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SSHHHH! It’s a Trade Secret

Baron & Lamoureux

March 5, 2015

Class 13

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A Trade Secret is Information:

that has economic value that is not generally known over which reasonable efforts to

maintain secrecy have taken place.

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Types of Trade Secret Information

Technical or non-technical data Formula Pattern Compilation Program Device

Method Technique Drawing Process Financial data List of actual or potential customers

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Economic Value

Actual (could be development/implementation costs; lost profits, etc.)

Potential (value that would have been gained had the secret not been misappropriated).

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Availability of Information

Not generally known by competitors

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“Reasonable” Efforts to Maintain Secrecy

Absolute secrecy not requiredReasonable under the

circumstancesComprehensive program

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Examples of Methods to Maintain Secrecy

Lock & KeyPasswordsRestricted accessSign-in sheetsConfidential stampsNon-Disclosure Agreements

“Beware” ofAgreements you are bound by

under terms of employment. We’ll cover confidentiality and non-

competition agreements later today)

Employer expectations and behavior that may be inappropriate (turning you into a spy)

Questions you ask your new employees about their former employment.

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Advantages/Disadvantages of Trade Secrets

No time limit No public disclosure No governmental filing process

Depends on employee-employer relationships, and those can change.

Pandora’s box May distract from your knitting

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What Law Governs Historically – Common Law Uniform Trade Secrets Act Illinois Trade Secrets Act Economic Espionage Act [the American Law Institutue’s

Restatement of Torts, 1939 – and subsequent updates—have/has played an important interpretative role. It isn’t law, except as pulled into common law rulings (often).

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Historically – Common Law – Six Factor Test

1. Extent known outside company

2. Extent known by employees

3. Measures taken to guard secrecy

4.Value to company and competitors

5.Time, effort and money to develop

6. Difficulty of proper acquisition

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Uniform Trade Secrets Act

1. Adopted by nearly 40 states

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Illinois Trade Secrets Act

1. Effective since 1988

2. Adjunct to common law

3. Gives “teeth” to infringement claims

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Illinois Trade Secrets Act

Remedies Injunction Compensatory damages Punitive damages Attorney’s fees

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Economic Espionage Act

Gives U.S. Attorney sweeping powers to prosecute any person or company involved in trade secret misappropriation

Punishes intentional stealing, copying or receiving of trade secrets

For product produced or placed in interstate commerce

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Economic Espionage Act

Penalities Individual fines up to $500,000 Company fines up to $5 million Prison – up to 10 years for

individuals and 15 years if theft performed for foreign government

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Proper Methods to Obtain Trade Secrets

Legitimate ObservationReverse Engineering Independent Invention

Trade Secrets Take Aways Any information can fall within the ambit of trade

secrets if its secret, you take reasonable steps to maintain secrecy and the info has economic value

(e.g. source code, customer data, pre-public ad campaign)

Even if you don’t sign a contract, you owe a “duty of loyalty” to your employer and a duty to maintain confidentiality.

When you leave a company, don’t download company data onto your own computer or a flash drive.

There’s no worse way to start a new employment relationship than to invite a lawsuit against you and your new employer.

Trade Secrets Take Aways

Be careful what information you get and from whom.

Understand what it means to indemnify another party i.e. Assume the legal responsibility

to pay if they get hit by a money judgment

Trade Secrets Take Aways

Once the cat’s out of the bag, it’s tough to get it back in.

Court’s favor injunctive relief in trade secret cases.

You can’t cover your tracks on a computer so don’t try. Computer forensic experts will get you You may subject yourself to claims under

the Computer Fraud and Abuse Act

Confidentiality Agreements Protect against disclosure of

confidential information and trade secrets of employer.

Term: during employment and potentially forever.

May not cover stuff you already know. But, how do you prove you already knew it.

Check terms of employee handbook.

Confidentiality Agreements Confidentiality. Employee will not disclose any Confidential Information to any person or

entity for any reason, except as required to perform its obligations under this Agreement. For purposes of this Agreement, Confidential Information shall include the financial terms of this Agreement and all records, reports, documents, designs, plans, contracts, literature, data, concepts, ideas, software, computer programs, source code, object code, information, memoranda, correspondence, and other material created, developed or used by Employer or Employee pursuant to this Agreement, or delivered or transmitted to Employer by Employee pursuant to this Agreement or otherwise. Confidential Information shall also include information in Employee’s knowledge or possession concerning Employer’s business, marketing, administrative, advertising, budgeting or organizational plans, practices, policies and procedures, as well as Employer’s customer lists and scientific or technical information, Employer’s advertising rates, information about users of any Employer Web site, and any traffic patterns or usage information about Employer Web sites, regardless of whether such knowledge or information was obtained pursuant to this Agreement or otherwise. Employer shall own all rights, title and interest in all Confidential Information. Employee acknowledges that much of this information constitutes trade secrets or proprietary information unique to Employer, and that disclosure in breach of this Paragraph will result in irreparable injury to Employer for which Employer shall be entitled to injunctive relief in addition to all other remedies available at law or in equity.

Non-Competition Agreements &Restrictive Covenants

Prevent employee/independent contractor from engaging in work or projects that may compete with business of employer.

Disfavored (but enforceable) under the law.

Must be limited in scope, geography and time.

No bright line test on what’s acceptable.

Non-Competition Agreements & Restrictive Covenants

Upon termination of this Agreement and/or the date Optometrist ceases to perform services for Corporation for any reason, with the sole exceptions of termination by the Optometrist for “Cause” as defined in Section 14(b), or termination by Corporation without cause pursuant to Section 13(b), and for a period of five (5) years following termination, Optometrist will not, without written consent of Corporation, engage in the Practice of Optometry (i) at either of the ___________, or (ii) at any other facility within the Service Area. The parties agree that these covenants are necessary to protect the activities of Corporation and the professional practices of employees of Corporation. Optometrist agrees that any breach of these restrictive covenants will result in irreparable damage to Corporation for which it will have no adequate remedy at law, and hereby consents to an injunction by any court of competent jurisdiction in favor of Corporation enjoining any breach of such covenants, without prejudice to any other right or remedy to which Corporation may be entitled. If Corporation institutes a suit or takes action against Optometrist for violation of or to enforce this Section 16, Corporation shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorney’s fees. In the event that these covenants shall be determined by any court of competent jurisdiction to be unenforceable by reason of their being extended to too great a period of time or too large a geographic area or over too great a range of activities, they should be interpreted to extend only over the maximum period of time, geographic area, or range of activities as to which they may be enforceable.

NDA summaryAn NDA can last forever (if it does not

restrain trade or employment).When drafting, be broad but be

specific in defining information covered and permitted uses.

An NDA will not protect information that is otherwise generally available.

NDAs enforceable only if reasonable efforts made to keep information confidential.  (i.e. same level of care given to trade secrets).

NDA summary

NDA’s can cover confidential customer information.

Faced with an expressed NDA, courts will not find an implied duty of non-disclosure (but employee may owe duties of loyalty etc.).

Follow NDA’s provisions (e.g. proper marking on documents).

Parties may be bound by oral NDA’s. In Illinois, courts seem to follow all-or-

nothing approach (not selective and/or interpreted)

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Emerging Trends

Increases in Trade Secret Litigation and Skyrocketing Awards

High Profile Criminal Prosecutions Trade Secrets in a Social Media World

Esp. “who owns the account”

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