DEFEND TRADE SECRETS ACT Key Provisions Huntsville Madison County Bar Association December 8, 2016

Agenda Importance of DTSA Key Provisions European Harmonization Situations & Solutions Questions & Answers

Importance of DTSA Defend Trade Secrets Act (DTSA) Most significant trade secret reform since Uniform Trade Secrets Act in 1979 Follow-on to American Invents Act “First Inventor to File” 2011 patent reform Will dramatically change intellectual property practices and strategies All Things Change -- Technology, Business and Politics

Technology, Business and Politics Since 1979 THEN NOW Durable goods Machinery and hardware Business U.S. centric Politics Imports vs. Exports, Trade agreements Technology Software, biotech and cloud-based systems Business Global Politics Virtual imports/exports, international harmonization VS.

Summary of DTSA Changes New Federal law effective May 11, 2016 Amendment of Economic Espionage Act Creates Private Federal Trade Secret Civil Action Nationwide enforcement, with extraterritorial implications 3 year statute from discovery or “reasonably” discovered Unique requirements and remedies No pre-emption More robust protection at less cost

DTSA Changes to Trade Secrets Bradley - Confidential DTSA Changes to Trade Secrets Amendment of 18 USC 1836 creates federal jurisdiction Sec. 2(c) - Original jurisdiction in U.S. District courts Sec. 2(b) – Creation of private civil action Sec. 2(d) – 3 year statute from discovered or “reasonably” discovered Sec. 2(f) – No pre-emption of other laws

Amendment of Espionage Act (Criminal) Bradley - Confidential Unique Aspects of DTSA Amendment of Espionage Act (Criminal) Requires confidential proceedings Provides for covert ex parte relief Provides unique trade secret remedies Exempts whistleblowers and reverse engineering Implicates extraterritorial effects

Bradley - Confidential Unique Aspects of DTSA Sec. 2(b)(2)(A)(ii)(VII) – Provides for confidential ex parte proceeding Sec. 2(b)(2)(A)(ii)(VIII) – Requires that applicant has not publicized requested seizure Sec. 2(b)(2)(B)(iii) – Requires protective order to protect seizure property Sec. 2(b)(2)(C)-Requires court to take action to protect against publicity Sec. 2(b)(2)(D)(iii)-Requires court to take measures to protect confidentiality of seized materials

Unique Remedies of DTSA Award of actual losses, unjust enrichment or a reasonable royalty (undefined) 2x damages for willful or malicious misappropriation Attorneys fees and cost for bad faith Limited employment injunctions Civil seizure of property Likely ability to also restrict or seize imports via the ITC (19 USC 1337, Tianrui Group v. ITC, 661 F. 3d 1322 (Fed. Cir. 2011))

Unique Remedies of DTSA Bradley - Confidential Unique Remedies of DTSA Sec. 2(b)(2) – Provides for civil seizure of property Sec. 2(b)(2)(A) – Provides for ex parte seizure order Sec. 2(b)(3)(A) – Limited employment injunction Sec. 2(b)(3)(B) – Award of actual losses, unjust enrichment or a reasonable royalty (undefined) Sec. 2(b)(3)(C) – Award of 2x damages for willful or malicious misappropriation

Unique Limitations of DTSA Bradley - Confidential Unique Limitations of DTSA Sec. 2(b)(2)(A)(ii)(VIII) - Requires lack of publicity by applicant Sec. 3(a)(i)(II) – Prohibits injunction otherwise in conflict with state law regarding restraint of profession, trade or business Sec. 3(b)(6)(B) – Expressly excludes reverse engineering, independent derivation or any other lawful means of acquisition

Extraterritorial Effect and Enforcement Bradley - Confidential Extraterritorial Effect and Enforcement Sec. 5 Sense of Congress, references to… “theft within the U.S. and around the world, and harm wherever it occurs…” Sec. 2(b)(1) “…for use in, interstate or foreign commerce.” Sec. 4 “…occurring outside of the United States...”, “… sponsored by foreign governments or instrumentalities, or foreign agents…” 19 USC 1337, ITC 337 proceedings, see Tianrui Group v. ITC, 661 F. 3d 1322 (Fed. Cir. 2011)

Summary of Unique Provisions & Exceptions Confidential proceedings Provides for ex parte relief Provides unique equitable and monetary remedies Remedies available for extraterritorial threats No Pre-emption of other laws Requires lack of publicity by applicant Exempts whistleblowers and reverse engineering Prohibits injunction otherwise in conflict with state law regarding restraint of profession, trade or business

Compounded Effect of DTSA and AIA on IP DTSA in light of: Considerations : AIA and recent patent decisions Economic and cyber espionage Reduced complexity and costs of enforcement Alternative to patent litigation Consider secrecy where the invention is not openly discernable Trade Secrets as part of Strategic IP Plan IP protection based on operational goals, cost and jurisdictions Impact of rapidly changing technologies, life of a patent is relevant Processes and procedures to protect under DTSA

European Harmonization US Defend Trade Secrets Act (DTSA) May 11, 2016 European Union Directive (EU) 2016/943, on the Protection of Trade Secrets June 8, 2016 Coincidence or Collaboration?

