Source: https://www.ipeg.com/tag/trade-secret/
Timestamp: 2018-10-20 19:07:33
Document Index: 121416820

Matched Legal Cases: ['§ 1839', '§ 1836', '§ 1837', '§ 1839', '§ 1836', '§ 1836']

2018 | October |
Tag : trade secret
Author: ipeg 3 weeks ago
The enactment of the Defend Trade Secrets Act (DTSA) of 2016 in the United States creates a new paradigm and is a watershed event in intellectual property law. Former U.S. President Barack Obama signed the bill into law on May 11, 2016, and the DTSA now applies to any misappropriation that occurred on or after that date. A trade secret is any technical or nontechnical information that can be used in the operation of a business or other enterprise and that is sufficiently valuable and secret to afford an actual or potential economic advantage over others.
The law allows trade secret owners to file a civil action in a U.S. district court for relief for trade secret misappropriation related to a product or service in interstate or foreign commerce. The term “owner” is a defined statutory term. It means “the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed,” according to the DTSA. Under the DTSA, in extraordinary circumstances, a trade secret owner can apply for and a court may grant an ex-parte seizure order (which allows property to be seized, such as a computer that a stolen trade secret might be saved on) to prevent a stolen trade secret from being disseminated if three conditions are met.
First, the owner must demonstrate, in a sworn affidavit or a verified complaint, that the ex-parte seizure order is necessary. The owner must then prove that a temporary restraining order is inadequate. Second, that immediate and irreparable injury will occur if the seizure is not ordered. Third, that the person the seizure would be ordered against has possession of the trade secret and property that is to be seized. Once the ex-parte seizure order is granted, the court must take custody of and secure the seized property and hold a seizure hearing within seven days. Individuals can also file a motion to have the seized material encrypted.
With this development in the law, trade secret assets are no longer stepchild intellectual property rights. Trade secret assets are now on the same playing field as patents, copyrights, and trademarks. The DTSA reinforces that a trade secret asset is a property asset by creating this new federal civil cause of action.
And there is no preemption. The U.S. district courts have original jurisdiction over a DTSA civil cause of action, which coexists with a private civil cause of action under the Uniform Trade Secrets Act (UTSA), which codified common law standards and remedies from the state level for trade secret misappropriation. It also coexists with criminal prosecutions under the Economic Espionage Act of 1996 (EEA), which makes it a federal crime to steal or misappropriate commercial trade secrets with the intention to benefit a foreign power.
And if the losses from a stolen or misappropriated trade secret are severe, both the board of directors and senior executives of the company will be charged with malfeasance, including the willful failure to take reasonable measures to protect the corporate trade secret assets from insider theft or foreign economic espionage.
What the DTSA Means
A trade secret asset must be managed like other property assets. However, trade secret asset management differs because it first requires the identification of the alleged trade secret asset. Because millions of bits of information within a company can qualify as proprietary trade secrets, classification and ranking trade secret assets is a critical exercise.
Most companies focus on the protection phase of trade secret asset management without first identifying and classifying their trade secrets. This approach is doomed to fail without a thorough analysis. Unless the company knows what it’s protecting, there can be no effective protection. And all three phases—identification, classification, and protection—must occur before an accurate valuation of trade secret assets can be determined.
EONA proofs
Additionally, information assets must be validated in a court of law as statutory trade secret assets. There is no public registry for trade secret assets. The courts require proof of existence, ownership, notice, and access (EONA). The first element requires proof of existence of the trade secret asset. The litmus test for proving the existence of a trade secret has six factors: the extent to which the information is known outside the business; the extent to which the information is known inside the business; the extent of measures taken to guide the secrecy of the information; the value of the information to the business and to competitors; the amount of time, effort, and money expended to develop the information; and the ease or difficulty with which the information could be properly acquired or duplicated by others.
For proof of ownership, the plaintiff must show that it is the person or entity in whom or in which rightful legal or equitable title to, or license in, the trade secret is reposed. A misappropriator cannot be the owner of a trade secret. However, a person who independently develops or independently reverse engineers the trade secret can be the owner of the trade secret. Further, an employee (who has not been assigned his or her intellectual property rights in the trade secret asset) may also be the lawful owner—instead of the employer.
