Strategies to Maintain and Enforce Your Trade Secrets · Strategies to Maintain and Enforce Your...

Strategies to Maintain and Enforce Your Trade Secrets

Presenters: David Enzminger,

Sheryl Falk John Keville

© 2016 Winston & Strawn LLP

Today’s eLunch Presenters

David Enzminger Silicon Valley Managing Partner

[email protected]

SV: (650) 858-6580

LA: (213) 615-1780

John Keville Houston Office Managing Partner

[email protected]

(713) 651-2659

Sheryl Falk Partner Houston

[email protected]

(713) 651-2615

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Presentation Agenda

Trade Secret Basics and Risk

Internal Forensic Investigation

Strategies to Enforce Your Trade Secrets

Playing Defense – Responding to a Claim

(Feel free to send in questions)

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Trade Secret Basics and Risk, What Protections are Available?


Generally provides a uniform Law for protection of trade secrets

UTSA is not identical in all states

Which state law governs can be important Choice of law provisions in

nondisclosure agreements (NDAs) and covenants not to compete

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Uniform Trade Secret Act (UTSA) Varies By State


1: Proving the Information is a Trade Secret

“Trade secrets” protect information, including a formula, pattern, compilation, program, device, method, technique or process, that:

1) Derives independent economic value, actual or potential,

from not being generally known to the public or to other persons who can obtain economic value from its disclosure or use; and

2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Uniform Trade Secrets Act

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Trade Secrets

Not Trade Secrets Financial Information (costs,

pricing, profits, margins, etc.) Marketing information Research and development Negative information (what does

not work) Unique approach to a

problem/process

Independent discovery Reverse engineering Inadvertent disclosure from

failure to use reasonable protective measures

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Reasonable Efforts to Maintain Secrecy

Law Must be reasonable “under the circumstances” Failure to do anything precludes protection Examples: Restricting data – need to know, NDAs,

confidentiality agreements, confidential markings

Practical Realities The worse defendant’s conduct, the less the

requirement Closer the relationship, the less the requirement Efforts do not always match the risk

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Companies Should be Able to Demonstrate Reasonable Efforts to Maintain Secrecy 1) Evaluate information security controls

2) Adopt policies and procedures that focus on maintaining

confidentiality

3) Consider non-competition agreements, non-disclosure agreements and confidentiality agreements

4) Monitor employee activity

5) Act quickly to investigate/enforce trade secrets

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Not any value – but economic value “due to its secrecy”

UTSA requirements greater than traditionally required at common law

Requirement of Economic Value

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UTSA Definition §1(2)

Misappropriation means: (i) 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 (ii) Disclosure or use of a trade secret of another without express or implied consent by a person who

(A) Used improper means to acquire knowledge of the trade secret; or (B) At the time of disclosure or use, knew or had reason to know that his knowledge of

the trade secret was (I) Derived from or through a person who had utilized improper means to acquire it; (II) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit

its use; or (III) Derived from or through a person who owed a duty to the person seeking relief

to maintain its secrecy or limit its use; or (C) Before a material change of his [or her] position, knew or had reason to know that it

was a trade secret and that knowledge of it had been acquired by accident or mistake.

Includes Actual or Threatened Misappropriation

1. Wrongful Acquisition, 2. Wrongful Disclosure, or 3. Wrongful Use

2. Proving Misappropriation

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Inevitable Disclosure Majority Rule: A limited duration injunction in many jurisdictions where an

employee with significant trade secret knowledge departs for a competitor to perform the same or substantially similar job PepsiCo v. Redmond, 54 F.3d 1262 (7th Cir. 1995)

Minority (California): Inevitable disclosure doctrine expressly rejected in California,

which instead requires more evidence of actual or threatened misappropriation than a reliance on the knowledge of the employee and the scope of the employees next job Whyte v. Schlage Lock, Co. 101 Cal. App. 4th 1443 (2002)

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UTSA § 3. Damages (a) Except to the extent that a material and prejudicial

change of position prior to acquiring knowledge or reason to know of misappropriation renders a monetary recovery inequitable, a complainant is entitled to recover damages for misappropriation. Damages can include both the actual loss caused by misappropriation and the unjust enrichment caused by misappropriation that is not taken into account in computing actual loss. In lieu of damages measured by any other methods, the damages caused by misappropriation may be measured by imposition of liability for a reasonable royalty for a misappropriator’s unauthorized disclosure or use of a trade secret.

(b) If willful and malicious misappropriation exists, the court may award exemplary damages in the amount not exceeding twice any award made under subsection (a).

