Trade Secret Hot Topics

June 2, 2016

Chris Koa Ryan Meyer Dorsey & Whitney LLP

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Topics

•  Trade Secret Primer •  Trade Secrets and the Cloud

•  The Defend Trade Secrets Act of 2016 •  Utility Patents v. Trade Secrets

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Trade Secret Primer

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What Qualifies as a Trade Secret?

• Three requirements: – Secret – Competitive advantage – Reasonable efforts to maintain secrecy

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What Can Be a Trade Secret?

•  Technical subject matter • Non-technical subject matter

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Common Scenarios for Trade Secret Litigation

•  Variations of Trade Secret Owner v. Alleged (Sometimes Accidental) Thief

•  Relationship to contract claims

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Reducing Risk and Setting Groundwork for Trade Secret Litigation

•  Employee agreements in order •  Agreements with suppliers and others •  Identifying trade secrets •  Provide adequate protection •  Trade secret policies •  Monitor outgoing documents

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Reducing Risk and Setting Groundwork for Trade Secret Litigation

•  Policies for terminated employees •  If trade secrets misappropriated, act

quickly and aggressively •  Beware of the company’s own liability for

misappropriation of trade secrets

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Trade Secrets and the Cloud

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Data Security Critical in Cloud Agreements

Data security in cloud computing

environments is often the #1 concern for customers

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Data Security & Outsourced Services

What are the Service Provider’s actual contractual obligations

regarding data security?

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Cloud Agreement Data Security

Provisions Scenarios

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Data Security – Example

Verbal Representations with

No Contract Provisions

Data Security – Example

“[W]e will implement reasonable and appropriate measures designed to help you secure Your Content

against accidental or unlawful loss, access or disclosure.”

The Defend Trade Secrets Act of 2016 (“DTSA”)

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Overview of the DTSA •  Amendments to the Economic Espionage Act •  Creates a federal private right of action for

trade secret misappropriation •  Based on Uniform Trade Secrets Act •  State causes of action still intact

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What Constitutes Misappropriation Under DTSA?

(A) acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

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What Constitutes Misappropriation Under DTSA?

•  (B) disclosure or use of a trade secret of another without express or implied consent by a person who –  (i) used improper means to acquire knowledge of the trade secret; –  (ii) at the time of disclosure or use, knew or had reason to know that

the knowledge of the trade secret was •  (I) derived from or through a person who had used improper means to

acquire the trade secret; •  (II) acquired under circumstances giving rise to a duty to maintain the

secrecy of the trade secret or limit the use of the trade secret; or •  (III) derived from or through a person who owed a duty to the person

seeking relief to maintain the secrecy of the trade secret or limit the use of the trade secret; or

–  (iii) before a material change of the position of the person, knew or had reason to know that

•  (I) the trade secret was a trade secret; and •  (II) knowledge of the trade secret had been acquired by accident or

mistake

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What Does “Improper” Mean Under DTSA?

•  (A) includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means; and

•  (B) does not include reverse engineering, independent derivation, or any other lawful means of acquisition.

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When and Where Does the DTSA Apply? •  Enacted May 11, 2016 •  Interstate or foreign commerce requirement •  May apply to foreign activity •  It “shall not be construed to be a law pertaining to

intellectual property for purposes of any other Act of Congress.” –  e.g., bankruptcy IP exception 365(n) would not apply to licenses

of trade secret information

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DTSA Protects Whistleblowers

•  Limited protection for whistleblowers •  Does not appear to extend to sharing

trade secrets with press or public at large

•  Mandatory notice requirement for employers

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DTSA Protects Employee Mobility

• Protects employee mobility •  Limits on injunctive relief

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Supplemental Jurisdiction Under DTSA

•  Original jurisdiction over trade secrets claim •  Common types of supplemental claims •  Discretion of district court

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Rights of Trade Secret Owners Under the DTSA

•  Restricted disclosure by courts •  Right also applies to non-parties •  Potentially applicable beyond causes

of action arising under DTSA

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DTSA Allows Ex Parte Seizures •  Seizure by federal marshals •  Requires “extraordinary circumstances” •  No notice to accused trade secret thief •  Security bond •  Seizure hearing •  Relief for victims of wrongful seizure