For proof of notice, the plaintiff must show that the defendants had actual, constructive, or implied notice of the alleged trade secret. A former employee may use his or her general knowledge, skills, and experience. However, a former employee may not disclose or use the trade secrets of the former employer. The former employer cannot claim that “everything we do is a trade secret.” The court will take judicial notice that there is both unprotected and protected (trade secret) information in every company. If the line is unclear, the court will draw the line in favor of the ex-employee.
For proof of access, the plaintiff must prove that the defendant had access to the alleged trade secret. If the evidence shows that the defendant never had direct or indirect access to the trade secret, and there is no conspiracy claim (involving coconspirators that had access to the trade secret), there cannot be misappropriation. This is because misappropriation requires proof of unauthorized acquisition, disclosure or use of the trade secret by the alleged trade secret thief.
The DTSA also requires that the trade secret owner take reasonable measures to protect the secrecy of trade secret assets. This is a much more challenging task today because trade secret assets are no longer at rest in a locked file cabinet in an engineer’s office. Today, trade secrets are in motion and in use via computer systems and networks with access points all over the world.
This presents a huge challenge. Companies must actively monitor the access and movement of critical trade secret assets throughout the corporate enterprise, or risk the serious consequences of forfeiting trade secret assets by failing to take the reasonable efforts necessary to protect these assets.
The Valspar economic espionage case in 2009 is a case in point. In this incident, a 52-year-old senior scientist, David Yen Lee, suddenly resigned from Valspar on March 19, 2009, and bought a one-way ticket to Shanghai, scheduled to leave on March 27. Fortunately for Valspar, a coworker discovered irregularities in Lee’s work computer. Upon further investigation, an unauthorized program called “Sync Toy” was uncovered in invisible Windows files. It showed that Lee downloaded 44 gigabytes of paint and coating formulas, product and raw material data, sales and cost data, and product development and test information.
The FBI was informed and brought in to investigate. The bureau raided Lee’s Arlington Heights apartment and recovered the stolen trade secret assets before Lee’s flight left for Shanghai. Valspar escaped a major disaster because of the alertness of one coworker who spotted irregularities on Lee’s work computer. Like most companies, Valspar’s security readiness was directed to protection against outside intrusions. However, there was little security in place to guard against trade secret theft by insiders and trusted employees.Valspar now faced the reality that a trusted employee could steal a vast amount of trade secrets due to access to computer data and files. The solution: Valspar set up an internal identification and classification system for trade secrets called the CPR (Classify, Protect, Report) model. Valspar now tracks the movement of all critical trade secret assets within the various computer environments with triggers that are activated if unauthorized activities are detected.
The reasonable measures necessary for the protection of trade secret assets continues to grow as the risk of sensitive data loss increases by various means: unauthorized uploading of trade secret assets to an insecure cloud or Web application; unauthorized email communications disclosing trade secret information; unauthorized acquisition of highly classified trade secret assets onto USB drives; and undetected incoming malware, phishing emails, and corrupted Web software all facilitating foreign economic espionage and theft of corporate trade secret assets.
The DTSA provides powerful provisions for ex parte seizure orders, but companies cannot take advantage of these provisions unless effective trade secret asset management protocols are in place before the actual or threatened misappropriation occurs. A court can issue an ex parte seizure order, according to the DTSA, “in extraordinary circumstances” to “prevent the propagation or dissemination of the trade secret” or to “preserve evidence.” These circumstances exist when a trade secret thief is attempting to flee the country, if he or she is planning to disclose the trade secret to a third party, or if it can be shown that he or she will not comply with court orders.
The Valspar case is an excellent example of the necessity for ex parte seizure orders. However, the FBI will not always be there, and the window of time to protect against the loss of trade secret assets and destruction of the evidence will often be shorter than the eight-day period in the Valspar case. This is why a DTSA civil cause of action and an ex parte seizure order are so important to protect U.S. trade secret assets.