Monetary Damages

1. Damages 2. Disgorgement of unjust

gains 3. In some cases, a reasonable

royalty 4. Potential punitive damages

Remedies: Damages Under The UTSA

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Kicking Off the Trade Secrets Internal Investigation


Investigation Triggers

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DLP software alert

Suspicious departures

Exposure to highly sensitive information

Refusal to account for all company assets

New company with former employees announces competing product in suspiciously short time

Improper customer contacts

Frequent use of external USB devices

Forwarding documents to external email address

Copying documents to unapproved cloud storage services

Use of external VPN services to hide activities

New company with former employees announces competing product in suspiciously short time


Identifying & Preserving Evidence

Identify all relevant evidence sources Obtain forensic copy of relevant evidence Suspend process driven deletions for custodians Chain of custody to document collection

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http://www.bing.com/images/search?q=image+cloud&id=3EE4AC08B54E9FFFBE4178BE3312EAD6F1C87DAB&FORM=IQFRBA


Looking for proof of Access/Copying/Transfer of Confidential Manner and extent of a user’s access/copying of

proprietary data USB connections Email of confidential data Photographs of confidential data On-Line storage uploads Peer sharing applications Log files/system files Printer artifacts

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User Created File Types Word documents

PDFs

Text documents

Zip files

Excel spreadsheets

Power points

Database entries

Calendar entries

Contacts

Substantive – Application data that reflects substantive changes by a user

System – Information created by the user’s information management system

Embedded – Consists of text, numbers, content, data or other information input into the file, which h is not typically visible to the user

Aguilar v. Immigration & Customs Enforcement, 255 F.R.D. 350 (S.D.N.Y 2008)

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Meta Data can show User interaction with data

PX400

PX081

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Registry/System Files Show Information About Computer Use 1) Identifies installed or uninstalled programs, including eradication programs

2) Shows device connections such as USB, Phone, Camera Card, Printer, etc.

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Text & Communications Place Actions into Context 1) Text “Make sure to use CCleaner before you turn in

your computer”

2) Chats

3) Skype “I’ll see how good it is and how much they’re

willing to compensate me to prevent irreparable harm to the company”

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The Game Changer

The Court Ordered Production of:

1) Preservation of all relevant data

2) Employees’ home computers

3) Personal storage devices

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10 Indications of Missing Data/Data Destruction

1) Data eradication programs 2) Missing data 3) Empty recycle bin 4) Reformatted drive 5) Completely wiped drive 6) Missing internet cache 7) No temporary files 8) Registry data missing 9) Patterns in unallocated space 10) Failure to preserve/continued use

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Strategies to Enforce Your Trade Secrets


Pre-Game: Make the Demand

Send demand letter to the employee Require cooperation

Require consent to forensic inspection of data

Interview regarding use and disclosure of data

Affidavit/settlement agreement

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So, You Have Evidence of Misappropriation

1) Act quickly to investigate suspicious activity or resignations

2) Build the case before filing

3) Don’t count on discovery without a hook California – No discovery until the alleged trade

secret has been disclosed with reasonable particularity (Cal.Civ.P.Code 2019)

4) Issue preservation notices right away

5) Pursue aggressive discovery based upon pre-filing foundation

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Filing Suit – Strategic Considerations 1) Where to file? 2) Whether to sue employer? 3) How much to share about what you know? 4) What claims should you bring? 5) Do you evidence of spoliation? 6) Do you inform law enforcement? 7) Do you move for a TRO?

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UTSA § 2. Injunctive Relief

(a) Actual or threatened misappropriation may be enjoined. Upon application to the court an injunction shall be terminated when the trade secret has ceased to exist, but the injunction may be continued for an additional reasonable period of time in order to eliminate commercial advantage that otherwise would be derived from the misappropriation

(b) In exceptional circumstances, an injunction may

condition future use upon payment of a reasonable royalty for no longer than the period of time for which use could have been prohibited. Exceptional circumstances include, but are not limited to, a material and prejudicial change of position prior to acquiring knowledge or reason to know of misappropriation that renders a prohibitive injunction inequitable

(c) In appropriate circumstances, affirmative acts to protect

a trade secret may be compelled by court order

Generally:

Injunctive Relief to Prevent Future Misappropriation and to Remove “Lead Time Advantage”

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Playing Defense – Responding to a Trade Secret Claim


To Pre-Empt Trade Secret Claims – Employees

1) Require confidentiality agreement as a condition of employment Include specific provision that strictly prohibits the use of other’s confidential

information

State the company’s policy against the use of any such information

Include provision that employer is aware of prior employer’s confidentiality agreement and requires strict compliance

2) Communicate the importance of confidentiality agreements Document meetings, internal communications and policy manuals to show

good faith intention not to misappropriate confidential information

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To Pre-Empt Trade Secret Claims – Business Partners

1) Use a carefully drafted NDA

2) Include defensive provisions designed to protect against and minimize the possibility of a subsequent claim

3) Narrow definition of what is “confidential”

4) Require labeling of confidential information

5) Include time frame of confidentiality obligations

6) Disclaim any implied obligations that exceed the agreement’s confidentiality obligations

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When Faced with a Trade Secret Claim

1) Negotiate and narrow the scope of relevant information

2) Force the plaintiff to define the alleged misappropriated secret with particularity

3) Work to show this information is publically available to set up for a summary judgment

4) Seek the dismissal of all other claims as pre-empted

5) Show the plaintiff’s claim is inconsistent with employee mobility

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Sometimes, the Best Defense is a Good Offense

Be proactive in your investigation

Retain top notch experts Think outside the play book Make big plays

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Questions?


Thank You.

David Enzminger Silicon Valley Managing Partner

[email protected]

SV: (650) 858-6580

LA: (213) 615-1780

John Keville Houston Office Managing Partner

[email protected]

(713) 651-2659

Sheryl Falk Partner Houston

[email protected]

(713) 651-2615

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