Trade Secret Protection for Employers

1. Trade Secret Protection for Employers Randy Kay and Diane Mack October 27, 2005

2. Trade Secrets • Company crown jewels • Stealth IP • Nature of the Problem

3. Protecting Trade Secrets • Trade Secret Protection Programs • Identifying Company Trade Secrets • Disputes • Departing Employees • Competitors

4. Trade Secret Protection Programs-The Key P’s • Pinpoint-- Identify your trade secrets and where they are • Protect • Paper Protections (e.g. agreements) • NDAs • Confidentiality/Proprietary Rights Agreements • Document Control Processes • Physical Protections • Security of buildings, files • IT Security • Policy Protections • Employee education • Police your Program • Respond to threatened misappropriation • Take action against offenders

5. Defining Trade Secrets • Why Identify Trade Secrets Prior to Litigation? • Prevent and detect misuse • Cease & Desist Letters • Avoid knee-jerk reaction form letters • Strategize regarding how to state the claim • To frame the complaint

6. What is a Trade Secret? • Information • Has independent economic value • Not generally known • To the public • To others who can obtain economic value from its disclosure or use • Kept secret

7. Formula Pattern Compilation Program Device Method Customer List Technique Process Other Trade Secrets – What Are They?

8. Advertising strategies Bidding methods Cost information Customer lists Databases Engineering drawings Formulas in notebooks Machinery processes Marketing strategies Negative research Payment terms Pricing information Production techniques Profit margins Promotional discounts Strategic plans Trade Secrets – What Are They?

9. Client names Course materials Customer lists Product design features Functional features Job classifications Marketing information Patented inventions Government filings Salary information Sales pitches Technical know-how Telemarketing information Employee lists Information NOT Deemed Trade Secret

10. Where Does One Find a Trade Secret? • Entire development process • Lab notebooks • Computer files • Databases • Drawings • Rolodexes • Whiteboards • Email • In one’s head

11. Deriving Independent Economic Value • Economic • Is the information obtainable through public sources? • Does the information aid in directing efforts? • Information regarding “bankrupt” customer had no value • Business procedures? • Customer names? • Salary information?

12. Is Information Generally Known? • Do competitors have the information? • Is information public? • Examples • Insureds v. renewal dates • Customer names • Course materials

13. Secrecy Efforts – Physical Facility • Security • Badges • Limited access to site • Receptionist • Lobby • Escorts • Photo ID • Need to know access

14. Secrecy Efforts – Documents • Marked confidential • Electronic sensors • Limit copies • Passwords • Checkout procedure • Shred

15. Losing trade secrets • Public disclosure • Website • Technical literature • Service manuals • Product releases • Trade shows • Press releases • Journal articles

16. Losing trade secrets • Patent applications • Relying on “implied” promise of secrecy • Garbage bins • Government filings • Being suspicious and not reporting it • Unlocked files/computer systems

17. Trade Secret Issues for Employers • Pre-employment • Background checks • Confidentiality/Proprietary Rights agreements • Make signing it a condition of employment • Install process to ensure you are getting signed copies • Audit Personnel Files to confirm whether process is working

18. 5 Must-Haves in Agreement • Define Innovations • Include anything created: on any company time or with any company resources; that relates to employer’s business; or results from the work employee performs for employer • Promise to disclose all Innovations and assign ownership of them to employer (Complex!) • Definition of what’s “Confidential” • Include all Innovations • Promise not to ever disclose Confidential Information to third party • In Cal., Labor Code 2872 “Limited Exclusion” notice

19. Should-Haves in Agreement • Disclosure of Prior Innovations • Cooperation in Assignment of Rights • No Violation of Third-Party Rights • Return of All Employer Property, including Confidential Info • Future Innovation Clause • Non-solicitation Clause?