The protection of trade secret assets in these circumstances requires emergency actions. Once lost, a trade secret is lost forever. The DTSA requires that the plaintiff (the trade secret owner) file suit (with verified pleadings and affidavits filed under seal) and successfully obtain a DTSA ex parte seizure order before the defendants know the suit has been filed. Otherwise, without the element of surprise, the defendants—often with several clicks of a computer mouse—can transfer the trade secrets outside the country and destroy the evidence of trade secret theft by running data and file destruction software.
Therefore, to take advantage of the robust provision of the DTSA, the trade secret owner must be able to move faster than the trade secret thief. This will require a sea change since most companies have no internal trade secret asset management policies, practices, or procedures in place. Instead, most companies react after the fact by retaining outside counsel to investigate and litigate a long-gone trade secret.
The DTSA creates a new paradigm. If management waits until the trade secret theft occurs to identify what the trade secret is and investigate the evidence of misappropriation, the actual trade secret assets will be long gone before counsel can provide the U.S. district court with the proofs necessary to obtain an ex parte seizure order. The result: if the losses from the trade secret theft are severe, both the board of directors and senior executives of the company will be charged with malfeasance, including the willful failure to take reasonable measures to protect the corporate trade secret assets from insider theft or foreign economic espionage.
DTSA Application
What are the next steps in view of the DTSA? Every organization is different. There are no one-size-fits-all solutions. Each trade secret asset manager must audit existing approaches to protecting trade secret assets, the resource allocations within the organization, and any budgeting issues with protecting trade secrets. However, the catchphrase “we are working on it” will no longer provide adequate cover now that there is a federal civil cause of action specifically designed to protect the trade secret assets of 21st Century, new economy companies.
A fundamental first step should be the creation of an internal trade secret control committee (TSCC). The TSCC should be charged with the responsibility to adopt policies and procedures for the identification, classification, protection, and valuation of the company’s trade secret assets. The next step should be the creation of an internal trade secret registry (TSR). This is a trade secret asset management system that can be deployed as a cloud-based solution, a corporate server, or a stand-alone work station.
The TSR should operate like a library card catalogue storing necessary trade secret asset information with hash codes and block chaining (a database that sequences bits of encrypted information—blocks—with a key that applies to the entire database) to ensure the authenticity of the data stored in the TSR and to meet the required evidentiary standards in a trade secret misappropriation lawsuit.
Another necessary step is trade secret asset classification, the foundation of a successful trade secret asset management program. This allows trade secret assets to be identified and ranked, so that the level of security matches the level of importance of the trade secret asset. There are now automated trade secret asset management tools available to assist companies with the classification and ranking of trade secret assets. Security, without identification and classification, is doomed to fail. In contrast, securing data after identification and classification of the trade secret assets makes it much easier for the internal security ecosystem to enforce trade secret protection policies and to prohibit unauthorized access, unauthorized disclosure, and unauthorized use.
Today, software tools can protect the company from mistakes that lead to the forfeiture of classified trade secret assets. If a user attempts to email a trade secret document to unauthorized recipients, the software program will immediately alert the user so the mistake can be corrected. Further, classified trade secret assets can be monitored. Administrators can track abnormal or risky behavior that otherwise cannot be tracked until the trade secret is compromised.
Developing a trade secret incident response plan (TSIRP) is another critical requirement. The flow of trade secret assets throughout the corporate enterprise should be tracked with built-in red flags, designed to trigger the TSIRP and activate a designated outside counsel SWAT team to proceed immediately to the courthouse to seek a DTSA ex parte seizure order (and other necessary relief) before the bad actors can destroy the evidence or transfer the stolen trade secret assets outside the court’s jurisdiction.
There are other best practices for trade secret assets now that companies are focusing on the various stages of identification, classification, protection, and valuation. Building a trade secret culture from the top down, with required training and compliance with TSCC policies, practices, and procedures, is at the top of the list. Companies must promote a trade secret culture by prompting employees and users to stop, think, and consider the business value of proprietary, internal information they are creating, handling, an reviewing. A major loss of trade secret assets can put the company out of business. Employees must understand that their jobs depend upon the identification, classification, and protection of the company’s trade secret assets. Onboarding procedures for new employees and offboarding procedures for departing employees are also very important.
