how to legally protect your valuable secrets and enforce your intellectual property rights

How to Legally Protect Your

Valuable Secrets and Enforce Your

Intellectual Property Rights

Roch Ripley and Scott Foster

This presentation is based on a presentation delivered by Gowlings

partner Michael Crichton at the 2014 International Conference on

Corporate Espionage and Industrial Security.

Outline

1. Overview of intellectual property (IP) rights,

focusing on trade secrets

2. Best practices for protecting trade secrets

3. How to enforce trade secrets in the event of a

breach

OVERVIEW OF

IP RIGHTS

3

Overview

4

(C)

TM

ID

TS

Pat

Trade secrets

What are trade secrets?Any information that

• is or may be used in trade or business

• is not generally known in that trade or business

• has economic value from not being generally

known

• is the subject of efforts that are reasonable under

the circumstances to maintain its secrecy

SCC: “low threshold”.

Invention ProtectionWhy use Trade Secrets?

• Not time limited

• Not territorially limited

• No “springboard”

• Lower upfront costs

• Lower enforcement costs

• Immediate protection

• Can be used to protect innovations not protectable by

patents (e.g.: innovations that aren’t inventive)

Trade secrets

Invention ProtectionWhy use Patents?

• Trade secret protection may be unfeasible

• Exploitation: a patent is a clearly identifiable asset

that may be sold or licensed

• Trade secret protection destroyed as soon as

another party learns of trade secret through

legitimate means

• E.g.: independent creation, innocent recipients of

information

• Protection - protect your development path

• Deterrence - discourage others from using your

proprietary technology

• Optics

Trade secrets

Trade secrets

Famous trade secrets:

Trade secrets

Examples of trade secrets:

• Recipes and formulas (e.g. Coca-Cola)

• Customer lists

• Company strategies

• Specifications

• Systems and methods for fabrication/manufacturing

• Research results

• Functionalities and processes

• Specific know-how

• Compilation of publicly-available information

• Combinations of the above

9

Trade secrets

When is a trade secret infringed?It is an infringement to misuse (i.e., use without

authorization) confidential information imparted

under circumstances of confidence.

Courts will strive to protect trade secret owner’s

proprietary advantage, and prevent thieves from

enjoying a springboard into a market.

Courts have their limits: general technical skill or

know-how NOT proprietary.

Remedies include an injunction & damages.

Trade secrets

Departing Employees – A Major Concern

• Nearly half of Canadian employees don’t believe

their organization would take legal action to protect

trade secrets used by former employees (Ipsos-

Reid, 2006)

• Nearly 60% of departing employees have taken

confidential information (Ponemon Institute, 2009)

BEST PRACTICES FOR

PROTECTION OF

TRADE SECRETS

12

Best practices – trade secrets

How to keep trade secrets• Know what your secrets are, and where they are

• Keep them secret

• Treat them as secrets through contracts, policies,

procedures and everyday practices

• Preserve records of them in the event of a breach

or enforcement is required

• E.g., for software, keep all versions or iterations; for

research results, maintain detailed & dated lab

books


How to lose trade secrets• A trade secret is only a trade secret if it remains a

SECRET

• Trade secret protection is lost in the event of:

1. Accidental disclosure

2. Third party reverse engineering

3. Third party acquires or develops the trade secrets

through otherwise lawful means

• Hard to control 2 & 3 – but 1 can be controlled


Written agreements governing

trade secrets• Important tool for protecting trade secrets

• Includes agreements with employees and third

parties

• Fall-back still exists: common law protection of

confidential information


Employment agreements• Employees are most common cause of breaches

• Employment agreements MUST include strong

non-disclosure provisions – or use separate NDA

• Employment agreements MUST be clear

regarding IP ownership (i.e., employer owns)

• ALL employees

• Regularly update the agreement as the

employee’s position and/or duties evolve

• Signed and delivered

• Good record-keeping and preservation essential


Employee policies and procedures• Employment agreements/NDAs are just the

beginning

• Implement and rigorously police:

• document confidentiality/access/security/need-to-

know policies and restrictions

• building security

• labeling policies and practices

• technology systems and equipment use policies

• public statement (media) policies

• social media policies

• exit interviews, agreements and trade secret

preservation


Third party agreements• Suppliers, customers, business/JV partners

• Comprehensive, fulsome and non-ambiguous

defining of:

• What is confidential

• Who owns what

• If too broad so as to cover general knowledge or

skill, then provision may be invalid

• E.g., background IP vs. foreground IP vs.