20. Trade Secret Issues for Employers • During Employment • Educating employees—building a culture regarding security • Training • Reminders • What to do if suspected breach • Limit Access to Need to Know • Rigorous Enforcement of Conflict of Interest Policy • Moonlighting? • Give employees tools to make security easy • Encryption • Locks for laptops • E-mail blocks

21. Laptop Security - Information Security Announcement No.1 The current installment discusses the physical security of laptops, which often times contain sensitive and proprietary data and are easily stolen. Over the past couple years there have been numerous instances of laptops with very sensitive data being stolen from high-profile companies.There are numerous methods you can use to protect your laptop and make it more difficult for a thief to be successful. The list below describes some of these methods.1) Laptop bags are easily recognizable. Consider using a standard backpack, briefcase, or courier bag to obscure the presence of a laptop. 2) Keep it in sight at the airport. Do not let your laptop go through the airport security x-ray until you have a clear path to it on the other side. If you get stopped going through the scanner, keep a constant eye on the laptop as it exits the x-ray machine. Also, prevent someone from stealing the laptop out of the bag when you set it down by always keeping a hand or leg on the bag.

22. Laptop Security - Information Security Announcement No.1 (cont.) 3) Never leave the laptop in your car. Take it into your hotel, home, or even restaurant. This is easier using a backpack or courier bag as indicated in number 2 above. 4) If you have to leave the laptop in a hotel room or conference room, use a laptop cable lock to secure it in place. 5) Be paranoid! Never assume your laptop is safe. Treat your laptop as if it was $2000 in cash (for the laptop itself) or the price of your company in cash (if you store sensitive or proprietary data)!!In the event your laptop is stolen please call the police and ITCS (858-***-****) as soon as possible.

23. “Here are a few ways information can be inadvertently disclosed…” (1) Email sent outside the company intranet, sent to recipients who have no need to know. (2) Inadequately protecting laptops, software/hardware, and documents when on travel status or outside company facilities.  (3) Disposing of proprietary information in common trash instead of the shred bins located in all buildings throughout the company.(4) Discarding proprietary information in residential trash if generated during work at home.(5) Leaving proprietary information unsecured and on desks and work stations after hours.

24. “Here are a few ways information can be inadvertently disclosed…” (cont.) (6) Not cleaning / erasing white boards in conference rooms and other locations used by employees and visitors.(7) Leaving documents and material in conference rooms and common areas.(8) Discussing sensitive information or concepts with co-workers outside of companyfacilities in places such as restaurants, on airplanes, and other public venues.(9) Discussing sensitive information or concepts with outside friends and acquaintances.(10) Providing information to telephone callers without verifying the identity of the caller.

25. Trade Secret Issues for Employers • Post-employment • Provide copy of signed agreement • Reminder re on-going obligations • Get specific if warranted (e.g. do not take copy of your customer contacts list) • FYI Letters to new employer if direct competitor • Inform new employer of employee’s confidentiality, non-solicitation obligations

26. Don’t Forget About… • Contractors • Must sign a special Confidentiality/Proprietary Rights Agreement • With agency employees, don’t leave it up to agency • International employees • Different laws require different agreements • Working with universities • Your non-engineers

27. Detecting Trade Secret Abuses • “Dummy names” on customer lists • Strategic typos in documents or source code • Monitoring computer systems • Archiving hard drives and not reassigning computers

28. Protecting Trade Secrets • Considerations and risks re: litigation • Disclosure • Losing in court • Fees and expenses • Exposure to other side’s fees • Being on opposite side of issues in future

29. Court approved Multi tiered Define confidential information Who gets access In house counsel access Brown Bag test Sealing At conclusion of case Burdens Modifications Designations Challenges Remedies Trial Protective Orders

30. Identifying Trade Secrets • Plaintiff Issues • Planning the case complexion • Deciding upon causes of action • Drafting the complaint • Preparing the trade secret designation

31. Identifying Trade Secrets • Defendant Issues • Planning the defense • Propounding discovery • Challenging the trade secret designation • Motion to compel/motion for protective order • Summary judgment • Motion in limine

32. Exposures • Make v. Buy Decisions • The problem • Tread carefully • Paper trail • Ideas v. trade secrets • Division of labor • “Nonconfidentiality agreements” or “Unsolicited Submission Agreements” • Subpoenas

33. Trade Secret Protections • Trade secret privilege • Criminal proceedings • In camera hearings • Excluding public from proceedings • Sealing court records

34. Trade Secret Protectionfor EmployersQuestions?Randy KayDiane MackThanks for Attending!