The new employee interview process should include protections to prevent his or her former employer’s trade secrets from being exposed. This could include an inquiry to determine if the potential new employee is subject to post-employment restrictions with his or her former employer. If so, there should be a separate review by the company’s intellectual property counsel before the employee is hired.
Further, the new employee hiring process should include an investigation and certification by the new employee that no proprietary, trade secret information of any previous employer is being brought to the company or is being stored electronically in his or her personal email system or other electronic storage locations.
Finally, the prospective new employee should sign an employment agreement with patent and trade secret assignment provisions. He or she should also receive and review the company’s required trade secret policies and procedures. When an employee leaves the company, off-boarding procedures should include a mandatory trade secret exit interview. The interview should be conducted under strict procedures adopted by the TSCC, including execution of a trade secret acknowledgement at the conclusion of the interview certifying that all company devices, documents, and materials, including electronic copies, paper copies, and physical embodiments have been returned. It should also certify that all proprietary and confidential information, stored on any personal computer or mobile device, has been identified and preserved, returned, or deleted under the company’s instructions.
The enactment of the DTSA will usher in a new era. It requires trade secret owners to identify, classify, and protect trade secret assets as property assets. In time, the DTSA will become a precursor for new accounting systems that will provide valuations for trade secret property assets.
This development will unleash the reservoir of untapped intellectual property assets, which will fuel the growth of new economy companies in the Information Age.
by Mark Halligan, partner at FisherBroyles LLP, is recognized as one of the leading lawyers in trade secrets litigation in the United States by Legal 500 and Chambers USA: America’s Leading Lawyers for Business. He is an accomplished trial lawyer who focuses on intellectual property litigation and complex commercial litigation, including antitrust and licensing issues. He is also the lead author of the Defend Trade Secrets Act of 2016 Handbook and coauthor of Trade Secret Asset Management 2016: A Guide to Information Asset Management Including the Defend Trade Secrets Act of 2016.
Author: ipeg 5 months ago
Can US Trade Secret Law have impact on non-US companies?
The Defend Trade Secrets Act of 2016 (DTSA) created a uniform federal trade secret law on May 11, 2016, in addition to the existing state trade secret laws. The DTSA is important for non US companies because it provides a stronger enforcement mechanism, is applicable against foreign companies, and offers additional options in seizing competitors’ products on an expedited basis.
What Qualifies as Trade Secret under the Act
To bring an action for misappropriation under the Act, the information allegedly misappropriated must qualify as trade secrets. Trade secrets include confidential, protected information that has economic value. They are specifically defined as “all forms and types of financial, business, scientific, technical, economic, or engineering information … if (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value … from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. § 1839 (emphasis added).
Misappropriation of trade secrets, however, does not include information obtained from “reverse engineering, independent derivation, or any other lawful means of acquisition.” Id. Therefore, if a competitor independently develops a technology similar to your company’s trade secret, there is no misappropriation. Indeed, if that competitor also obtains a patent for the technology, it could sue your company for patent infringement for using the same technology. Accordingly, companies should develop a comprehensive strategy to manage both trade secrets and patents depending on various considerations, such as the technology at issue, how easily it can be developed or reverse-engineered, and the value and life span of the technology.
International Reach of the Act
Under the DTSA, “an owner of a trade secret that is misappropriated may bring a civil action … if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce.” 18 U.S.C. § 1836(b)(1). Thus, it is possible to bring an action for acts of trade secret misappropriation that occur outside the United States. For acts occurring outside the United States, an owner of the trade secret may sue under the DTSA only if (1) “the offender 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.” 18 U.S.C. § 1837 (emphasis added).
Part (1) focuses on who is the offender. Under this part, a plaintiff may sue an offender if the offense occurred outside of the United States, but only if the offender “is a citizen or permanent resident alien of the United States” or the offending company is “organized under the laws of the United States or a State or political subdivision thereof.” Id.
But part (2) focuses on the offense, and under this part, a foreigner or foreign company, who would not have been liable under part (1), can be liable, if the foreigner or foreign company acted “in furtherance of the offense” in the United States. For example, if a foreign company sold products containing stolen trade secrets to a U.S. company, and the foreign company knows or has reason to know the trade secret was stolen, then the foreign company can be sued in the U.S. under the DTSA. 18 U.S.C. § 1839 (5)(A).