sideground IP

• Amend scope whenever circumstances change


Third party agreements (cont’d)• Full and unequivocal cooperation required in the

event of a breach or loss

• Adequate notice in event of disclosure

requirement

• Strict obligations to destroy information upon

conclusion of relationship or notice of trade secret

owner

• Acknowledgment that breach of NDA constitutes

irreparable harm


Third party agreements (cont’d)• Choice of law clause

• Forum selection clause

• Court jurisdiction

• Arbitration

• Mediation

• Negotiation

• Combination of the above


Third party best practices• Even if have favorable agreement and win in

Court, may not be able to enforce

• Some countries do not recognize foreign judgments,

or are reluctant to enforce foreign judgments

• Minimize risk by picking honest and trustworthy

business partners

• Implement and vigorously police strict

confidentiality protocols

• Documents: need-to-know sharing only

• Site visits: need-to-see exposure only


Recipient best practices• Know what you have agreed to

• Police your employees

• Implement IT systems and confidentiality protocols

to minimize chances of a breach

• Treat someone else’s trade secret at least as

carefully as you would treat your own, and in any

event with no less than a reasonable degree of

care and confidentiality

ENFORCEMENT OF

TRADE SECRETS

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Enforcement of trade secrets

What to do in a crisis?Example scenario: an ex-employee, business

partner or other third party is in possession of your

trade secrets and is misusing them (e.g., to

compete against you), or will be misusing them

imminently.

What is your best course of action?

Specifically, how do you enforce your trade secret

rights?


What to do in a crisis? (cont’d)Every case is different.

General best practices are helpful, but in case of a

breach, it is always best to get the advice of IP

counsel based on the particular facts of the case.

Time is of the essence, particularly for available

remedies.


What laws apply in Canada?In Canada, trade secret theft is a tort – a “civil

wrong” causing damage.

• May also be breach of contract if there was an NDA

• Lawsuit may be brought in applicable provincial court

• Up to trade secret owner to enforce


What laws apply in Canada?

(cont’d)Generally, there is no criminal liability for trade

secret theft in Canada.

• R v Stewart: trade secrets are information, but not

property that may be stolen in the traditional sense

because victim not deprived of the information

• Exception: Security of Information Act – criminal

offence to communicate or obtain for a foreign

economic entity a trade secret of national importance


What laws apply in the US? In the US, trade secret theft is also a tort or based

on a breach of contract

• Lawsuit may be brought in applicable state or federal

district court

• Up to trade secret owner to enforce


What laws apply in the US?

(cont’d) There may be criminal liability for trade secret theft

in the US.

• Economic Espionage Act – criminal offence to

intentionally convert an “interstate or foreign

commerce trade secret” to a third party with

knowledge that it will injure the trade secret owner

• US government has achieved numerous convictions

of individuals, and successfully imposed sentences

ranging from 3 months to 4 years prison time

• Typical case: rogue employee attempts to transfer

sensitive documents overseas, but gets caught


What is your first step?Determine level of urgency.

• If irreparable harm is imminent or just beginning to

occur, consider seeking preliminary injunction

• Difficult to prove, and must move quickly before status

quo changes

• Preferable where there is still time to stop an infringer

(e.g., competitor) before it’s too late

• If harm is reparable and/or the infringing activities

have become the status quo, consider negotiating

and/or suing in the normal course

• Damages and permanent injunction may still be

available


Important best practicesDocument preservation.

• Always preserve trade secret evidence

• Your own documents will form the basis for proving you

own the trade secret

• Gather early on evidence of infringement

• No “inevitable disclosure” principle in Canada

• Implement litigation hold immediately upon discovery

of potential claim• Law notebooks, presentations, reports, memoranda, documents in

shared and/or personal hard drives, portable storage devices (USB

memories, BlackBerry devices), e-mails, patent applications (both

published and unpublished) and invention disclosures

• Demand early on that defendant implement

document preservation


Important best practicesWitnesses.

• Fact witnesses

• Who has knowledge of the secret?

• Who would be a good witness to explain the nature of

the secret?

• Expert witnesses

• Consider scope of opinion required:

• Technical expert for trade secret infringement liability

• Financial expert for quantifying damages


Important best practices (cont’d)Press forward quickly and efficiently.