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DTSA Remedies •  “Reasonable” injunctive relief •  Reasonable royalty under exceptional circumstances •  Compensatory damages •  Exemplary damages •  Attorney fees

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Update Your Policies in Light of the DTSA •  The confidentiality clauses of your employment

agreements may need to be updated to provide notice of immunity

•  The clauses can reference another document, such as an employee handbook

•  Failure to provide proper notice forfeits rights to attorney fees or exemplary damages under federal law

•  Sufficient notice requirements not yet tested in court

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Litigation Strategies in View of DTSA •  Federal court may be a friendlier venue •  Option for ex parte seizure •  Your state options remain open

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DTSA Litigations Have Already Begun: Mahamedi v. Paradice (N.D. Cal.)

•  Patent attorney partners split •  Partnership Separation Agreement limited Paradice’s

access to old firm files •  Instead of following Partner Separation Agreement,

Paradice copied old firm database containing proprietary information

•  Prayer for relief –  Injunctions –  Monetary damages

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Universal Protection Services v. Thornburg (N.D. Tex.)

•  Universal sued its former Director of Security Thornburg for trade secret misappropriation, among other claims

•  Decided to quit his job and start-up competing company where he could charge Universal’s customers and make more money

•  Laundry list of trade secrets •  Prayer for relief

–  Very specific injunctive relief –  Monetary damages

•  Motion for temporary restraining order

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M.C. Dean, Inc. v. City of Miami Beach & Local 349 (S.D. Fla.)

•  M.C. Dean is electrical design-build and systems integration sub-contracted to Miami Beach project

•  As part of contractual obligations, M.C. Dean provides proprietary information to general contractor

•  Local 349 made public records request for this information •  M.C. Dean authorized disclosure of redacted copies •  City clerk inadvertently disclosed unredacted copies •  Local 349 refused to delete or destroy this information or

return it to the City •  Prayer for relief

–  Injunctive relief –  Monetary damages

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Bonamar, Corp. v. Turkin & Supreme Crab (S.D. Fla.)

•  Bonamar is importer, exporter, and distributor of premium crab meat and various other seafood

•  Trade secrets are proprietary customer information (current and prospective), packer information, and business forecast information

•  Bad actor is former employee who took proprietary information and then accepted high level position at competitor

•  Prayer for relief –  Injunctive relief –  Monetary damages

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Takeaways From Early-Filed Cases •  Cases in their earliest stages but they still

provide some important takeaways: –  File suit quickly –  Update handbook immediately –  Be clear about the type of injunctions you want –  Strongly consider ex parte seizure

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Utility Patents v. Trade Secrets

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Utility Patents or Trade Secrets? •  Patents and trade secrets often represent

opposite sides of same coin since both can protect technical subject matter

•  But there are important trade-offs

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Trade Secrets Increasing in Value •  Trade secrets are becoming more powerful

– Rise of the knowledge economy – Economic Espionage Act – Broad adoption of the Uniform Trade Secrets Act –  Increasing employee mobility – DTSA

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Patents Decreasing in Value •  Meanwhile, patents are becoming less

powerful – Recent decisions have weakened patent

protection – Rising litigation and prosecution costs – Proliferation of technology and information

increases probability that an invention is obvious – Growing anti-patent bias

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Trade Secrets Offer Potentially Broader Protection

•  Patents directed to subject matter set out by 35 U.S.C. § 101

•  Trade secrets not so limited •  Patents expire 20 years after their filing date plus

adjustments •  Trade secrets can last forever if properly protected

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Benefits Versus Disadvantages of Patents

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Benefits Versus Disadvantages of Trade

Secrets

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When Should You Choose a Patent?

• Subject matter favoring patent protection

• Subject matter disfavoring patent protection

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When Should You Choose a Trade Secret?

• Subject matter favoring trade secret protection

• Subject matter disfavoring trade secret protection

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Hedging Your Bets? •  File for patent protection only in the U.S. and request

non-publication •  Results of prosecution determine whether applicant will

have patent or trade secret protection •  However, this would preclude seeking patent protection

in other jurisdictions

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Thank You

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Chris Koa Of Counsel Seattle koa.chris@dorsey.com 206-903-2377

Ryan Meyer Attorney Seattle meyer.ryan@dorsey.com 206-903-8768