Under the DTSA, a non-US company can sue in the U.S. for trade secret misappropriation against any person or company that stole its trade secrets, even if the perpetrators are not based in the U.S., so long as the perpetrators sold products to the U.S. incorporating the stolen trade secrets, or committed any other acts in the U.S. to use or disclose the trade secret.
However, the DTSA’s international reach is not unlimited, because, as with every other legal action in the U.S., the court must have personal jurisdiction over the offender. Under the U.S. Constitution, a federal district court has personal jurisdiction over a defendant only if he or she has “sufficient minimum contacts” with the forum state where the complaint arises, such that the exercise of jurisdiction “will not offend traditional notions of fair play and substantial justice.” In other words, the defendant has to have certain contacts with the forum state, and such contacts can include, for example, selling products into the state, conducting business in the state, having agents or employees in the state, or directing sales and marketing activities to residents of the state.
III. Claims that Arise under the Patent Law and the DTSA can be Brought Together in a Federal Court
Trade secret actions at times accompany patent infringement actions. Before the DTSA was enacted, without diversity jurisdiction (e.g., when two foreign companies both are incorporated in the same state, often in California), in order to bring both patent infringement and trade secret misappropriation claims in a federal court, a plaintiff needed to show that the trade secret and the patent claims “derive from a common nucleus of fact.”
Under the DTSA, however, a plaintiff can bring both trade secret and patent claims in a single suit in a federal court without the need of showing the claims “derive from a common nucleus of fact.” Thus, the DTSA benefits plaintiffs who could not have met the “common nucleus of fact” requirement and allows them to bring both causes of action in the same case. This can help reduce the cost of litigating the different causes of action in different courts.
Bringing both patent and trade secret claims in the same court has an additional benefit—making it more difficult for a defendant to stay court proceedings in favor of an inter partes review (IPR) proceeding. IPRs are an often-used proceeding to challenge the validity of a patent at the United States Patent and Trademark Office (USPTO). A defendant may ask the court to stay an ongoing litigation pending the outcome of an IPR proceeding. By bringing a suit including both trade secret and patent infringement claims, a court is less likely to stay the litigation in favor of an IPR proceeding because the issues arising from the trade secret claims likely will not be affected by the IPR proceeding.
An important aspect of the Act is that it makes ex parte seizures available “to prevent the propagation or dissemination of the trade secret,” but only in extraordinary circumstances. 18 U.S.C. § 1836. The plaintiff bears the burden of showing eight factual and legal requirements before the court can issue an ex parte seizure order. Id. In particular, the court must find the following: (1) another form of equitable relief would be inadequate; (2) an immediate and irreparable injury will occur if such seizure is not ordered; (3) the harm to the plaintiff outweighs the harm to the person whose property would be seized and substantially outweighs the harm to any third parties who may be harmed by such seizure; (4) the plaintiff is likely to succeed on the merits; (5) the person against whom seizure would be ordered has actual possession of the trade secret and the property to be seized; (6) the plaintiff describes the property to be seized with reasonable particularity; (7) the person against whom seizure would be ordered would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the plaintiff were to proceed on notice to such person; and (8) the plaintiff has not publicized the requested seizure. See 18 U.S.C. § 1836. Because of these extensive requirements, many of which will be difficult to prove except in extreme cases of misappropriation, an ex parte seizure is unlikely to be ordered frequently.
In summary, the DTSA has potentially broad reach to foreign companies and persons, but the exact scope and effectiveness are yet to be tested. The Act can be beneficial to plaintiffs who otherwise could not have brought trade secret misappropriation claims in federal courts before, particularly when patent infringement claims are involved or if the defendants are companies outside of the U.S. At the same time, it may increase the risk that foreign companies will be called into courts in the United States, to defend themselves against allegations of trade secret misappropriation.
Therefore, as plaintiffs, non-US companies need to protect their proprietary and confidential information in a way that makes the DSTA a strong mechanism for enforcement when the need of protecting itself, protecting its customers, or deterring competitors’ misappropriation, arises. As possible defendants, non-US companies also need to be aware of such risks in hiring new employees, avoiding the use of confidential information of another party in developing technologies, and in formulating its patent and trade secret strategies.