• Delay generally favors defendant

• Weaknesses emerge over time

• Litigation fatigue sets in

• Some remedies become unavailable over time

• Discovery process can be overwhelmingly tedious

• Trade secret cases are fact-intensive, and are

susceptible to endless examinations and discovery

requests to turn over every stone

• Better to get what you need to prove your case, then

move as quickly to trial as possible

• Don’t get bogged down in discovery


Important best practices (cont’d)Theory of your case.

• Develop early, and revisit often, your theory of your

case.

• Judges and juries want to hear a story

• Make it compelling

• Make sure you are on the side of the angels

• Every step in the case should be to advance the case

theory, otherwise, it is probably a waste of time


What will you get if you win?Compensation (damages).

• Depends on value of the trade secret

• For simple or low value trade secrets that could have

been developed by someone else, damages are

nominal (e.g., equivalent to consultant fee for

acquiring/developing the trade secret)

• For complex or high value trade secrets, damages may

consist of lost profits or a reasonable royalty

• Period of compensation can be capped

• Springboard theory – by when could the infringer have

legally developed or reverse engineered the trade

secret on its own?


What will you get if you win?

(cont’d)Permanent injunction.

• Equitable remedy – highly discretionary

• Even if win, can be denied injunction due to, e.g.,

conduct reasons

• The longer it takes to get to trial, the less likely a

permanent injunction will be granted

• With the passage of time, the likelihood increases that

the infringer could have developed the trade secret on

its own, and general value of the trade secret

decreases

• High value and/or complex secrets tend to favor granting

of permanent injunction


What to do if you have been

accused of trade secret

infringement?• Delay is your friend

• Litigation appetites decrease over time

• Prospects for preliminary and permanent injunctions

decrease over time

• Keep trade secret owner placated and out of court

• Stay engaged in constructive discussions


What to do if you have been

accused of trade secret

infringement? (cont’d)• Build your own case in defence

• Assess all defences

• Do you actually own under contract? Does someone

else own?

• Was information truly treated as confidential?

• Collect and organize prior art

• Is the so-called trade secret actually already in the public

domain?


Notable US casesDuPont v Kolon

• Trade secrets related to production and marketing of

Kevlar®

• South Korea-based Kolon retained former DuPont

employees as consultants and for the purpose of

obtaining Kevlar-related trade secrets

• $920 million damages awarded in favor of DuPont

• US DoJ has also charged Kolon and five executives

with trade secret theft


Notable Canadian casesGASTops v Mxi

• Trade secrets related to software for gas turbine

engine maintenance

• In 1996, four individuals left GASTops and formed

Mxi as a direct competitor

• Trial not until 2009, and took three years to complete

• Mxi profits disgorged – over $12 million, plus millions

in interest and costs

• No injunction due to the passage of time


Notable Canadian cases (cont’d)Celanese Canada Inc v Murray Demolition Corp

• Celanese hired Murray Demolition Corp to demolish

a factory in Edmonton

• The factory used certain confidential processes for

producing vinyl acetate

• Celanese alleged industrial espionage and theft of

confidential information for the purpose of selling to a

rival in Iran

• Case resolved before final judgment


Notable Canadian cases (cont’d)XY LLC case in BC

• XY is innovative leader in the livestock reproduction

industry by commercializing efficient methods and

equipment for sorting sperm into X- (female) and Y-(male)

chromosome bearing cell populations.

• Its licensee (JingJing Genetics Inc.) was granted the right

to use XY’s sperm sorting technology to manufacture and

sell bovine sexed semen and sexed embryos, while

maintaining strict control over XY's confidential

information.

• JingJing violated its intellectual property license and used

the confidential information for its own benefit.


Notable Canadian cases (cont’d)XY LLC case in BC

• Court found JingJing’s principals liable for civil

fraud, breach of confidence and conspiracy

• Judgment was granted in 2012:

• $8.5 million in damages, plus interest

• special costs

• permanent injunction prohibiting JingJing and its

principals from using XY’s confidential technology.

Conclusion

Key take-away points (Roch)• The most suitable form of IP protection depends on

the nature of the IP

• Proprietary processes, recipes, know-how, etc. are

often best protected using trade secret protection

• Trade secret owners must be vigilant about keeping

their information secret

• Contractual best practices

• Policies and procedures best practices

Conclusion

Key take-away points (Scott)• Enforcement strategies and remedies depend on:

• Urgency of the breach

• Which side you are on

• The value of the trade secret

• The story

Thank You

montréal ottawa toronto hamilton waterloo region calgary vancouver beijing moscow london

Scott Foster604-891-2294

[email protected]

Roch Ripley604-443-7632

[email protected]