Distribution
Independent Development
Breach of an NDA
Patent by a Third Party
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Because trade secret status can be easily lost . . .
Serious consideration should be given at the outset to whether the information should be protected by trade secret, copyright, or patent (if available)
Note that if you initially follow the trade secret route, patent protection is likely not available, copyright still possible
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General Principles
An Employee Can Take His or Her General Knowledge, Skill, Experience
Cannot Take Anything Tangible Belonging to the Employer
Cannot Take Anything “confidential” or protected as a trade secret
Contractual Limitations
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Can I be at risk in violating the trade secret rights of others?
Caution should be exercised in hiring employees from competitors – Be sure to consult legal counsel in sensitive situations – Avoid risk of charges that you hired an employee to gain access to the competitor’s trade secrets
– Avoid charges that you “interfered” with a competitor’s contractual or customer relations
– Have provision in employment agreement which confirms employee has no trade secrets or confidential information of prior employers
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Can I be at risk in violating the trade secret rights of others?
Even in NDA situations or other agreements, avoid receiving the confidential information of another party unless absolutely necessary to fulfill the purposes of the arrangement
Have a clear policy and educate your team to respect the IP rights (including trade secrets) of others
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Avoiding Liability for Misappropriation
Hiring Sensitive Employees from Competitors
Nothing Should be Taken from Prior Employer Do Not “Jump the Gun” (review hiring and start dates)
Review Calendar/Schedule (track employee’s work product)
Document Independent Creation
Conduct Independent Research to Find Customers, Vendors, etc.
Consider a “Clean Room” Procedure
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General Procedures and Recommendations
Advertise for All Positions Do Not Target a Particular Individual Publish Policy Against Misappropriation Similar Provision in Employee Agreement Have a New Project Underway Before Hiring any “Sensitive” Employees
Avoid Hiring a Number of Competitor’s Employees at the Same Time or Within a Short Time Period
Review Insurance Policy
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Insert Sponsor Logo here
Moderator: – Harrison Perla, Esq.
Harrison Perla, Director of Worldwide Legal Affairs at CEVA, Inc. @HarrisonEsquire on Twitter
Panelists
Presenters: – Susan M. Natland, Esq.
Partner at Knobbe Martens [email protected]
– Lynda Zadra-Symes, Esq.
Partner at Knobbe Martens [email protected]
– Diane M. Reed, Esq.
Partner at Knobbe Martens [email protected]
– Jeff Van Hoosear, Esq.
Partner at Knobbe Martens [email protected]
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9th Annual In-House Counsel Conference January 23, 2013 (Los Angeles, CA)
#IHCC13
61
www.acc.com/chapters/socal/
@KnobbeMartens
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