Gary C. Ma and Howard Herr, Ph.D. – copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article was originally published in Commercial Times on September 13, 2016
Author: ipeg 8 months ago
Author: ipeg 9 months ago
Author: ipeg 10 months ago
In general terms, a case study is an account of an activity, event or problem that contains a real or hypothetical situation and includes the complexities one would encounter in the workplace. The IP Firm in this particular case study is an established and reputable IP Firm with offices in a number of jurisdictions. It employs almost one hundred attorneys and paralegals, and it has clients spread across a diverse range of industry sectors. This IP Firm has received a number of awards and accolades over the years. The IP Firm was anxious to deploy a range of new service offerings to its clients, and trade secret asset management was one selected, as it saw some new business opportunities here.
A trade secret is defined as any information that is:
Confers some sort of economic benefit on its owner.
It must have been subject to reasonable steps to keep it secret.
Trade secret asset management
Trade secret asset management is about the policies and procedure, processes and systems, education and governance defined and taken into use to help manage such assets. Trade secrets are fragile so they require some TLC. Simply deciding to keep something secret is not sufficient!
Trade secret asset management includes:
Trade secret management process
Trade secret asset management system
Access & access controls
A culture of confidentiality with respect to trade secrets
The IP Firm recognized that there are a number of forces which together mean that trade secret asset management is now becoming a business critical issue, and one which companies must address.
These forces include – legislative developments; finance & tax developments; increased network security & cyber-crime concerns; IP reform in key jurisdictions; the growing importance of corporate governance; more and more companies embracing openness; and the changing nature of employment.
This IP Firm also recognized that almost all of their clients possess trade secrets but many are failing to properly manage such assets.
Trade secret asset management assessment
The IP Firm’s service offering begins with an audit or assessment of their operating company client.
Such an exercise is conducted in order to provide independent assurance that an organisation’s trade secret asset management, governance and internal control processes are robust, fit for purpose and operating effectively.
It is an evidence gathering process. The criteria include policies, procedures and requirements. Evidence includes records, factual statements, and other verifiable information. Findings evaluates evidence and compares and contrasts it against the criteria. Findings show those criteria that are being met (conformity) or those that are not being met (nonconformity). The exercise can also identify best practices or improvement opportunities.
The IP Firm developed a comprehensive assessment checklist. At a very top level, it consists of the following:
Definition of trade secret in use
Classification of trade secrets
Ownership of trade secret policy and procedures
Trade secret asset management process
Sharing trade secrets with 3rd parties
Entrusted with trade secrets belonging to 3rd parties
Other metadata associated with trade secrets
Audits / audit trails
Much more details sit behind each of the items listed above.
Steps or phases in such an assessment
The IP Firm typically follows a six step process when conducting such an audit or assessment. They recognise that there is not one size fits all, so they are flexible and can adjust to suit the specific needs of the client.
Scoping of the audit / assessment
Open meeting(s)
Drafting the report (findings & recommendations)
The IP Firm reached out to a limited number of its operating company clients to inform them about this new service offering at the beginning of the summer of 2016, just after the Defend Trade Secrets Act was passed in the US and the EU Directive on Trade Secrets was passed in Europe.
A number of pilot projects were started with a handful of their clients in order for the IP Firm to stress test the service offering in a small-scale implementation. The IP Firm wished to prove the viability of this new service offering and to gather insights on various things such as their assessment methodology, the project phases, the skills and competencies of their team, the time taken to complete such assessments, the costs involved, their fees and fee structures, etc. etc. plus of course client reactions.
As this particular case study is still in its infancy and only recently been deployed by this particular IP Firm, I do not yet have much real data to share. However, it is a very interesting business development case study in my opinion, at a time when there is tremendous pressures on many IP Firms to be more creative and innovative and bring new service offerings to market.
Donal O’Connell, Intellectual Property Expert Group (Donal is the author of a special software program for managing trade secrets, please send inquiries to info@ipeg.com)
Author: ipeg 1 year ago