Summary of EU 943 New EU 943 trade secret law effective June 8, 2016 First unified EU wide trade secret law Creates Uniform Trade Secret Civil Action EU wide enforcement, with extraterritorial implications Unique requirements and remedies No pre-emption of member country laws Application to technology, business and employment

Commonalities of DTSA / EU 943 Substantial Similarities Definition of Trade Secret Prohibited Uses Remedies Exclusions Extraterritoriality

Commonalities of DTSA / EU 943 Substantially Similar Remedies Injunctive Relief Confidential Proceedings Ex Parte Seizures (Anton Pillar Action) Attorneys fees and costs for bad faith Award of actual losses, unjust enrichment or a reasonable royalty 2x damages for willful or malicious misappropriation

Commonalities of DTSA / EU 943 Substantially Similar Limitations Exclusions for Reverse Engineering or Independent Creation Exclusions for Regulatory and Whistleblower disclosures Limited employment injunctions No Pre-emption of other laws or remedies

EU 943 Labor Difference Protection of EU Labor Rights Shall not effect collective bargaining agreements Shall not add additional restrictions to employment contracts Shall not effect the mobility of employees October 25, 2016, White House issued directive for US reform of non-compete and employment restrictions – Coincidence or Collaboration?

Situations & Solutions Client Considerations Need advance preparations for protections Need rapid response to mission critical threats

“Pirated Technical” Services Technical employee “Exodus” Co-workers leave around same time Former employees start calling customers Research confirms formation of a competing business Customer receives substantially similar technical materials Rogue employees had access to confidential technical, customer and pricing information

Sealed “Bidding War” Story Rogue employee departs with little notice Rogue employee leaves with box of “personal effects” Co-employees notice actual personal effects left in rogue employee’s office Search reveals email to competitor and access to bid files before departing Call to competitor confirms new employment

Operational Advice and Preparation Preventative operational action checklist Employee Handbook and Code of Conduct Employee Confidentiality and Proprietary Rights Agreements – with Whistleblower exception Non-disclosure and Confidentiality Agreements – with Whistleblower exception Teaming and Development Agreement Confidentiality provisions – with Whistleblower exception Marking and/or tracking of confidential materials Physical and cyber security of confidential materials Evaluation of overall IP strategy, including patents, copyrights and trademarks

Pre-preparations For Rapid Response Advanced understanding of business and operations Identification of critical trade secrets and locations Assessment of key employees and possible weaknesses Analysis of probable damages and desirable recourse Evaluation of overall IP strategy, including patents, copyrights and trademarks Advanced analysis of legal strategies Competitors, activities and likely jurisdictions Relative to overall IP strategy, i.e. patent, copyright and trademark rights and remedies Determination of legal resources for rapid response

Rapid Response to Competitive Threats Advanced preparation checklist Description of critical trade secrets Determination of applicable protections Contact information for key employees Summaries of competitors and activities Determination of appropriate legal resources Probable damages and desirable recourse Possible jurisdictions and related information

Cross-border Considerations Multinational Companies Subject to dual enforcement Ability to enforce in multiple jurisdictions Harmonize policies, procedures and practices International Agreements Development, teaming or licensing issues Staffing or performance Delivery or payment Choice of Law and Forum Provisions

Cross-border Operational Preparations Preventative operational checklist Employee Handbook and Code of Conduct with Whistleblower exception Employee Confidentiality and Proprietary Rights Non-disclosure and Confidentiality Agreements Confidential Teaming / Development Agreements

Cross-border Litigation Considerations Forum Selection Enforceability Location For Protection and/or Recovery Cost & Time relative to durable value / loss Jurisdictional Considerations Location of Illegal Acts Location of Resulting Injury Location of Recoverable Damages Cross-border Litigation Considerations

DTSA - New Strategies for Technology and Business New protections for competitive capabilities New contract provisions, policies and procedures New means to stop rogue employees and unscrupulous competitors Questions & Answers?

For more information contact: David Vance Lucas 256.517.5131 dlucas@bradley.com